Payroll Tax Compliance FAQ

Every time you hire an employee in a new state, you have to open “accounts” with the state.

Usually, you have to register with

• Department of Labor (so that unemployment insurance is deducted)
• Department of Revenue (so that income tax for the state is deducted)
• In addition, it's often necessary to register with some combination of a Secretary of State (because you’re applying to “do business” in the state) and Registered Agent (who serves as a point of contact for the state — this is an archaic requirement in the age of virtual mailboxes, but still an active requirement)
• Some local counties / municipalities also require you to register (a few examples include San Francisco, Denver, counties in Ohio & Alabama, etc.)
• Some states also have a Paid Family Leave / Child Support registration

For an exhaustive list, see our guide here.

This is often a 5-10 hour process for a given state, navigating labyrinthine requirements, account creation, confusing state websites, and more. It can take anywhere from a few hours to a few months to get approved. The above guide shows ETAs ranging from <1 week to 18 weeks(!).

If you don’t do it, you literally cannot run payroll (via Gusto, ADP, Rippling, etc.).

We turn that into a 5-10 minute form. Submit the form, sit back, and watch as the registrations are completed and account numbers appear in your dashboard!

If you're not seeing many issues, our Starter plan may be the right fit for you:

1. You need a place to centralize information about the states: files, account details, logins, due dates.
2. You need to be registered with the Secretary of State & Registered Agent in most states; you might not have been prompted to do so for payroll, but in the next ~1-2 years you'll receive a notice along with penalties and interest from the SoS. See here for requirements.
3. You need to pay for a registered agent in most states where you're registered. This is included in our Starter plan.
4. Once you're registered, you'll need to file annual reports & pay franchise taxes with each SoS.
5. In a remote-first world, employees move! This immediately triggers registration requirements in a new state.

If you are seeing a lot of snail mail notices and issues, it's mainly because of how much history you have in a given state. One employee for the last 3 months? Not much activity. But several employees over a few years? You’ll start receiving a ton of notices. In that case, our Core plan may be a good fit:

1. Your payroll tool get filings wrong, or overpays / underpays fees or withholding. You might even receive a mistaken notice because a state employee made a mistake. This happens all the time. We know how to work with them to get this resolved ASAP.
2. Terminated employees might file for unemployment claims. You need to respond to the state in a reasonable fashion when you’re notified of the fact.
3. You’re going to get penalty notices, billing statements, etc. in the mail. Our ML system and support team will route you to the right resolution mechanism, and in most cases we’ll take care of this for you!
4. You create “regulatory exhaust” which tips off scam artists to mail you. They look just like a notice from Washington or Virginia. If you’re not careful, you might waste hundreds of dollars.
5. States add new regulations that you need to keep up with — new agencies to register with, new requirements like 401(k) or pay transparency laws. We'll ensure you're notified of this.
6. You’re going to need various event-driven updates — changing mailing address, filing a change of name, etc. Updating these details in all the states can take a while! In AO, it's a few clicks and all of your states are updated.

So if you have a decent bit of activity in 5+ state over several years, then you probably need the Core plan to keep up to date on requirements and compliance.

🤔 Our customers tell us that they spend 1-2 hours per state per month(!) troubleshooting filing errors, dealing with penalty notices, responding to unemployment claims, or negotiating with states on incorrect billing statements. With AO… that’s just not a thing anymore.

Right?!

The best we can guess is that this just wasn’t as high-volume or painful a problem before remote work (and specifically, accelerated by the pandemic). When you have 3 offices in 2 states, maintaining compliance is not that bad. But when you have 150 employees in 18 states, the problem compounds pretty quickly.

That’s why we built this, to help. We’ve mapped 5,000+ fields across 200+ agencies. We’ve registered in every state. We’ve done this for dozens of clients in the last couple of years (manually — navigating every possible nook and cranny of every state’s system) before we shipped this app. And we’re so excited to bring this to the world.

In general during onboarding we collect information about your company, governance, ownership, executives, etc. This is essential to complete new registrations and manage ongoing compliance.

In order to manage existing states on Starter, we'll need your state credentials: Logins & Account Numbers.

In order to effectively resolve issues on Core, we'll need access to your payroll system and state logins to ensure we can effective resolve issues.

A registered agent is just one element of complying with state registration requirements — in fact, it’s usually the simplest / quickest, and we actually include RA services where required, in every plan.

The most time-consuming aspects of registering to hire someone in a state (especially as a remote company without other business operations in a state) are registering with the state’s department of labor, department of revenue, municipalities, etc.

In addition, an RA won’t really help resolve issues. They register you with the Secretary of State and might complete an annual report for you. But besides that, you’re on your own.

In short: we include RA services + fees as part of our subscription, but we do so much more.

Maybe.

Not every state works with a PEO, and some require you to register directly (especially with a Secretary of State). The listmus test varies by state (physical location, conducting sales in a state, an exec's residence in the state).

However, several PEOs operate in a way that effectively "owns" the relationship with the state – in a way that you, AbstractOps, or any other third party (e.g., an accountant) cannot intervene. This is because in some cases, the PEO is the official "employer"... and as far as the state is concerned, your company might not even be known (even though you do business in the state, you have employees, run payroll, etc.). This is all normal and compliant but introduces complications.

Hence, for companies operating on a PEO:

• we can only offer the Starter plan
• we can only engage in a limited capacity (completing registrations you request, or engaging with the Secretary of State, which is out of scope for a PEO)

There aren't that many companies that offer payroll tax registration & management. The couple that do, offer something like our Starter plan: a dashboard; payroll tax registrations, a place to store & view mail, registered agent services.

But here's how we shine:

1. We're significantly cheaper. On an apples-to-apples comparison, most other providers charge $500-1,000 / state. We're ~half the price: $400 / state.
2. On Starter, you only pay for what you use. Other providers charge you to just store details or files about a state. You can store as much as you like on our platform (we want you to centralize your info!) at no cost. You only pay when you have us "manage" a state (processing registrations, providing a registered agent, etc.).
3. On Core, no one else offers anything like it. With any other provider, you still have to call the states, deal with your payroll, and solve payroll tax issues. We're the only ones that let you put this entirely on autopilot... once you provide access to your state accounts & payroll, we can solve almost all issues without you even having to think about it. Snail mail + email -> platform -> resolved. It's just that simple.
4. Our support level stands out. We have a commenting interface on almost every page in the product – on state pages, on every notice / issue, on every registration. Unlike a typical chat box, comments act as an audit log of comments and context about that specific state or issue. So you (or anyone!) can come back in 6 months later and see exactly what happened.