Author: Gus Anderson

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A Guide to Accurate and Comprehensive Payroll Reports

Astronaut dog working on a payroll report

Summary

  • Payroll reports are documents that provide companies with insights into their payroll activities and tax liabilities.

  • While payroll reports are usually created for internal purposes, there are some mandatory tax and payroll-related forms that businesses need to submit to government agencies on a regular basis. 

  • You can improve payroll reports by utilizing a dedicated payroll software and time and attendance system that generates higher-quality wage and hour data.

Every month, companies run payroll to pay all of their employees’ wages. This process requires the collection of data, such as hours worked from timesheets, gross pay, net pay, tax withholdings, and so on. This information provides insight into the inner workings of a company and can be used to populate different types of payroll reports. 

Payroll reports are documents created by human resources teams to keep tabs on employee payroll data and a company’s tax liabilities. Depending on the type of payroll report used, these documents usually include information like pay rates, the number of hours worked, overtime logs, any withheld taxes, employer tax contributions, and the amount of paid time off (PTO) taken. 

The importance of payroll reports

From small businesses to larger corporations, keeping track of payroll records is important for maintaining a good relationship with your employees, keeping your business running smoothly, and remaining compliant with tax regulations. 

Payroll reports are great for:

  • Improving employee retention – Payroll reports include information on employee turnover. Monitoring employee churn could help uncover some issues that are standing in the way of your employee engagement. If you are losing more staff from a particular department, you might want to take a closer look to see what might be standing in the way of higher employee retention. 
  • Using data for employee recognition purposes – Payroll software can track milestones, such as when someone is due for a review, a bonus, or a pay increase. Ensuring that such milestones are recognized and rewarded goes a long way toward increasing employee engagement.
  • Maintaining healthy cash flow – Because timesheets and payroll are housed in the same system, your reports include hours worked, overtime consumed, PTO, and sick days taken. Tracking hours worked helps you avoid underpaying or overpaying your staff, ensuring well-budgeted labor costs.
  • Managing taxes – Employers and business owners are responsible for paying company taxes as well as managing employee tax withholdings. Payroll reports help keep data better organized and ready for tax submissions and audits from the IRS. 

Types of payroll reports

Payroll reports differ depending on the information you want to collect, your payroll provider, and any customizations you make to the reports. Some of the most common types of payroll reports are:

Payroll summary report 

These reports contain payroll information about any individual employee, a department, or the company as a whole in a given date range or pay period. They include information such as net and gross wages, tax withholdings, and FICA tax deductions. 

Payroll detail report 

As the name suggests, this is a detailed report on a specific employee or department or the company’s pay history. The report shows every movement and activity separately.

Employee summary report

Also known as a pay stub report – this document contains an employee’s personal, pay, and tax information. Your employees should have access to all of their own summary reports.

Payroll tax liability report

These reports show all tax withholdings per employee, the amounts your company has paid to government agencies, and any pending amounts still owed to the government.

Retirement contributions 

These documents show all payments you have made to employee retirement plans. Such retirement plans include 401(k) and 403(b).

Paid time off (PTO) report

This report provides employers with an overview of all PTO an employee has taken within a calendar year and how much time off they have left. 

Mandatory government forms employers need to file

Payroll reports are internal documents and are rarely, if ever, submitted to external parties. An exception would be if a company is undergoing an audit by the IRS or a state entity or if a workers’ compensation claim is involved. 

There are, however, other kinds of forms employers must submit on a regular basis to local, state, and federal governments. Much of the information needed for these forms can be found in your internal payroll reports, saving you a lot of admin time.  

Some of the most common government tax reports and forms include: 

  • Form 941 – An employer’s quarterly federal tax return that is used to report on federal payroll taxes and includes information like:
      • Employees’ wages
      • Federal income tax withheld
      • Medicare taxes and Social Security tax deductions
      • Employer contributions to Medicare and Social Security taxes

  • Form 940 – This is in relation to the annual federal unemployment tax return (FUTA tax). The FUTA tax is an amount that companies pay to contribute toward “unemployment compensation to workers who have lost their jobs.” The amount could be as much as 6% of the first $7,000 paid to every employee.

  • Form 944 – This form is for small employers whose annual liability for social security, Medicare, and withheld federal income taxes is $1,000 or less. It is filed only once a year instead of every quarter.
  • Form W-2 – A wage and tax statement that employees use to present total gross wage, tax deductions, and benefits. Employers must provide their employees with a copy of this form and present copies to federal, state, and local governments. 
  • Form W-3 – This form is how businesses submit a summary of their wage and tax statements to the Social Security Administration. It accompanies Form W-2. Both are due by January 31 of the following tax year.

  • Certified payroll report – This is a government-mandated report for contractors and subcontractors working on federally funded construction projects. Under the Davis-Bacon Act, certified payroll reports must be submitted to the contracting agency, typically using Form WH-347 provided by the U.S. Department of Labor.
  • State payroll reports – These vary from state to state, particularly when it comes to the frequency of payments.
  • Local payroll reports – In some states, taxes are charged at the city and county levels and have different due dates.

How to organize your payroll reporting process

Regardless of what type of internal payroll report you’re looking to adopt, there are four basic steps to help you get your process organized. 

  1. Identify the type of report you need. Choose the suitable report based on the insight you’d want to gain from your data. Once the report is chosen, identify what information you’ll need to collect to populate it.
  2. Choose the frequency of reports. Unlike government reports, you are free to choose the time periods you’d like to report on. Quarterly reports might result in a lot of unnecessary work for your payroll team. You may decide that issuing annual payroll reports is enough to give you the insights you’re looking for while also avoiding unnecessary burnout.
  3. Collect and input data. This step involves inputting the data you need into your payroll system. Workforce management solutions automate much of this process, making your life much easier while also reducing the possibility of human error. 
  4. Analyze your reports. Double-check your payroll reports to make sure the information you are presenting is accurate. Finally, you should make use of your report findings and the insights you have gained to improve your payroll processes.

Clear and accurate payroll reports with Workforce.com

The first step to getting the most out of your payroll reports is making sure that the data presented in them is accurate. This starts by making sure that things like hours worked and overtime taken have been recorded correctly. 

Workforce.com accurately stores employee data, like pay rates, hours worked, breaks taken, and overtime used. Synced with scheduling, you can track labor costs and hour variances in real-time, perfecting employee time before it reaches payroll. And when you are ready, you can quickly export all timesheets right to your payroll system, setting you up to create the best possible payroll reports for your business.

With Workforce.com, you can generate customizable payroll reports tailored to your needs. You can choose from a library of report templates, and modify it according to your requirements.

Get clear insight into how you pay your employees, including total wage costs, employee compensation taxes withheld, net pay, PTO, payroll deductions, retirement contributions, and other relevant information concerning employee pay. You can filter this information by role, location, team, and employee. 

But Workforce.com goes beyond payroll. It combines payroll, time tracking and HR data in one platform to give you a 360-degree view of your organization.

Workforce.com’s reporting tools can track workforce management metrics like attendance, shift acceptance, and missed breaks, helping you improve shift coverage, punctuality, and wage and hour compliance. On the HR side, it allows you to generate reports on performance reviews, incidents, and warnings to support coaching, policy enforcement, and people development. 

Having all this data in one place helps you spot discrepancies, identify trends, make more informed decisions. You can clearly see what you pay, what your people do, and how your team is growing.

To find out more about how Workforce.com can help streamline payroll reporting, book a demo here.

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Overtime Pay Laws | States + Federal (2025 Update)

Summary 

  • Federal overtime laws require that employers provide overtime pay to those who work over 40 hours per workweek.

  • Many states have their own overtime laws. States that do not have their own overtime rules default to the federal law. 

  • Many employers opt to use specialized payroll platforms that can automate overtime calculations and payments. 

If you are in charge of hourly employees, it’s likely that there will be days, weeks, or even months when your staff needs to work extra hours. Whether that’s over a typical eight-hour workday or a 40-hour workweek, the federal government has made it mandatory to compensate all non-exempt employees. This is important as it protects workers and rewards them for the additional time they spend supporting your business. 

Some states have their own overtime laws, while others do not. It’s crucial to stay informed on the current overtime regulations in your state. In fact, if an employer willfully or repeatedly violates overtime requirements, they will be subject to a civil money penalty of up to $1,000 for each violation. 

Luckily, the laws themselves are relatively straightforward. Below we’ve compiled the federal laws along with a table outlining the overtime laws by state. 

Jump to overtime law table

Federal overtime laws 

According to the US Department of Labor, federal laws on overtime pay are determined by the Fair Labor Standards Act (FLSA). The FLSA states that all non-exempt employees are entitled to overtime pay for working over 40 hours in a workweek. If an employee has exempt status, such as a salaried employee, you are not required to provide overtime. 

The rate of overtime pay must be no less than time and a half their usual hourly rate of pay (or 1.5 times the regular rate of pay). Additionally, there is no limit to the number of hours an employee can work in any workweek. 

A “workweek” is seven consecutive days or a fixed set of 168 hours. These seven days do not need to align with a typical calendar week or job starting time. As long as a fixed and regularly recurring schedule is established, employees should receive the overtime rate owed to them. Typically, overtime pay is included with the wages earned in a regular payday or pay period. 

Forced overtime work

In most states, workers can be “forced” to work overtime by their company. Employers can schedule workers for any shift length or consecutive work days. Additionally, federal law does not require breaks to be provided to the employee. However, many states have mandatory breaks and paid rest periods. If a worker refuses to work overtime, the employer has a legal right to terminate the employee. 

Salaried employees and other overtime exemptions 

Various occupations and job duties are exempt from overtime pay. The standard salary level that currently exempts executive, administrative, and professional (EAP) employees is at $684 per week ($35,568 annually). 

On April 2024, the U.S. Department of Labor announced a rule that aims to increase the salary thresholds for EAP employees to $844 per week ($43,888 annually) effective July 1, 2024, and further to $1,128 per week ($58,656 annually) starting January 1, 2025. However, the U.S. District Court for Eastern District of Texas vacated the 2024 final rule. Currently, the 2019 thresholds are being enforced.

Examples of some exempt roles include: 

A state-by-state breakdown of overtime laws

If a state does not have its own overtime laws, it must default to the federal law. However, if a state has its own overtime laws, the state law is added on top of the federal law. In other words, employers need to abide by whichever law is more generous and provides their staff with the highest earnings. 

When it comes to remote workers who work in different states, the labor laws of the state in which they are physically located and perform work apply. This is true regardless of where the company is located. So if your company is based in New York, but your employee is working from California, you would follow California’s overtime laws for that employee. 

A look at overtime laws by state

Column two denotes whether or not a state has a law establishing a daily overtime threshold and the rate at which these hours are paid. The dashes indicate that the state does not have any laws pertaining to daily overtime. 

Column three lists each state’s weekly overtime threshold as well as the rate at which overtime is paid. States with notable exceptions or unique labor laws have links to their respective Department of Labor pages. 

StateDaily OT thresholdWeekly OT threshold 
Alabama–40 hours (1.5x)
Alaska8 hours (1.5x)40 hours (1.5x)
Arizona–40 hours (1.5x)
Arkansas–40 hours (1.5x)
California8 hours (1.5x) / 12 hours (2x)40 hours (1.5x)
Colorado12 hours (1.5x)40 hours (1.5x)
Connecticut–40 hours (1.5x)
Delaware–40 hours (1.5x)
D.C. –40 hours (1.5x)
Florida–40 hours (1.5x)
Georgia–40 hours (1.5x)
Hawaii–40 hours (1.5x)
Idaho–40 hours (1.5x)
Illinois–40 hours (1.5x)
Indiana–40 hours (1.5x)
Iowa–40 hours (1.5x)
Kansas–46 hours (1.5x)
Kentucky–40 hours (1.5x)
Louisiana–40 hours (1.5x)
Maine–40 hours (1.5x)
Maryland–40 hours (1.5x)
Massachusetts –40 hours (1.5x)
Michigan –40 hours (1.5x)
Minnesota–48 hours (1.5x)
Mississippi–40 hours (1.5x)
Missouri–40 hours (1.5x)
Montana–40 hours (1.5x)
Nebraska–40 hours (1.5x)
Nevada8 hours (1.5x)40 hours (1.5x)
New Hampshire–40 hours (1.5x)
New Jersey –40 hours (1.5x)
New Mexico–40 hours (1.5x)
New York–40 hours (1.5x)
North Carolina–40 hours (1.5x)
North Dakota–40 hours (1.5x)
Ohio–40 hours (1.5x)
Oklahoma–40 hours (1.5x)
Oregon–40 hours (1.5x)
Pennsylvania–40 hours (1.5x)
Rhode Island–40 hours (1.5x)
South Carolina–40 hours (1.5x)
South Dakota–40 hours (1.5x)
Tennessee–40 hours (1.5x)
Texas–40 hours (1.5x)
Utah–40 hours (1.5x)
Vermont–40 hours (1.5x)
Virginia–40 hours (1.5x)
Washington–40 hours (1.5x)
West Virginia–40 hours (1.5x)
Wisconsin–40 hours (1.5x)
Wyoming–40 hours (1.5x)

As you can see from the table above, the majority of states base overtime pay on a 40-hour workweek, defaulting to the federal law. However, some states require overtime pay based on the hours worked in a single workday or other unique exceptions. Below we’ve delved into a few examples of state-by-state exceptions. For other exceptions, click through the links in the table above. 

California 

In California, employers are required by law to provide 1.5x pay for every hour an employee works beyond: 

  • 40 hours in a workweek
  • 8 hours in a workday 
  • 6 days in a workweek  

Moreover, California also has a law in which an employer must pay 2x an employee’s regular hourly rate, also known as double time pay, if they work over:  

  • 12 hours in a workday 
  • 8 hours on the seventh consecutive day of work in a workweek

Alaska

Like California, Alaska’s state overtime law requires that employers pay overtime when a non-exempt employee logs more than 40 hours of work and eight hours in a workday. However, the overtime rules have a number of exemptions related to occupations in agriculture and aquatic work. ‌

Colorado

Colorado’s state overtime law requires overtime pay for hours worked beyond: 

  • 40 hours in a workweek 
  • 12 hours in a workday 
  • 12 consecutive hours, regardless of the start and end time of the workday  

Kansas 

Unlike the conventional 40 hours of most states, Kansas overtime law requires employers to pay overtime when an employee has worked over 46 hours in a workweek. However, because the FLSA requires that overtime is awarded at 40 plus hours, Kansas businesses that are covered by the FLSA must follow the federal law. If not, they must follow Kansas’s overtime rules for non-exempt employees.  

Minnesota 

Minnesota’s state overtime law requires companies to pay overtime for those working over 48 hours in a workweek. Like Kansas, Minnesota businesses covered by FLSA must follow the federal law. 

Stay on Top of Overtime

Overtime is expensive. While necessary at times, ideally, it should never be the norm. If you find yourself consistently paying out overtime hours even in the face of manageable workloads, something is probably wrong. Check out the free webinar below to figure out how to keep your labor costs low by drilling down on where you are overspending on overtime. 

Webinar: How to Lower Your Overtime Hours

For the few times you do need to pay overtime, make sure you are doing it correctly. There are many ways to do this; however, manually tracking and calculating overtime hours is a dangerous game.

Workforce.com’s Payroll platform makes the hassle of recording, calculating, and paying overtime much easier. Through an extensive time clock system, employee overtime hours and pay are automatically compiled on electronic timesheets, helping you improve visibility, reduce errors, and avoid compliance risks. With special tags, you can customize multiple earnings rates to match your state’s specific overtime rules. These rates automatically trigger whenever an employee crosses into overtime. 

To learn more about how Workforce.com can help you manage overtime, book a call today. 

This information is for general purposes only and should not be considered legal advice. While we strive to keep it updated, labor laws and regulations can change at any time. It’s always a good idea to consult with a legal professional or relevant authorities to comply with the most current standards.

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Workplace Productivity Statistics and Trends You Need to Know

Woz working at a cash register

Summary

  • Productivity in the US increased in the past year, which can indicate that businesses are adapting to disruptions following the largest decline experienced in 2022.

  • Employee engagement goes hand-in-hand with workplace productivity. Low engagement levels are expected to cost US$8.9 trillion or 9% of the global GDP.

  • All-in-one payroll, HR, and workforce management software can help boost productivity through features like labor forecasting and communication platforms.

Productivity is a key measure of efficiency in any organization, but how it’s defined and measured varies widely. For hourly teams, productivity is often measured in real-time, like how efficiently shifts are managed, how well teams keep up with demand, and how businesses balance labor costs with performance. 

Understanding the direction of workplace productivity is essential, especially as wages rise, new technologies emerge, and workforce expectations evolve. Trends in efficiency, labor costs, employee engagement, and automation have a direct impact on hourly teams. Staying informed about the latest developments in these areas helps businesses stay ahead and adapt to changing workforce dynamics. 

Let’s take a look at how productivity is evolving on a national scale and what organizations can do to keep pace with these changes.

Productivity rates and its impact on quality of life

Generally speaking, productivity has seen some peaks and valleys over the years. And it has a direct correlation with quality of life. 

During a TED talk, Yves Morieux, managing director and senior partner at Boston Consulting Group, explained how a 3% increase in productivity per year leads to a doubling of the standard of living for every subsequent generation. If that growth is reduced to 1%, it will take three generations to double the standard of living – leading to every generation being less well-off than their parents. Sound familiar? 

“They will have less of everything: smaller roofs, or perhaps no roof at all, less access to education, to vitamins, to antibiotics, to vaccination – to everything. Think of all the problems that we’re facing at the moment. Chances are that they are rooted in the productivity crisis,” shares Yves Morieux.

In 2022, the Bureau of Labor Statistics (BLS) reported the sharpest decline in productivity since 1947. Nonfarm productivity landed at 7.5% in the first quarter of 2022, the lowest since the third quarter of 1947. This reflects pandemic-related disruptions, supply chain issues, and labor shortages.

The BLS defines labor productivity (or output per hour) as the division of “an index of real output by an index of hours worked.” They calculate the productivity of “all persons.” This includes employees, business owners, and unpaid family workers.

However, productivity has since recovered, and the BLS saw a 1.2% increase in labor productivity in nonfarm sectors. Productivity growth can indicate that businesses have adapted to automation, training, and better labor allocation. 

Information from the BLS reflects economic trends, which can indicate changes in the labor market, wages, and overall productivity. It’s vital to stay abreast of these broader numbers and assess them with your own internal data so you can make better decisions and strategies for your team.

Hourly wage trends and impact on business costs

Hourly compensation continued to rise in the fourth quarter of 2024, with BLS reporting a 4.2% growth. Labor unit costs also grew by 3%.

Additionally, minimum wage increases took effect in over 20 states in 2025. Some states and cities implemented higher minimum wages at the start of the year, while others are scheduled to have increases later in the year.

As wages rise, businesses may face higher operational costs, which can lead to price adjustments for products and services. Labor forecasting becomes even more essential as employers balance staffing levels to maintain productivity without the risks of over- or understaffing.

Automation is also vital, especially for managers, in optimizing workforce management. Tools like time and attendance tracking, employee scheduling, performance management platforms, and payroll software can eliminate administrative burdens, allowing managers to focus on running a productive operation. With the right technology, managers can spend less time on routine tasks and more time analyzing data and making informed decisions to improve productivity.

Disengaged employees can cause lower productivity

Gallup’s State of the Global Workplace 2024 report shows that 62% of workers surveyed are disengaged, and low engagement is estimated to cost the global economy US$8.9 trillion or 9% of the global GDP.

The study also examined daily stress, finding that 41% of respondents experienced stress the previous day. While it’s important to note that the survey didn’t directly ask if the stress was experienced at work, consider that time spent in the workplace is also a significant factor in daily experiences and emotions.

Employee engagement is strongly linked to better business outcomes and employee retention. The study’s findings reiterate just how crucial it is for human resources professionals to prioritize employees’ mental health and maintain a good work environment to retain top talent, achieve higher productivity, and maintain healthier profits.

Automation and AI in hourly workforces

The adoption of AI and automation will continue in HR, and they’re expected to still play a major role in streamlining administrative processes such as hiring, onboarding, time tracking, labor forecasting, and payroll processing.

Also read: HR Trends for Hourly Workforces in 2025

However, while AI is often associated with productivity gains, its impact is not always straightforward. A study found that 77% of workers using AI disclosed that it added to their workload, presenting unexpected challenges in achieving the efficiency improvements employers anticipate. Furthermore, 47% of employees using AI admitted they were unsure how to meet their employers’ productivity expectations despite the technology’s implementation. 

Clearly, technology is only as effective as its implementation. While AI has the potential to drive efficiency and profitability, its success depends on how well it integrates into workflows and supports employees rather than burdening them. Leadership plays a crucial role in ensuring AI adoption leads to practical, measurable improvements rather than becoming a source of frustration or inefficiency. Business leaders that introduce AI without a clear, well-structured strategy risk making work more complicated, which can result in lost productivity.

AI adoption should go beyond industry trends and buzzwords. It should be a strategic investment that delivers tangible benefits for both businesses and their employees.

Flexibility and job satisfaction beyond remote employees

For office workers, flexibility and work-life balance is typically to remote work or hybrid work arrangements, where they have greater control over their schedules and can work from home. However, for hourly teams, flexibility takes on a different meaning—one that is just as critical to job satisfaction and overall employee experience.

For hourly employees, flexibility isn’t about location but about having clear work hours in advance. Since their roles typically require them to be on-site, knowing their schedules ahead of time allows them to plan for personal commitments, reduce stress, and maintain a healthier work-life balance. This level of predictability on their work times keeps employees engaged, while minimizing issues like absenteeism and productivity losses.

If you’re managing an hourly workforce, ensuring employees receive their schedules well in advance is one of the most effective ways to enhance job satisfaction, improve employee experience, and maintain a more reliable and efficient team.

Potential shifts with workweek structures

There’s a current push for a 32-hour workweek, and its potential benefits for salaried, white-collar workers are clear. Many can complete the same amount of work in a shorter period. But what about businesses that rely on non-exempt, hourly employees? 

For hourly workers, wages are directly tied to time worked, meaning a reduction from a 40-hour to a 32-hour schedule could significantly impact take-home pay unless accompanied by an increase in hourly wages. For businesses, especially those operating 24/7, transitioning to a shorter workweek presents operational challenges, from scheduling to maintaining productivity levels.

While it is still not in effect, businesses should monitor developments closely and consider how changes could affect operations and employee compensation.

Boost productivity with Workforce.com

Frontline teams looking to boost productivity turn to Workforce.com for solutions like scheduling, labor forecasting, employee communications, recruitment, performance management, and payroll. Having all of these functionalities housed in a single, powerful system helps simplify work models and drive better results. Here are some of the ways Workforce.com can help you do exactly that:

Automating administrative processes

Cut time spent filling shift schedules with Workforce.com’s scheduling system. Instead of manually building schedules with spreadsheets, managers can create and populate shifts in minutes and ensure employees only do work they are qualified for. This helps prevent burnout among your team and safeguards employee well-being.

Managers can also automatically approve and amend timesheets in bulk with Workforce.com’s time and attendance software. Once timesheets are finalized and approved, they can be exported to payroll, where wages, overtime, deductions, withholdings, and incentives are calculated automatically, ensuring accurate and timely pay for employees. 

By eliminating manual processes, businesses can significantly reduce administrative workload, allowing teams to focus on higher-value activities to increase revenue and improve employee experience.

Optimize Scheduling with AI-Powered Labor Forecasting

Workforce.com’s labor forecasting system employs AI to predict staffing needs based on historical sales, economic trends, booked appointments, ongoing events, weather, and practically any metric that’s relevant to your operations.

Webinar: How to Forecast Your Schedule

With data-driven insights, you can determine exactly how many staff you need, where they need to be, and when they need to be there, all while avoiding the unnecessary costs of over or understaffing.

Improve team communication

Better communication leads to higher employee engagement and productivity. Workforce.com’s employee app fosters more open and transparent processes across your company.

Management and human resources can inform their team of upcoming shifts, scheduling conflicts, and shift changes instantly and across the board. While scheduling, managers can add important notes and reminders to shifts for specific employees. Important announcements can also be sent out by team or location.

Optimize manager duties

Workforce.com empowers managers with real-time insights into frontline operations. With time and attendance software, managers are instantly alerted when employees are running late or absent, approaching overtime, or missing scheduled breaks. In addition, managers can also offer up vacant shifts to qualified and available staff in case of no-shows or last-minute absences.

Workforce.com facilitates two-way shift feedback with staff members. Management can provide staff members with feedback on their performance per shift, and staff can also provide management with on-the-ground insights through feedback on staffing levels, communication, and teamwork. 

Workforce.com has a proven track record of improving work productivity and employee satisfaction in various industries worldwide. Check out these client success stories or book a demo today to see the platform in action. 

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What are different payroll deductions? Taxes, benefits, and more

Summary

  • Employers are legally required to withhold portions of employee paychecks for federal income taxes and FICA contributions. Employers may also withhold amounts for voluntary deductions such as retirement plans and health insurance premiums when authorized by employees.
  • Managing payroll deductions can be complex, involving intricate calculation rules, varying employee statuses and preferences, and ever-changing labor regulations.
  • Workforce.com simplifies payroll by automating accurate calculations and ensuring the correct deductions are applied every time.

Payroll deductions are withheld from an employee’s paycheck to cover taxes, garnishments, or benefits like health insurance. While federal and state taxes are statutory and legally mandated, options like retirement savings or supplemental insurance fall under voluntary deductions. Deductions are further classified as pre-tax or post-tax, depending on when they’re applied in the payroll process.In this guide, we’ll break down the types of payroll deductions, explain how they work, and share tips to ensure accuracy every pay period.

Mandatory vs. Voluntary Payroll Deductions

Payroll deductions are primarily mandatory or voluntary. As the name implies, mandatory deductions are amounts employees must pay and employers must withhold or deduct. This includes statutory deductions mandated by law, such as federal income taxes and Social Security. 

On the other hand, voluntary deductions are amounts taken out of an employee’s paycheck with their consent. These are typically for retirement accounts, health insurance, and charitable donations. 

Mandatory deductions

Statutory deductions

Statutory deductions are amounts that employers withhold from staff paychecks to meet tax obligations and fund essential public services like Social Security, Medicare, and state programs. 

Here are the statutory deductions that employers must withhold to comply with the law:

FICA taxes

FICA (Federal Insurance Contributions Act) taxes are a type of statutory deduction used to pay for Social Security and Medicare. 

Employees pay 6.2% of their salary toward Social Security tax. The contribution limit or cap on this amount is based on the wage an employee earns. For 2025, the wage base limit is $176,100.

Medicare tax is 1.45% of an employee’s pay and includes no cap. Employees who earn more than $200,000 could be subject to (based on their filing status) paying additional Medicare tax. More information can be found here on the Internal Revenue Service (IRS) website.

Federal income tax

Federal income tax is an amount deducted from every employee’s salary. The federal government sets different percentages to be paid as taxes on gross salaries based on a person’s income. The taxable brackets start at 10% and go up to 37% of someone’s gross pay.

Federal income tax is calculated progressively. That said, taxes on wages are not computed in its entirety by a certain percentage alone. It means that different portions of an individual’s income are taxed at increasing rates. For instance, a single individual has a taxable income of $65,000. That employee’s federal tax liability will be charged as follows according to 2025 rates:

  • 10% on the first $11,925 = $1,192.50
  • 12% on the next $36,550 ($48,475 – $11,925) = $4,386
  • 22% on the remaining $16,625 ($65,000 – $48,475) = $3,635.50

Total Tax Liability: $9,214

State and local income taxes

Employers must also withhold state and local income taxes, depending on where their employees work or live. How these taxes are calculated varies. Some states follow a similar progressive model as the federal government, others impose a flat rate, and some states don’t impose income taxes at all. 

In addition to how state income taxes are calculated, you need to be aware of reciprocity agreements if an employee works in one state and lives in another. 

It’s important to note that while mandated by law, not all workers are subject to statutory deductions. For instance, independent contractors are not subject to Social Security or Medicare tax withholdings. If you need clarification on a worker’s classification, the IRS offers support through Form SS-8, Determination of Worker Status for Purposes of Federal Employment Taxes and Income Tax Withholding. This form helps clarify whether a worker should be treated as an employee or an independent contractor.

Wage garnishments

Wage garnishments are payroll deductions based on a court order mandating an employer withhold a portion of an employee’s paycheck to pay for financial obligations or debt. Child support is a typical garnishment, but it can also be for other purposes, such as payments for student loans, tax debts, and court judgments for personal debts. The employer must calculate wage garnishments based on federal and state limits. As soon as the court order for garnishment is received, employers are obliged to apply the deduction and notify the employee.

Voluntary deductions

Unlike mandatory deductions, which fund government programs or fulfill obligations like child support payments, voluntary deductions are optional and enhance employee benefits. Common examples include: 

Retirement contributions

Employees can voluntarily set aside funds for their retirement. Popular options include 401(k) plans and Individual Retirement Accounts (IRAs), which employees can opt into if offered by the employer.

Health and welfare benefits

Employees can also opt to have health insurance premiums deducted from their paychecks for themselves and their dependents. Contributions to a health savings account (HSA) can also be taken with the worker’s consent.

Supplemental insurance coverage

Premiums for additional coverage, such as extended group life insurance, are voluntary. While employers may provide a base plan, employees can pay extra for added protection directly from their paycheck. 

Union dues

Union members can authorize their employers to deduct their union fees and dues from their paychecks. 

Savings and investment programs

Payments for employee stock purchase plans or amounts allocated for direct deposit to savings plans are a couple of examples of voluntary deductions geared toward employee savings and investment.  

Charitable donations

Employees can elect to have their donations to charity be deducted from their pay.

Voluntary deductions provide convenience to employees in managing their benefits and savings plans. However, employers must secure written authorization before processing these deductions to ensure compliance and transparency.

Download: Free Payroll Deduction Authorization Form

Pre-tax vs. Post-tax deductions

Payroll deductions are categorized as pre-tax or post-tax, depending on when they are taken from an employee’s earnings. 

Pre-tax deductions are withheld from an employee’s gross wages and can reduce the employee’s taxable income. However, they may still be subject to FICA taxes. Common examples of pre-tax deductions include HSA contributions, health insurance premiums, and 401(k) contributions.

Pre-tax deductions also reduce the amount a business owner has to pay toward federal unemployment tax (FUTA). FUTA is the system that provides compensation to people who have lost their jobs.

On the other hand, post-tax deductions are withheld from an employee’s net pay, meaning taxes have already been calculated and applied. While they don’t reduce taxable income, benefits or contributions made in this category often provide tax-free withdrawals or benefits in the future. Examples include Roth IRA contributions, charitable donations, and wage garnishments.

Stay on top of payroll deductions with Workforce.com

Managing payroll deductions is rife with complexities and challenges, from navigating regulations and unique state rules to managing employee updates, multiple voluntary benefits, and garnishments. Without the right tools, these tasks can quickly become time-consuming and prone to errors. That’s where Workforce.com steps in. 

Here are some of the ways Workforce.com can simplify payroll deductions. 

Onboarding

Accurate payroll starts with proper employee classification. Workforce.com has a strong onboarding system that ensures you have all the necessary information to classify employees correctly. It also handles necessary paperwork such as employee contracts and tax forms such as W-4. 

Centralized employee records

Workforce.com centralizes employee data within its payroll system, ensuring a single source of truth. Any updates to employee information, like changes to voluntary deductions, are instantly reflected across the platform, ensuring consistency. 

Time and attendance tracking

Accurate payroll depends on precise time tracking, especially for hourly employees.

Workforce.com’s time-tracking system ensures employees clock in and out correctly using mobile devices or kiosks. Missed punches trigger alerts, so issues are addressed immediately. The data flows directly into payroll processing, ensuring accurate timesheets and gross wage calculations.

Payroll

Workforce.com has a payroll system to calculate employee wages based on classifications, pay rates, timesheets, and corresponding deductions according to what’s mandated and what employees authorize you to withhold. All of these are automated and can be done in minutes.  

Recordkeeping

Workforce.com ensures that payroll records are kept safe and can be easily accessed in case of audits or employee inquiries. 

Managing payroll deductions is crucial not only for complying with tax laws but also for maintaining employee trust. Understanding the nuances of these deductions is vital to ensuring regulatory compliance, optimizing payroll processes, and supporting employee financial well-being.See Workforce.com in action and learn how it can improve your payroll processing and more. Book a demo today.

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8 proven ways to reduce overtime & labor costs (2025)

painting of a bartender with a large clock behind him

Summary

  • Unnecessary overtime and an increase in labor cost can be caused by several factors, one of which is the lack of an efficient HR and payroll system.

  • Overtime is not inherently bad, but if it becomes excessive, it can affect your bottom line and cause employee burnout.

  • The right software can curb labor cost increases without sacrificing operations and employee satisfaction.

Labor costs and overtime take up a significant portion of business expenses. While extended work hours are occasionally necessary, they can quickly become a burden if they occur too often and strain your finances.

But what causes unnecessary overtime and increase in labor costs? Common culprits include failure to anticipate demand, antiquated HR and workforce management systems, and the lack of real-time operational visibility. These issues not only impact your bottom line but can also harm employee engagement and disrupt work-life balance.

So, how do you reduce labor costs and overtime without sacrificing operations and employee well-being? Here are eight practical ways Workforce.com can help you achieve just that.

1. Forecast labor demand.

An effective cost reduction strategy is to anticipate demand. Sure, no one knows what exactly will happen on the next business day or week, but having an estimate based on relevant data points can give you a good idea of staffing needed per shift. 

Workforce.com can forecast labor demand by analyzing indicators such as weather, foot traffic, historical sales, economic trends, events, holidays, booked appointments, and other relevant factors. With these insights, you can better anticipate demand for a given period, reducing the risks of overstaffing.

Starbucks Australia is one of the organizations that experienced lower labor costs when they started using Workforce.com. Because they have many store locations, anticipating demand was challenging since each store is different. However, with Workforce.com, they can create labor-efficient schedules based on demand up to four weeks in advance, ensuring the right amount of staff is always scheduled for the right number of customers.  

2. Quickly fill vacant shifts due to no-shows or last-minute absences.

No-shows or last-minute absences are inevitable in managing a team, but how they affect your operation and labor costs will depend on how effectively you address them.

When an employee notifies you that they can’t work a shift at the last minute, you must quickly cover the vacant shift. Otherwise, you may need to rely on overtime, driving up labor costs unnecessarily.

Workforce.com equips frontline managers to offer a vacant shift to other qualified team members. Case in point: The Winnipeg Jets. Before using Workforce.com, they had difficulty managing no-shows, especially when they experienced 80 replacements in a week, and there was no centralized way of managing these swaps. Using Workforce.com, managers can offer vacant shifts and fill them quickly, all in one platform, without calls, emails, or texts. 

“With Workforce.com, switching shifts is so much easier. I don’t know anyone who’s not using it,” says Kristin LaCroix, TrueNorth’s Director of Technology Services. “Everyone got on board with it pretty quickly.”

3. See labor costs in real-time when creating schedules.

Staying on top of labor costs means understanding your expenses before they’re incurred. Workforce.com offers that visibility. 

When scheduling or creating shifts, Workforce.com displays wage costs in real time, enabling managers to keep staffing levels aligned with labor budget allocations and customer demand.

“We know for each shift, what its cost is without having to crunch any numbers on a spreadsheet,” says Troy Persad, General Manager at Bridge Control Services. When building schedules, every shift tile displays wage costs, which he uses to optimize shifts according to the budget and crew’s needs.

The same goes for The Winnipeg Jets, “Workforce.com is preparing us to become a little bit more strategic in how we schedule,” shares LaCroix. “It helps us move staff to different times if we see inefficiencies, helping us provide a better experience to our guests.”

Workforce.com plays a massive role in helping you schedule in a way that keeps overtime costs low. Scheduling software tracks work hours and unavailability, automatically suggesting the most cost-effective people for coverage while avoiding unnecessary overtime. It lets you see wage costs for every shift, so you’ll always know how much your business spends on labor in real time.

This kind of automation reduces the overtime errors that come with scheduling via spreadsheets. For instance, Workforce.com will alert managers whenever they try to schedule a shift that will cause an employee to dip into overtime. It also keeps track of maximum work hours and prevents managers from scheduling employees for more than is legally allowed, depending on your state.

4. Track employee hours and overtime down to the minute.

Workforce.com’s time and attendance management software helps you track, manage, and calculate overtime and labor expenses. It alerts your frontline managers whenever an employee hits overtime and automatically records overtime hours and time and a half pay on digital timesheets. These timesheets display scheduled vs. actual hours and labor cost variances, making it easy to pinpoint where and when you are spending too much on overtime.

“There was no real way with our old system to compare variance,” says Kayleen Nemanishen, a configuration analyst for Ranch Ehrlo Society. “With Workforce.com, it’s super apparent – if somebody works 30 minutes longer than scheduled, it shows right on their timesheet.”

More importantly, automated employee time tracking helps you avoid tricky situations where employees claim to have worked more overtime than you have on record. By default, the Department of Labor assumes that the employee is right about the number of overtime hours they worked unless the business owner can provide proof otherwise.

With timesheets recorded daily, you avoid time reporting disputes, protect your business from paying out overtime that was never actually worked, and stay compliant with labor laws. This increases accountability and ensures your overtime tracking is airtight, helping you avoid costly DOL fines and employee lawsuits.

5. Set a labor budget.

Set a cap on an amount or the number of hours you can allocate every day to meet demand for every day, week, or month. This is all about finding the right balance between supporting your employees and improving your bottom line. Setting hard limits on hours worked encourages managers and employees to adapt and become more efficient with navigating overtime. 

On Workforce.com, you can set labor budgets and track schedules and shifts against your set allocation. You can set and plan labor budgets by location or department. Budgets can be shown either in hours or wages.

Of course, setting limits doesn’t disqualify you from paying overtime worked beyond them. The law stipulates that any time over 40 hours has to be paid as overtime. So, if someone has exceeded your overtime budget, ensure you have an accurate way of recording, calculating, and alerting managers to all overtime pay owed. 

6. Offer flexibility with sending schedules in advance.

Flexibility is different for hourly workers. For them, it’s about knowing their shifts well in advance so they can plan other areas of their lives, such as childcare, medical appointments, or PTO. But is scheduling shifts far in advance always productive?

The answer is yes—if done correctly, Workforce.com can help you schedule in advance because it can predict demand and create shifts quickly. You can even create reusable shift templates for consistent schedules, streamlining the process week after week.

Publishing schedules in advance reduces no-shows and last-minute absences and helps control labor costs by minimizing disruptions. Additionally, it ensures compliance with predictive scheduling or Fair Workweek laws in cities where these regulations apply, protecting your business from potential fines.

7. Equip your team with the right labor tracking tools.

Unnecessary labor costs often stem from minor errors or administrative oversights, such as missed log-ins or accidentally scheduling employees beyond their allowed hours. These mistakes are easy to overlook, mainly when relying on manual processes or inefficient systems.

Workforce.com streamline time-consuming administrative tasks and reducing the errors associated with manual input. The Amenity Collective saw a drastic drop in time spent on admin work since implementing Workforce.com in their organization—from 20 hours a week to just 3 hours. 

“With Workforce.com, we’ve been able to reduce the time our staffers spend publishing schedules by 85% – that is a huge efficiency gain for our organization and for our employees,” says Adam Chen, CIO of the Amenity Collective. “What that allows our employees to do is spend more time building stronger relationships.”

Workforce.com offers a real-time view of what’s happening in every shift. It shows who clocked in, who’s running late, and who’s about to go into overtime. HR and operational data can be accessed anytime—no need to wait for month-end reports. 

In addition, Workforce.com has a powerful employee self-service system that enables staff to clock in and out easily, view their work schedules, get notified for open shifts, request leaves, and update their information. These tools lighten the administrative workload and reduce errors and inaccuracies. 

8. Cross-train to bolster your workforce.

If only a few of your team members can carry out specific tasks, you’ll end up in a situation where the same few people get overtime. This can lead to employee turnover , as excessive overtime disrupts work-life balance. At the same time, it can dampen employee morale as staff who aren’t offered overtime opportunities may feel unfairly treated, missing out on the extra pay.

The solution? Conduct cross-training programs for different roles. This way, you can fill vacant shifts with a larger pool of qualified employees. Cross-trained employees not only help you avoid scheduling unnecessary overtime but also allow you to divvy overtime in a fairer manner if needed.

Workforce.com’s performance management system makes this process more efficient. It lets you track employee progress and development, identify their strengths, and provide targeted training to expand their skill sets.

Stay on top of labor costs and overtime with Workforce.com

Running a cost-effective operation starts with the right tools. Manual processes increase the risk of unnecessary overtime costs and waste valuable time on tasks that could be completed in minutes with a more efficient system.

Workforce.com has a comprehensive suite of solutions to help you stay on top of your labor budgets, reduce overtime, and simplify payroll processing. Want to see what else Workforce.com can do for your business? Book a call today.

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Shift Differential Pay: How to Calculate + Implement (2025)

Summary

  • Shift differential pay is additional compensation for staff who work hours outside of their regular schedule.

  • Shift differential pay becomes challenging to navigate once government-mandated overtime pay and varying schedules come into play.

  • Payroll software can automate calculations for shift differential pay along with overtime, payroll taxes, and other withholdings.

Operations that run 24/7, 365 days a year, face the unique challenge of ensuring they have people working around the clock, especially during odd hours. This is where shift differential pay comes into play, where employers pay their staff variable rates based on the type of shift they work.

Shift differential pay may seem straightforward initially, but it can get quite complicated. Here’s a rundown of things you need to know about shift differential pay, plus tips on making your shift differential policy effective.

What is shift differential pay, and how does it work?

Shift differential pay is additional pay for working less desirable shifts, such as graveyard shifts, weekend shifts, or holidays. This is typical for shift-based businesses and industries that operate round the clock, such as customer support centers, manufacturing, healthcare, and security.

Businesses that need to extend operations due to peak seasons may also offer shift differential pay to employees who must come in after typical work hours or during holidays.

Shift differential pay is a type of premium pay that’s not mandated by law, but it’s a good way to incentivize employees to pick up shifts outside their typical schedule or comfort level. It can also help curb turnover rates, especially among shift-based organizations.

Calculating shift differential pay

Companies decide how much shift differential pay to offer. But, again, this is just a perk and optional. So, the amount and implementation will be up to your discretion. Sometimes, the rate can even be up for negotiation between you and your employees. Whatever the rate, remember that the goal is to encourage your employees to be more receptive to working odd hours.

Shift differential rates are assigned in different ways. Here are some of the common options and sample computations:

A set rate per hour

Scenario: Employees who work the third shift earn $15 more per hour.

  • Base hourly rate: $7.25/hour
  • Shift differential rate: $15/hour
  • Hours worked: 8 hours

Sample computation:

  1. Add the base hourly rate to the shift differential rate:
    7.25 + 15 = 22.25 (hourly rate including shift differential)
  2. Multiply by the hours worked:
    Total Pay = 22.25 × 8 = 178

Result: The total pay for the 8-hour shift is $158.

A percentage of regular hourly pay

Scenario: Employees earn an additional 10% of their regular hourly rate for night shifts.

  • Base hourly rate: $7.25/hour
  • Shift differential rate: 10% of hourly rate
  • Hours worked: 8 hours

Sample computation: 

  1. Calculate the percentage increase by multiplying the base rate by 10%.
    7.25 x 0.10 = 0.725
  2. Add the shift differential rate to the base rate:
    7.25+0.725 = 7.975 (hourly rate including shift differential)
  3. Multiply by the hours worked.
    7.975 x 8 = 63.80

Result: The total pay for the 8-hour shift is $63.80

Is shift differential pay the same as time and a half-pay?

No, because time and a half pay is mandated by law for non-exempt employees whenever they incur overtime hours in a day or week. It’s called time and a half pay because the overtime rate is calculated by 1.5 times an employee’s hourly wage. On the other hand, shift differential pay is simply an incentive for workers to work undesirable shifts or days and is not mandated by law.

Also read: What is time and a half + how to calculate it

Factors such as wages and work responsibilities affect an employee’s eligibility for overtime under the Fair Labor Standards Act (FLSA); this means that even some salaried employees are entitled to overtime pay. With this in mind, it’s essential to consider how overtime can affect shift differential pay decisions and calculations. 

Shift differential should be included in the computation of the regular rate of pay when calculating overtime.

Tips for Implementing Shift Differential Pay Effectively

While shift differential pay can improve employee retention and help ensure coverage, it’s not just about assigning a dollar amount to unconventional hours. You need to be strategic in the way you deploy this kind of policy. Here are some helpful tips. 

Be intentional when setting differential pay rates

As the employer, you decide how much shift differential pay will be. So how do you figure out the best rate? Here’s how you can approach it:

Consider the hours and shifts you’re covering. Let’s say you have an operation that runs 24/7, and you have this schedule:

  • 8 AM to 4 PM (Day Shift)
  • 4 PM to 12 AM (Second Shift)
  • 12 AM to 8 AM (Third Shift)

Assigning a shift differential rate for the second and third shifts would make sense, because those hours are odd and less desirable compared to the day shift.

Aside from unusual hours, look at holidays or peak seasons too. Working during these days can sacrifice rest and family time, so the rate should acknowledge the work they do and the personal time they give up.

Another approach is to look at roles and responsibilities. Is the shift differential the same for all positions? Do specific roles deserve more? If some jobs entail heavier workloads or responsibilities, consider offering a higher differential to make those roles and shifts more appealing. While assigning a single, uniform rate is more straightforward, giving a higher incentive for functions that take on more responsibility may be more attractive to employees.

Use technology

So you’ve decided to incentivize employees with shift differential pay. Great. Now, how are you going to calculate it efficiently? 

Sure, it’s straightforward to calculate shift differentials when, say, “John” works the graveyard shift for an entire pay run, and that’s it. Whether you pay a bonus amount or a multiple of John’s standard rate, this is a fairly easy calculation. 

But what if John works variable shifts across multiple teams during this period? What if he worked the first shift on some days and the second on certain days? And on top of that, he worked for more than 40 hours and is entitled to time and a half pay on top of the differential pay? Now, imagine you have 50 different Johns. This is where things get tricky.  

It would be best to have software to do all the work for you. Workforce.com can help you manage shift differentials along with other areas of human resources management. Here’s how:

  • Accurate time and attendance – Proactively getting timesheets right is essential to paying employees correctly and on time. The more edits you need to make retroactively, the more chances there are for errors, further complicating differential pay. Workforce.com’s automated system efficiently captures time punches, generates timesheets, and runs payroll with as little manual data entry as possible. 
  • Comprehensive team structure – Workforce.com enables you to sort staff into specific teams to differentiate what kind of work qualifies for differential pay. With properly designated teams, it’s easy to automatically apply differential pay to front-of-house staff as opposed to, say, back-of-house.
  • Classification tags – In Workforce.com’s system, you can tag employees based on classifications like seniority and experience. This offers more flexibility in distributing differential pay to staff than something as simple as teams.
  • A strong labor compliance engine – Workforce.com automates compliance with federal and state-based wage and hour laws, which is necessary for any organization, especially for implementing shift differential pay. It gives you a paper trail in case of an audit and prevents instances of incorrect pay computation.
  • A robust payroll system – A common challenge is finding a system that only requires a little configuration from the IT team. Go for a system that automatically assigns your pay rules and identifies eligible employees. All the better if you go for payroll software housed in the same ecosystem as time tracking and a labor compliance engine. 

Communicate the policy and make it accessible

It’s all about transparency. You need to inform your employees that shift differential pay is offered for working specific shifts and that a policy states the rate and eligibility.

Train your managers to know the ins and outs of shift differential pay, so they can quickly clarify when staff has questions about it. It’s also essential to include the policy in the employee handbook and make it accessible to everyone so that they can refer to it when needed. A good employee self-service system can do this. 

Gather feedback and incorporate it with your employee retention plan

Money can solve most problems, but not the lack of employee engagement. Compensation is a crucial element, but it doesn’t mean that you simply throw money at the problem, hoping to make operational issues disappear.

Shift differential pay will only be effective if employees find it valuable. Aside from time, consider potential hurdles staff must face when working odd hours or days. Think about extra spending on their end for transportation or babysitting if they need somebody to stay with their kids while they work nights or holidays. With this insight, you’re more equipped to improve your shift differential pay policy. 

Furthermore, a shift differential policy only supplements an overall employee retention program. It’s vital but not the end-all and be-all of keeping employees engaged. Aside from this incentive, it’s best to have a good feedback system, training opportunities, flexibility, and recognition programs.

Optimize labor with data

Shift differential pay may be an added expense, but it can still be cost-effective. The key is properly forecasting your staffing needs to avoid instances where you need to offer differential pay incentives due to under- or overstaffing.

Workforce.com’s labor forecasting system looks at historical data, weather, booked appointments, seasonal trends, foot traffic, and much more to get a picture of how much demand you can expect every day for every shift.

The key to paying your employees right

At the end of the day, it’s all about compensating your employees correctly. The best way to ensure accuracy is error-free timekeeping and payroll processing.

Workforce.com’s time and attendance platform is specialized for shift-based industries. It records clock-ins and clock-outs accurately, and automatically generates timesheets. Employees in the field can also clock in and out via their mobile devices, ensuring time spent on work is recorded correctly.

Aside from accuracy, Workforce.com is also compliant and can apply multiple pay rates, including shift differential pay. So you can rest assured that once timesheets are pushed to payroll, your staff will receive accurate and compliant pay.

Discover how Workforce.com helped organizations manage time and attendance, employee scheduling, and payroll. Book a demo today.

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Your guide to tipping laws by state (2025)

Astronaut Grabbing a Tip Jar

Summary

  • Tipping laws vary by state, and HR professionals need to navigate the specific requirements to ensure compliance. — More

  • Employers can choose from different tip policies, such as tip splitting, tip sharing, or tip pooling, to establish the fair distribution of tips among employees.

  • Payroll software streamlines tip calculations, simplifying the process for employers and ensuring accurate and fair tip distribution.

In the United States, tipping has become deeply ingrained in our culture, more so than in many other countries. Michael Lynn, a professor of consumer behavior and marketing at the Cornell University School of Hotel Administration, told NBC the US is “the most tip-happy country.” In many other countries, leaving a small tip is optional and extra, but tipping in the US holds a far more substantial role. The livelihood of employees in certain sectors depends on gratuities as they are baked into their hourly wages.

For HR professionals, managing a workforce in a tipped industry presents unique challenges. Ensuring compliance with the specific laws governing how these employees should be paid is a delicate task. Understanding the intricacies of tipping laws is crucial to avoiding potential legal pitfalls and ensuring fair compensation for employees.

Adding to the complexity is the interaction of tipping with overtime regulations. Determining the proper calculation of overtime pay for tipped employees requires a nuanced understanding of the rules and regulations. Failure to comply with these guidelines can result in costly legal consequences for businesses.

This guide will break down all federal and state tipping laws to help you navigate the intricate landscape of gratuity regulations. 

Click here to jump to a table outlining each state’s minimum wage laws for tipped employees.

What is the US tipping law?

According to the IRS, tips are discretionary payments made by customers to employees. This includes cash tips received directly, tips left through electronic settlement or payment methods, the value of noncash tips, and tip amounts received through tip pooling or tip-sharing arrangements.

The Department of Labor (DOL) defines a tipped employee as “any employee working in an occupation in which he or she regularly receives more than $30 a month in tips.” Examples of tipped employees include servers, bartenders, hotel staff, valets, and other service-industry workers who rely on tips as a significant part of their income.

Tipped employees receive a special form of hourly wage known as a tipped wage. The tipped wage is a lower direct wage (known as “tip credit”) paid by employers to tipped employees, with the expectation that the employee’s tips will supplement their earnings and meet or exceed the federal minimum wage requirement. 

According to the DOL, federal law states that employers of tipped employees are required to pay a direct wage of $2.13 per hour as long as the combined amount of tips and the direct wage equals or exceeds the federal minimum wage. However, many states have higher direct wage requirements for tipped employees that employers must adhere to.

Consider a restaurant server who receives a direct wage of $2.13 per hour and earns an average of $20 per hour in tips. To determine compliance with the law, we calculate the total hourly earnings by adding the direct wage and tips:

Direct Wage: $2.13 per hour

Tips: $20 per hour

Total Hourly Earnings: $2.13 + $20 = $22.13

In this scenario, the server’s tips of $20 per hour ensure compliance with the law. Since the total hourly earnings ($22.13) exceed the federal minimum wage requirement, which is currently set at $7.25 per hour, the server is receiving appropriate compensation.

Tipping laws by state

While federal law sets the groundwork for tipping regulations in the United States, it is important to note that individual states have the authority to establish their own tipping laws. These state-level variations can significantly impact the requirements and practices surrounding tipping in different parts of the country.

To gain a comprehensive understanding of tipping laws in each state, we have provided detailed tables below that break down the regulations. These tables will help you navigate the specific requirements for maximum tip credits and minimum cash wages in each state.

But first, let’s define two key terms that play a crucial role in understanding tipping laws.

Maximum tip credit: The maximum tip credit refers to the amount that employers are allowed to offset the minimum wage requirement by considering the tips received by their employees. This credit can vary from state to state, and understanding the specific maximum tip credit in each jurisdiction is essential for employers and employees alike.

Minimum cash wage: The minimum cash wage represents the lowest hourly rate that employers must pay to tipped employees directly, regardless of the tips they receive. While some states align the minimum cash wage with the federal standard, others have established higher cash wage requirements to ensure fair compensation for tipped workers.

To explore the specific tipping laws in your area in more detail, click on the link provided for each state. 

State Minimum cash wage Maximum tip credit Total tipped minimum wage rate
Alabama** $2.13 $5.12 $7.25
Alaska $11.91 – $11.91
Arizona $11.70 $3.00 $14.70
Arkansas $2.63 $8.37 $11.00
California $16.50 – $16.50
Colorado $11.79 $3.02 $14.81
Connecticut***** $16.35   $16.35
Delaware $2.23 $12.27 $15.00
Florida * $9.98 $3.02 $13.00
Georgia ** $2.13 $5.12 $7.25
Hawaii *** $12.75 $1.25 $14.00
Idaho $3.35 $3.90 $7.25
Illinois $9 40% of the applicable minimum wage ($6) $14.00
Indiana $2.13 $5.12 $7.25
Iowa $4.35 40% of the applicable minimum wage ($2.90) $7.25
Kansas**** $2.13 $5.12 $7.25
Kentucky $2.13 $5.12 $7.25
Louisiana** $2.13 $5.12 $7.25
Maine $7.33 50% of the applicable minimum wage ($7.32) $14.65
Maryland $3.63 $11.37 $15
Massachusetts $6.75 $8.25 $15
Michigan 38% of the applicable minimum wage ($4.01) $6.55 $10.56
Minnesota $11.13 – $11.13
Mississippi** $2.13 $5.12 $7.25
Missouri $6.88 50% of the applicable minimum wage ($6.87) $13.75

Montana

Businesses with gross annual sales over $110,000

Businesses not covered by FLSA standards with gross annual sales of $110,000 or less

$10.55

$4

 –

$10.55

$4
Nebraska $2.13 $11.37 $13.50
Nevada**** $12 – $12
New Hampshire $3.27 $3.98 $7.25
New Jersey $5.26 $9.87 $15.49
New Mexico $3 $9 $12
New York – Maximum tip credit varies by region. Consult New York’s Minimum Wage Overview for more information. $15
North Carolina $2.13 $5.12 $7.25
North Dakota $4.86 33% of the applicable minimum wage ($2.39) $7.25
Ohio $5.35 $5.35 $10.70
Oklahoma**** $2.13 $5.12 $7.25
Oregon $14.70 – for exceptions in the Portland Metro and non-urban counties, check Oregon’s Minimum wage increase schedule – $14.70
Pennsylvania $2.83 $4.42 $7.25
Rhode Island $3.89 $11.11 $15.00
South Carolina** $2.13 $5.12 $7.25
South Dakota $5.75 50% of the applicable minimum wage ($5.75) $11.50
Tennessee** $2.13 $5.12 $7.25
Texas**** $2.13 $5.12 $7.25
Utah**** $2.13 $5.12 $7.25
Vermont $7 $7.01 $14.01
Virginia $2.13 $10.28 $12.41
Washington $16.66 – $16.66
West Virginia $2.62 70% of the applicable minimum wage ($6.13) $8.75
Wisconsin $2.33 $4.92 $7.25
Wyoming $2.13 $5.12 $7.25

*Florida — The minimum wage is scheduled to increase by $1.00 every year on September 30th until it reaches $15.00 on September 30, 2026.

**Alabama, Louisiana, Mississippi, South Carolina, and Tennessee have no state minimum wage laws. Georgia has a state minimum wage law; however, it does not extend to tipped employees. 

***Hawaii — “The combined amount the employee receives from the employer and in tips must be at least $7.00 more than the applicable minimum wage.” (Source) 

****In Kansas, Oklahoma, Texas, and Utah, employees subject to the FLSA are excluded from state minimum wage laws. Employers must ensure these employees are paid at least the federal minimum wage of $7.25 per hour.

*****In Connecticut, employers can take a tip credit for bar and hotel employees. For restaurant and hotel wait staff, employers must at least pay $6,38 and may take a maximum tip credit of $9.97. Meanwhile, they should pay at least $8.23 and can take a maximum tip credit of $8.12 for bartenders who normally receive tips.

What tipping model should my business follow?

Implementing a tip policy is an important consideration for employers as it establishes guidelines on how tips are distributed among employees and can contribute to a fair and harmonious work environment. When it comes to tip policies, there are various models that businesses can adopt, each with its own implications and considerations.

One common approach is the “everyone keeps their tips” policy, where each employee retains the tips they earn at the end of their shift. While this policy appears straightforward, it can raise concerns about fairness. In a restaurant setting, for example, only customer-facing staff, such as waitstaff and bar staff, receive tips under this policy. Essential back-of-house employees like dishwashers and bussers are left without tips. This can create a disparity, potentially leading to a shortage of back-of-house employees who do not benefit from additional tips.

Another approach is tip splitting or tip sharing, where tips are divided among both tipped and non-tipped employees based on hours worked or predetermined percentages. Tip sharing is usually voluntary, without specific legal guidelines. This policy ensures that all employees have the opportunity to receive tips, fostering a more equitable environment.

Tip splitting can be complex from a payroll perspective when calculating employee wages. Employers must ensure that non-tipped employees receive at least the minimum wage, including their share of tips (which are also subject to taxation). Additionally, the proper application of tip credits to the wages of tipped employees is crucial. It is important to maintain fairness and ensure that non-tipped employees do not out-earn their tipped counterparts due to tip credit rules.

Tip pooling is another option involving the collection of tips earned during a shift and their equitable distribution among both front-of-house and back-of-house staff. Under the Fair Labor Standards Act (FLSA), if tips are shared with non-tipped staff, employers must pay the full minimum wage without applying tip credits. While tip pooling promotes fairness by providing all employees with a consistent hourly wage and shared tips, it may not be a viable solution during slower periods when tips are scarce.

Ultimately, the tipping model your business chooses should align with your company’s values, industry standards, and the preferences of your service employees. Consider the dynamics of your workforce, the potential impact on employee morale, and the legal requirements specific to your jurisdiction when determining the most suitable tip policy for your organization.

Streamline tip calculations with Workforce.com

No matter which tipping policy you choose to adopt, handling tip calculations can be a daunting task. The good news is that Workforce.com can be a valuable ally in simplifying this process. By seamlessly integrating with your POS system, you can customize the percentage of tips to be shared via a “tip jar” feature and automatically ensure that your employees receive their rightful earnings based on their hours worked. 

If you’re interested in discovering how proper time and attendance tracking and payroll processing can revolutionize your tip management, reach out to us today. We’d be delighted to guide you through the process.

This information is for general purposes only and should not be considered legal advice. While we strive to keep it updated, laws and regulations can change at any time. It’s always a good idea to consult with a legal professional or relevant authorities to compliance with the most current standards.

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Jury duty laws in every US state (2025)

Astronaut on the witness stand

Summary: 

  • Federal law doesn’t require employers to provide employees leave, compensation, or benefits for jury duty-related absences. It is up to states and employers to determine these rules. 

  • There are 10 states (plus the District of Columbia) that require employers to pay employees serving mandatory jury duty.

  • 17 states explicitly prohibit employers from requiring employees to use paid vacation or any other personal leave due to jury duty obligations.

While jury duty is legally required for those selected, most US citizens view it as not just a responsibility but also as an important civic function. According to Bar Prep Hero’s recent study, 60.2% believe jury duty should be mandatory for all citizens.

Some would rather avoid it if possible. Bar Prep Hero’s survey found that 9.2% admitted that they lied during jury selection in order to get out of jury duty. The biggest reason people want to avoid jury duty is that they see it as a financial inconvenience. 

When employees have to attend court for jury duty, they are unable to go to work for as long as the trial lasts. And even though employees are required by law to fulfill their jury duty if summoned, employers in a majority of states are not obligated to compensate them for working hours missed as a result of jury duty. 

Are you, as an employer, obligated to compensate or grant additional PTO to staff on jury leave? If you’re not sure, we’ve made a complete guide of jury duty laws by state to help you understand your legal obligations. 

How does jury duty work? 

Jury duty is not only a legal obligation but also an opportunity for American citizens to participate in their country’s judicial process firsthand. 

The jury selection process differs slightly depending on the jurisdiction, but it most commonly includes the following steps:

  • Summoning potential jurors: Potential jurors are randomly selected from a pool of eligible individuals. This pool is usually compiled from voter registration lists, driver’s license records, or other sources, depending on the jurisdiction.
  • Questionnaires: Potential jurors must complete questionnaires, answering basic questions about their occupation, educational background, and any potential biases or conflicts of interest. Diversity is an important factor when selecting juries. 
  • Jury panel selection: A group of potential jurors is called to the courtroom, and they are seated in the jury box. The judge and attorneys question potential jurors to determine their suitability for the case. The purpose is to identify any biases, prejudices, or personal experiences that could impact their ability to be impartial.

The judge and attorneys then select the final jurors who will serve on the jury for the trial. Their duty is to follow the trial proceedings — to listen to the evidence presented, witness testimonies, and arguments from both sides. Their duty is complete once the jury deliberates together and reaches a verdict based on the evidence and instructions provided by the judge.

While the length of your jury duty depends on the complexity of the trial, the Commonwealth of Massachusetts claims that most people finish their jury duty in a matter of one to three days in that state. Once a person has served jury duty, they will not be required to do so again for at least another three years. 

What federal laws say about employer responsibilities regarding jury duty 

According to the Fair Labor Standards Act (FLSA), federal law doesn’t require employers to provide employees paid leave for jury duty or with compensation or benefits. 

However, state laws are a different matter. Some states require employers to pay an employee while they are serving jury duty. Many have laws protecting employees from being fired or penalized while serving jury duty. Several have laws requiring employers to allow employees to use their paid time off (PTO) if they wish to do so for jury service. 

Employers also have the ability to create their own jury duty policies for employees. For example, employers in states that don’t require them to compensate employees for jury duty could create their own policy that does offer compensation in order to stand out from competitors in terms of employee benefits. 

Jury duty laws by state

Most employees don’t know what the laws regarding jury duty are in their state. That’s why it’s important for human resources (HR) professionals to have a full understanding of their legal requirements regarding jury duty leave, as well as their company’s specific policies if any exist. 

A total of 10 states (plus the District of Columbia) require employers to pay employees who are called to serve mandatory jury duty:

  1. Alabama
  2. Colorado
  3. Connecticut
  4. Florida (Broward County and Miami-Dade County) 
  5. Georgia
  6. Louisiana
  7. Massachusetts 
  8. Nebraska
  9. New York
  10. Tennessee 

There are also 17 states that explicitly prohibit employers from requiring employees to use any personal leave to fulfill their jury duty obligations.

  1. Alabama
  2. Arizona
  3. Arkansas
  4. Indiana
  5. Louisiana
  6. Massachusetts
  7. Mississippi 
  8. Missouri
  9. Nebraska
  10. Nevada
  11. New Mexico
  12. New York
  13. Ohio
  14. Oklahoma
  15. Oregon
  16. Utah 
  17. Virginia

Even though not every state mandates that employees be paid when serving jury duty, every state has laws against employers discharging or penalizing employers for serving jury duty — or threatening to do so. 

For quick reference, check this table to see if your state mandates employers to pay for employee jury duty absences and if employees are required by law to use personal time off for jury duty. 

State Are employers mandated to pay for jury duty absences? Are employers prohibited from requiring staff to use PTO for jury duty?
Alabama Yes Yes
Alaska No No
Arizona No Yes
Arkansas No Yes
California No No
Colorado Yes No
Connecticut Yes No
Delaware No No
D.C.  Yes for jury service carried out by full-time employees for five days or less, minus the fee received for jury service. Employers with less than 10 staff are not required to pay compensation for employees who serve as jurors. No
Florida Yes in certain countiesIn Broward, employers must provide compensation to full-time employees for up to five days of jury service. In Miami-Dade, employees are entitled to pay when specific conditions are met. No
Georgia Yes No
Hawaii No No
Idaho No No
Illinois No No
Indiana No Yes
Iowa No No
Kansas No No
Kentucky No No
Louisiana Yes, but only up to a single day of service.  Yes
Maine No No
Maryland No No
Massachusetts  Yes, but only for the first three days of jury duty.  Yes
Michigan  No No
Minnesota No No
Mississippi No Yes
Missouri No Yes
Montana No No
Nebraska Yes, but their pay may be reduced by the fees paid by the court. Yes
Nevada No Yes
New Hampshire No No
New Jersey  No No
New Mexico No Yes
New York Yes Yes
North Carolina No No
North Dakota No No
Ohio No Yes
Oklahoma No Yes
Oregon No Yes
Pennsylvania No Yes
Rhode Island No, unless required by contract or collective bargaining agreement. No
South Carolina No No
South Dakota No No
Tennessee Yes  No
Texas No No
Utah No Yes
Vermont No No
Virginia No Yes
Washington No No
West Virginia No No
Wisconsin No No
Wyoming No No

Here’s a more in-depth look at some states that have more specific jury duty laws:

Alabama

Alabama state law requires employers to grant paid leave for jury duty to full-time employees. To be eligible for paid leave, the employee must show their employer the jury summons on the next workday after receiving it. 

If a company has five or fewer full-time employees, only one employee can serve jury duty at a time. The court will automatically postpone or reschedule jury duty if a second employee is summoned during the same time. 

Colorado

Colorado laws require employers to pay employees up to $50 per day for the first three trial days of jury duty unless the employer has a policy in which they are obligated to pay more. This law includes not just full-time salaried employees but also part-time, temporary, and casual employees. 

Connecticut

Connecticut laws stipulate that employers must pay full-time employees regular wages for the first five days of jury service. The only way employers can be excused from paying is by submitting an application to the Chief Court Administrator with proof of sufficient financial hardship. 

District of Columbia 

District of Columbia laws require employers to provide employees with leave to serve jury duty. However, the laws don’t require employers to offer paid leave.

Florida

There is no state law in Florida that requires employers to pay employees for jury duty. However, there are several county ordinances that do. In Broward County, employees must be paid a regular salary for up to five days of jury duty-related leave, provided that the employee gives a copy of the summons to their immediate supervisor at least five days before the first day of scheduled jury duty. 

In Miami-Dade County, employers must pay employees for jury service if: 

  • The employee has a regularly scheduled workweek of at least 35 hours.
  • The employee provides a copy of the summons at least five working days prior. 
  • The employee is serving their jury duty in Miami-Dade County.
  • The employer has 10 or more full-time employees.
  • The employer has offices or does business in Miami-Dade County.

Georgia

Even though Georgia laws do not require employers to offer paid leave for jury service, the Attorney General issued an opinion in 1989 interpreting a statute as requiring employers to pay employees for jury service leave. 

Massachusetts

In Massachusetts, employers must pay employees at the regular rate for the first three days of jury duty. This includes part-time, temporary, and casual employees.

Nevada

In Nevada, employers are not required to pay any wages for time spent serving on a jury. However, they can’t require staff to work within eight hours of the time they’re supposed to serve. 

Also, on the day of jury duty, employees can’t be required to work between 5:00 p.m. and 3:00 a.m.

New York

According to New York State laws, employers with ten or more employees must pay the first $40 of the employee’s regular daily wages for the first three days of jury duty. 

Oregon

In Oregon, it’s common for employers to have internal policies that mandate regular pay for employees on jury duty; however, it is not legally required by the state. Employers are, however, prohibited from requiring staff to take personal leave for jury duty service. 

Tennessee

Tennessee laws mandate that employers who have five or more employees must pay for time spent serving jury duty as long as the employee has been with the company for at least six months. 

Create your own jury duty policies

All employers have the ability to create their own jury duty compensation policies regardless of what state laws mandate.

If you’re looking to develop your own employer policy, here are a few key areas to consider: 

  • Legal obligations: Familiarize yourself with the state laws and regulations pertaining to jury duty. Understand the rights of employees and any legal obligations you have as an employer to accommodate them.
  • Criteria to qualify: Establish a process to verify employee eligibility for jury duty. Typically, employees may be required to provide a copy of their jury duty summons or a letter from the court confirming their selection. 
  • Leave policies: Outline the specific time-off policies for employees serving on jury duty very clearly. For example, if you give them paid days off, determine whether jury duty days count against their PTO total. 
  • Compensation: Decide how you will handle compensation. Determine whether employees will continue to receive their regular salary or another fixed amount per day. 

Once created, focus on clearly communicating your policy to employees. Ensure they understand their rights and responsibilities related to jury duty and how the company will support them during their absence.

Consider expressing support and encouragement to employees who are serving on juries. Acknowledging the importance of their participation in the legal system will help foster a positive work environment that values civic engagement.

Manage jury duty absences easily with Workforce.com

Once you have developed your jury duty policy, it’s important to maintain accurate records of employees’ jury duty absences, leave taken, and any related compensation or benefits provided to help ensure compliance with legal requirements and facilitate fair treatment across the company.

Contact us today to learn how Workforce.com can help you easily comply with your state’s jury duty leave policies.

This information is for general purposes only and should not be considered legal advice. While we strive to keep it updated, labor laws and regulations can change at any time. It’s always a good idea to consult with a legal professional or relevant authorities to comply with the most current standards.

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Canada Statutory Holiday Pay (2025)

Woz with a Canadian flag on the moon

Summary:

  • Workers in Canada get statutory, or public, holidays off and receive pay based on a percentage of their wages earned over a 4-week period.
  • If employees are required to work on a statutory holiday, they typically earn 1.5x their regular rate in addition to their holiday pay.
  • Payroll software makes holiday pay calculations much more accurate and efficient.

When a holiday strikes, it’s important for Canadian employers to know exactly how much they owe their staff in statutory holiday pay – getting this wrong can land you in hot water.

Monkhouse Law is all too familiar with this. In 2022, they filed a class action lawsuit against banking giant BMO for violating the Canada Labour Code. According to the suit, BMO failed to include variable compensation such as commission and bonuses in calculations for holiday and vacation pay owed to employees beginning all the way back in 2010.

Similar holiday pay cases have been brought against insurance companies RBC and Aviva for $800 million and $80 million, respectively.

Holiday pay rules

To avoid winding up with a multi-million dollar lawsuit on your hands, or at the very least, a mob of rightfully angry workers, it’s important to understand what you as a business owe in holiday pay and how to go about calculating it.

Workers in Canada get statutory paid holidays (also known as public holidays or general holidays) off and are entitled to compensation based on their previous weeks’ wages. This public holiday pay is generally calculated as 1/20 of an employee’s regular pay from the four work weeks leading up to the holiday. Variable compensation like vacation and commission is usually included in the holiday pay calculation, while overtime is not.

On top of this pay, most provinces mandate that anyone who works on a holiday receive time and a half for their trouble. This is a rule of thumb, however, and not always the case.

Listed below are more details on statutory holiday pay, broken down by several provinces:

 

Manitoba

Statutory holidays recognized: 

  • New Year’s Day
  • Louis Riel Day
  • Good Friday
  • Victoria Day
  • July 1
  • Labour Day
  • Orange Shirt Day
  • Thanksgiving Day
  • Christmas Day

Holiday pay: Employees with non-variable hours receive holiday pay equal to 8 hours at their standard rate. For employees with variable hours, holiday pay is calculated at 5% of their gross wages (not including overtime) in the 4-week period immediately before the holiday.

If employees work: on top of their statutory holiday pay, staff who work on a holiday earn premium pay, which is 1.5x their regular wage. An exception exists for hospitals, restaurants, hotels, and continuous operations as long as they provide another day off with general holiday pay within 30 days.

 

New Brunswick

Statutory holidays recognized: 

  • New Year’s Day
  • Family Day
  • Good Friday
  • Canada Day
  • New Brunswick Day
  • Labour Day
  • Remembrance Day
  • Christmas Day

Holiday pay: Employees receive a day’s wages at the regular rate or 4% of their gross wages. If employees have variable hours, they receive an “average day’s pay” which is found by dividing their total number of hours worked by the number of days worked over a 30-day period before the holiday. You then multiply these hours by the regular rate. This calculation excludes overtime but includes vacation.

If employees work: Employees receive 1.5x their regular rate of pay for the day on top of the statutory holiday pay.

 

Ontario

Statutory holidays recognized: 

  • New Year’s Day
  • Family Day
  • Good Friday
  • Canada Day
  • Victoria Day
  • Boxing Day
  • Labour Day
  • Thanksgiving Day
  • Christmas Day

Holiday pay: According to Ontario’s Employment Standards Act (ESA), employees get 1/20 of their wages from the previous 4 weeks before the week with a public holiday. This includes vacation but not overtime pay.

If employees work: employees receive 1.5x their regular rate for the day.

 

Quebec

Statutory holidays recognized: 

  • New Year’s Day
  • Good Friday or Easter Monday (employer’s discretion)
  • Canada Day
  • National Patriot’s Day
  • National Holiday
  • Labour Day
  • Thanksgiving
  • Christmas Day

Holiday pay: Employees receive 1/20th of their wages from the 28 days prior to the holiday. Workers paid by commission receive 1/60th of their wages earned through a 12-week period. Overtime is not included in these calculations.

If employees work: Employees get paid for a regular day’s work at their normal rate on top of receiving holiday pay.

 

Saskatchewan

Statutory holidays recognized: 

  • New Year’s Day
  • Family Day
  • Good Friday
  • Victoria Day
  • Canada Day
  • Saskatchewan Day
  • Labour Day
  • Thanksgiving Day
  • Remembrance Day
  • Christmas Day

Holiday pay: Employees receive 5% of their wages from the 28 days before the holiday. This calculation includes both vacation and commission but not overtime.

If employees work: Employees receive 1.5x their regular rate for the day on top of the statutory holiday pay.

 

Calculating holiday pay

Yes, there are a lot of rules, exceptions, and intricacies to holiday compensation in Canada. To stay on top of it all, you need to track time and pay accurately. You also need to be executing the right calculations – sometimes at a very large scale.

Sure, you can use a handy-dandy holiday pay calculator found on the occasional government website. But you could also let software automatically do the work for you.

Time and attendance software not only tracks employee time on a daily basis, but it also calculates holiday pay, applying it directly to timesheets. You don’t have to worry about combing through four weeks’ worth of timesheets to calculate the right indemnity pay for a special day of the year.

Be prepared and get a system in place to calculate holiday pay for you.

Who should be working on public holidays?

Calculating mandated holiday pay is one thing – paying time and half to staff who work on a holiday is another. Labour hours on a holiday are quite an expense to take on and, if not planned correctly, can be unnecessary at times.

So how do you actually determine the number of staff you need on hand during a holiday?

The first step is to track your historical demand patterns consistently. By doing this, you’ll be able to project your expected demand for an upcoming holiday. Typically this is done by looking at last year’s holiday sales alongside other patterns like upcoming local events, promotions, and weather.

With an accurate demand prediction, you can then figure out the number of employees you’ll need on duty. Backing your staffing plan with actual metrics like this keeps you from accidentally overspending on expensive holiday labour. You should only be paying 1.5x rates to employees who are actually needed.

Sounds like a lot of work, right? Building demand predictions and determining labour ratios? The good news is that you don’t need to do all the work. Labour forecasting software makes this whole process easier, saving you admin time and cutting down on wasted time and a half pay.

Get it done efficiently

Once you know the basics, holiday pay is pretty simple to understand – you just need the right tools to improve accuracy, save time, and ensure HR compliance.

With an all-in-one HR, payroll, and scheduling platform like Workforce.com, you can record employee hours and automatically calculate holiday pay when the time comes. Complete with a labour forecasting module, you’ll also be able to predict how many staff you really need working those expensive holiday hours.

When a paid public holiday like New Year’s or Canada Day comes around, keeping your employees happy is more important than ever – this means abiding by national labour standards and paying them what they are legally owed. Get this done in the most efficient way possible while also improving your bottom line with Workforce.com.

Get in touch with us today to get started.

This information is for general purposes only and should not be considered legal advice. While we strive to keep it updated, laws and regulations can change at any time. It’s always a good idea to consult with a legal professional or relevant authorities to compliance with the most current standards.

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Severance pay & final paycheck laws by state (2025)

Astronaut holding a paycheck

Summary

  • There are no state or federal laws regarding severance pay.

  • Organizations might consider implementing severance pay agreements to improve employer-employee relations, boost employer branding, strengthen retention and acquisition, and avoid legal disputes. 

  • While there are no federal or state laws in relation to severance pay, there are state laws on when an employee’s final paycheck is to be processed. – More

Have you ever considered the critical role that severance pay plays in protecting your organization and its employees during workforce transitions? Severance pay refers to the financial compensation provided by an employer to an employee upon termination of employment. It is typically based on factors such as length of employment and employment contract terms. 

Click here to see final paycheck laws

Severance benefits provide the terminated employee with a vital safety net, offering financial support and stability for people until they find a new job. They also offer significant benefits for organizations. 

Severance pay helps maintain employee morale and fosters a positive work environment during challenging workforce transitions. By including severance pay as part of your compensation package, you demonstrate your commitment to supporting employees and enhancing the organization’s reputation as a compassionate and responsible employer.

What does the law say about severance pay?

Neither federal nor state laws in the United States mandate severance pay. The U.S. Department of Labor clarifies that “severance pay is a matter of agreement between an employer and an employee (or the employee’s representative),” with no requirement under the Fair Labor Standards Act (FLSA).

However, it’s important to note that certain circumstances may trigger legal requirements related to severance pay. One such regulation is the Worker Adjustment and Retraining Notification (WARN) Act. The WARN Act applies to businesses with a certain number of employees and requires employers to provide advance notice of plant closings or mass layoffs. While the WARN Act doesn’t specifically mandate severance pay, it may come into play in situations where employers fail to comply with the required notice period.

Employers should know the WARN Act’s provisions and seek legal advice to ensure compliance when contemplating workforce reductions or closures. Although severance pay is not universally mandated, employers must navigate these potential legal considerations and make informed decisions to uphold fairness, ethical practices, and employee welfare if they are to offer it as an employee benefit.

Should your organization consider offering severance packages? 

In the absence of any state or federal law, is it worth offering severance packages to soon-to-be former employees? There are a number of pros and cons to including severance agreements in your company policies. Understanding these can help you make an informed decision that aligns with your organization’s values and goals.

The benefits of offering severance pay include the following:

  1. Employee transition support: Severance pay provides employees with a cushion to manage the transitional period between jobs. It can help cover expenses such as job search costs, the continuation of health insurance, and retraining and facilitate a smoother transition to new employment.
  2. Positive employer-employee relationships: Providing severance pay builds trust and fosters a positive relationship between employers and employees. It sends a message that the organization cares about its workforce beyond just their time of employment, strengthening loyalty and engagement. This positive relationship can increase productivity, employee satisfaction, and a more supportive work environment overall.
  3. Talent acquisition and retention: Offering severance pay as part of your compensation package can attract top talent to your organization. Prospective employees may view it as a sign of a supportive and compassionate workplace, increasing their interest in joining your team. Moreover, existing employees may feel more secure and committed, knowing that the organization values their well-being, potentially reducing turnover rates.
  4. Mitigation of potential legal risks: Although it’s not part of any employment law, offering severance pay can help mitigate potential legal risks. By providing a fair and structured severance package and establishing clear terms for separation in your employee handbook, you minimize the likelihood of unpleasant legal disputes.

The drawbacks of offering severance pay include:

  1. Financial impact: Severance pay can be a significant financial commitment for organizations, especially during large-scale layoffs or restructuring. Considering the potential costs and ensuring that offering severance packages aligns with your budgetary constraints is essential.
  2. Setting a precedent: Offering severance pay may establish a precedent for future terminations or workforce transitions. Establishing consistent HR policies and guidelines is crucial to avoid perceived inequalities or inconsistencies in severance package offerings.
  3. Impact on retention and turnover: While severance pay can support departing employees, it may also inadvertently encourage voluntary turnover. Some employees may view the availability of severance pay as an opportunity to leave the organization, potentially impacting retention efforts.

Webinar: How to Increase Manager Retention

Ultimately, the decision to offer severance packages should be based on your organization’s unique circumstances, values, and long-term objectives. By carefully considering the pros and cons, you can strike a balance that supports both your employees and your organizational goals.

Scenarios where severance pay might be beneficial

Severance pay is a valuable resource for employers and employees during workforce transitions. By exploring these scenarios, we can shed light on the benefits of severance pay and its role in supporting employees during critical moments of job loss or transition.

  • Workforce reductions or layoffs: During times of downsizing, layoffs, or restructuring, offering severance pay can help ease the financial impact on affected employees. It provides them with a lump sum or structured payments based on their service length, helping bridge the gap between jobs and maintain a sense of financial security.
  • Employment termination without cause:  When terminating an employee without cause, offering severance pay can mitigate the potential legal risks associated with such terminations. It demonstrates fairness and goodwill, providing a financial cushion to support the employee during their job search or transition period.
  • Non-compete and confidentiality agreements: In situations where employers require employees to sign non-compete or confidentiality agreements, offering severance pay can provide a financial incentive for departing employees to uphold their obligations, protecting the employer’s business interests.

It is important to note that the applicability and specifics of severance pay may vary based on the employer’s policy, employment agreements, and applicable federal and state laws for things like insurance benefits, unemployment benefits, non-compete clauses, and unused vacation. It is good practice to consult employment attorneys to ensure compliance and fairness.

Final paycheck laws

While there are no specific federal or state laws mandating severance pay, “final paycheck” laws surrounding termination of employment vary between states. Final paycheck laws dictate the timing and requirements for providing employees with their last paycheck after leaving a job.

Final paycheck laws refer to the legal regulations employers must adhere to when issuing final payments to employees leaving their positions. These laws cover aspects such as the timeframe for payment, differentiating between voluntary resignations and involuntary terminations, and whether accrued vacation time should be included in the final payment. The specifics of these laws can vary significantly from state to state, so it’s crucial to understand and comply with the regulations that apply to your jurisdiction.

To assist you in navigating the intricacies of final paycheck laws, we have compiled a comprehensive table outlining the specific requirements and guidelines for each state in the US as of 2023. In the table, we have differentiated between situations where an employee resigns voluntarily or if they are fired. For more in-depth information, click on the respective state hyperlinks. 

State Final wages (voluntary resignation) Final wages (if employee is fired)
Alabama N/A N/A
Alaska Paid by the next scheduled payday that is at least three (3) working days after their last day worked. Within three (3) working days of termination (not counting weekends and holidays)
Arizona Paid by the next scheduled payday Within seven (7) business days or the next payday (whichever is sooner)
Arkansas Paid by the next scheduled payday Paid by the next scheduled payday. If employers fail to do so within seven (7) days of the next regular payday, they must pay double the wages due
California Within 72 hours or at the time of quitting (time periods may vary by industry) Immediately
(time periods may vary by industry)
Colorado Paid by the next scheduled payday Immediately 
Connecticut Paid by the next scheduled payday Paid by the next business day if discharged or fired. Next regular payday if laid off.
Delaware Paid by the next scheduled payday Paid by the next scheduled payday
District of Columbia Within seven (7) business days or the next payday (whichever is sooner) Paid by the next business day
Florida N/A N/A
Georgia N/A N/A
Hawaii Immediately or next scheduled payday, depending on date of final notice Immediately or next business day
Idaho 1) Within ten (10) working days or the next payday, or 2) if the employee requests an earlier payment in writing, it must be within 48 hours of receiving the request (whichever is sooner) 1) Within ten (10) working days or the next payday, or 2) if the employee requests an earlier payment in writing, it must be within 48 hours of receiving the request (whichever is sooner)
Illinois Paid by the next scheduled payday Paid by the next scheduled payday
Indiana Paid by the next scheduled payday Paid by the next scheduled payday
Iowa Paid by the next scheduled payday Paid by the next scheduled payday
Kansas Paid by the next scheduled payday Paid by the next scheduled payday
Kentucky Paid within fourteen (14) days or the next scheduled payday (whichever is later) Paid within fourteen (14) days or the next scheduled payday (whichever is later)
Louisiana Paid by the next scheduled payday or within fifteen (15) days (whichever is sooner) Paid by the next scheduled payday or within fifteen (15) days (whichever is sooner)
Maine Paid by the next scheduled payday Paid by the next scheduled payday
Maryland Paid by the next scheduled payday Paid by the next scheduled payday
Massachusetts  Paid by the next scheduled payday or, in the absence of a regular payday, the Saturday that follows an employee’s resignation Immediately
Michigan Paid by the next scheduled payday. For employees engaged in any phase of the hand harvesting of crops, final pay must be given within 1 working day of termination. Paid by the next scheduled payday. For employees engaged in any phase of the hand harvesting of crops, final pay must be given within 1 working day of termination.
Minnesota Paid by the next scheduled payday that’s at least five (5) days after an employee’s last day but no more than 20 days after their final day Within 24 hours of receiving a demand from employee
Mississippi N/A N/A
Missouri N/A Immediately
Montana Paid by the next scheduled payday or fifteen (15) calendar days (whichever is sooner) Immediately (within four hours or end of the business day, whichever occurs first)OR

In presence of a written policy that extends the time for payment, the wages may not be delayed beyond the next payday or fifteen (15) calendar days (whichever is sooner)
Nebraska Paid by the next scheduled payday or within two (2) weeks (whichever is sooner) Paid by the next scheduled payday or within two (2) weeks (whichever is sooner)
Nevada Paid by the next scheduled payday or within seven (7) days (whichever is sooner) Within three (3) days
New Hampshire Paid by the next scheduled payday or within 72 hours (if employee gives notice of at least one pay period) Within 72 hours of time of termination
New Jersey Paid by the next scheduled payday Paid by the next scheduled payday
New Mexico Paid by the next scheduled payday, unless there’s a written contract stating a designated period Within five (5) days after termination. But if pay calculation is based on tasks or commissions, final paycheck must be paid in 10 days.
New York Paid by the next scheduled payday Paid by the next scheduled payday
North Carolina Paid by the next scheduled payday Paid by the next scheduled payday
North Dakota Paid by the next scheduled payday As agreed upon by both parties. If there’s no agreement, the employee must pay via certified mail at an address designated by the employee.
Ohio Next regular payday or within 15 days of termination, whichever comes sooner. Next regular payday or within 15 days of termination, whichever comes sooner.
Oklahoma Paid by the next scheduled payday Paid by the next scheduled payday
Oregon Immediately if the employee gave 48 hours’ notice. Otherwise, within five (5) days or the next scheduled payday (whichever comes first) Next business day
Pennsylvania Paid by the next scheduled payday Paid by the next scheduled payday
Rhode Island Paid by the next scheduled payday or paid within 24 hours if the termination is a result of the liquidation, merger, disposal, or moving of the business out of state. Paid by the next scheduled payday or within 24 hours if the termination is a result of liquidation, merges, disposing of the business or moving the business out of state.
South Carolina Within 48 hours or the next scheduled payday — not to exceed 30 days Within 48 hours or the next scheduled payday — not to exceed 30 days
South Dakota Paid by the next scheduled payday or when employee returns any company property Paid by the next scheduled payday or when employee returns any company property
Tennessee Paid by the next scheduled payday or within 21 days (whichever occurs last) Paid by the next scheduled payday or within 21 days (whichever occurs last)
Texas Paid by the next scheduled payday Within six (6) days
Utah Within 24 hours Within 24 hours
Vermont Paid by the next scheduled payday, or, if there is no regular payday, the following Friday  Within 72 hours
Virginia Paid by the next scheduled payday Paid by the next scheduled payday
Washington Paid by the next scheduled payday Paid by the next scheduled payday
West Virginia Paid by the next scheduled payday Paid by the next scheduled payday
Wisconsin Paid by the next scheduled payday Paid by the next scheduled payday or 24 hours if the termination is due to a merge, company liquidation, or ceasing business operations
Wyoming Paid by the next scheduled payday Paid by the next scheduled payday

Get final paychecks right with Workforce.com

Regardless of the reason why you’re issuing a final paycheck, may it be due to voluntary resignation or laying off employees, you need to get their final paychecks right – from computation to timely release. However, it can get complicated because of varying state rules. 

Webinar: How to Tackle Critical Workplace Issues

Workforce.com’s payroll platform ensures that final paycheck computations are correct according to applicable state rules. It also takes into account everything that goes into that final paycheck, from deductions, accrued PTOs, time worked all within the scope of your company policies and that of the state or federal government. 

Saying goodbye to employees, regardless of the circumstances, is never easy. Workforce.com helps lighten the administrative load, ensuring a smooth offboarding process and fostering an amicable end to the employment relationship.

Discover how Workforce.com can simplify payroll and HR processes for your hourly teams. Book a demo today. 

This information is for general purposes only and should not be considered legal advice. While we strive to keep it updated, laws and regulations can change at any time. It’s always a good idea to consult with a legal professional or relevant authorities to compliance with the most current standards.