Processing payroll in Pennsylvania includes determining employee pay, hours worked, overtime rules, any withholding or deductions, payment timing, payroll tax rates, and more. It’s important for employers in Pennsylvania to be aware of state and federal laws regarding payroll and take action to meet compliance requirements when processing payroll.
Pennsylvania Minimum Wage
There are some exceptions from the Pennsylvania minimum wage for certain types of workers. These workers include tipped employees, students, learners, workers with disabilities, and more. In order to compensate a worker at a subminimum wage rate, certain requirements must be met regarding specific certificates and hours worked.
Pennsylvania Overtime Rules
In general, Pennsylvania employers must pay employees 1.5 times the employee’s regular rates of pay for all hours worked over 40 a week. Overtime wages should be paid on the next succeeding paycheck following the overtime worked.
Pennsylvania Overtime Exemptions
There are some exemptions to the Pennsylvania overtime requirements as well. Employers are not required to pay overtime wages to salaried employees who perform executive, administrative, or professional duties and make more than the salary threshold per year. Therefore, it is critical that employers understand how to properly classify employees.
As of January 1, 2020, the federal salary threshold standard for these employees is $684 per week (equivalent to $35,568 per year for a full-year worker).
Pennsylvania Pay Deductions
Pennsylvania does not have standard deductions or personal exemptions. However, according to the state Wage Payment and Collection Law, Pennsylvania employers can deduct pay from an employee’s wage in the following instances:
- The deduction is voluntarily authorized, in writing, by the employee for payments toward
- Employee welfare and pension plans, including group insurance plans, hospitalization insurance, life insurance, and group hospitalization and medical service programs
- Company-operated thrift plans
- Stock option or stock purchase plans
- Employee personal savings accounts
- Charitable purposes
- Local area development activities
- Repayment to the employer of bona fide loans
- Purchases or replacements by the employee from the employer of goods, services, etc.
- Purchases by the employee from third parties now owned, affiliated, or controlled by the employer
- The deduction is required by law
- The deduction is for labor organization dues, assessments and initiation fees, and such other labor organization charges as are authorized by law
It’s important to note that it is not valid to sign a “blanket” authorization at the time of hire to cover any future deductions and any deductions may not reduce an employee’s gross pay below the minimum wage.
Employers must also provide a statement including all deductions to each employee with every paycheck. This statement can be included with the pay stub. A robust and easy-to-use payroll software can streamline processes like this and make payroll processing simple and easy.
Federal - According to the U.S. Department of Labor, on November 10, 2022, Pennsylvania became a Federal Unemployment Tax Act (FUTA) credit reduction state with a 0.3% FUTA credit rate reduction.
The FUTA credit reduction will lead to a 0.3% federal unemployment tax rate increase for Pennsylvania employers as a result. Employers in Pennsylvania will have to pay an additional 0.3% in federal unemployment tax for wages paid to employees.
State - Pennsylvania released its unemployment tax rate for 2023 on Dec 9, 2022. The tax rates for experienced employers will range from 1.419% to 10.3734%, and the tax rate for employees will rise to 0.07% from 0.06% in 2023.
Federal 401(k) Limit
In October 2022, the IRS announced changes to 401(k) limits and planning. Changes include the amount individuals may contribute to their 401(k) starting in 2023. Now, employees may contribute up to $22,500, up from $20,500 in 2022.
The contribution limit applies for employees participating in 401(k)s, 403(b)s, most 457 plans, and Thrift Savings Plans.
Pennsylvania does not have state-specific requirements regarding paid medical leave and follows the federal Family and Medical Leave Act (FMLA). Pennsylvania employers are not required to pay for the medical leave of employees.
Income Tax Withholding
Pennsylvania state law requires employers to withhold personal income tax from the employee’s compensation as long as they:
- Live in Pennsylvania
- Live outside of Pennsylvania but perform job duties within Pennsylvania
Employers can withhold employees’ income tax on the following schedules, depending on the specific situation:
Employers must obtain an employer withholding account by completing the Pennsylvania Online Business Tax Registration.
For employers with employees who live in a reciprocal state (Maryland, Indiana, Ohio, New Jersey, Virginia, West Virginia), employers may withhold state income tax for the employee's resident state. Otherwise, Pennsylvania personal income tax applies. Employers should contact that state’s Department of Revenue to register to withhold that state's tax. Those employees should complete Pennsylvania Form REV-419, Employee Non-Withholding Application.
Employers with a withholding account with the Pennsylvania Department of Revenue can simply begin withholding at the rate of 3.07%. Pennsylvania does not have a form equivalent to the federal Form W-4 because the personal income tax is a flat rate of tax and does not change according to income brackets.
Employers also need to reconcile payroll tax quarterly and year-end using IRS form 941.
Wage Payment Timing
Pennsylvania employers must pay all wages due to their employees, other than fringe benefits and wage supplements, on regularly scheduled paydays designated in advance by the employer, according to the Pennsylvania Wage Payment and Collection Law. Overtime wages should be paid on the next succeeding paycheck following the overtime worked. For example, if a company is paying their employees on a bi-weekly basis, then overtime wages earned in the pay period of the 1st and 15th day of the month will be paid on the payday right after the said period.
In general, the waiting time between the end of a pay period and the payday must not exceed 15 days or the time specified in a written contract between employer and employee, or the standard time-lapse customary in the trade.
Employers are required to notify the employee at the time of hire, the time and place of payment, the pay rate, and the amount of any fringe benefits or wage supplements to be paid to the employee, a third party, or a fund for the benefit of the employee.
Pennsylvania employers must pay terminated employees (both voluntarily and involuntarily) all the money earned no later than their next scheduled payday. If the employee requests, payment must be sent by certified mail.
Get Help with Processing Payroll in Pennsylvania
Processing payroll is an essential function of any company. Employers need to pay attention to all laws and regulations regarding payroll and make an effort to meet compliance requirements, which is not easy work. Simply seeking professional services that offer payroll processing can save a lot of time and help ensure compliance. Contact a Pennsylvania payroll provider today and get the help you need.