Payroll in Pennsylvania

Wage and Hour Laws in Pennsylvania 

Minimum Wage

Minimum wage in Pennsylvania mirrors the federal minimum wage standard of $7.25, in alignment with the Fair Labor Standards Act (FLSA). Workers must be paid for any hours worked, regardless of pay frequency and the basis of pay (salary, hourly, commission, or otherwise).

In Pennsylvania, some types of workers and employees may be compensated at a subminimum wage rate, assuming certain requirements are met. For instance, tipped employees may be compensated at a rate of $2.83/hour, assuming the employee receives tips that bring total compensation to the state and federal minimum wage standard.

Workers with disabilities, learners, and students may also be paid subminimum wage under certain circumstances. Students, for example, may be paid at a rate of $6.16 per hour as long as the business applies for a special certificate and each student employee works limited hours (20-40 hours weekly, depending on the time of year).

Unemployment Requirements in Pennsylvania

Based on Pennsylvania state law, all businesses providing full- or part-time employment to one or more workers are required to register with the Pennsylvania Department of Labor & Industry, Office of UC Tax Services. You can obtain your SUI (State Unemployment Insurance) ID here, or file for PA Online Business Tax Registration if you are a new business in Pennsylvania.

The Federal Unemployment Tax is paid by the employer only and is at a rate of 0.6% up to the first $7,000 in wages paid to the employee for a total of $42.00 per employee per year. Pennsylvania State Unemployment Tax is paid by the employer and the employee. The employee rate is .07% on all wages paid to the employee. The employer portion of the State Unemployment Tax varies based on the employer’s experience rate, which ranges from 1.419% to  10.373%, with the tax rate for employees set at 0.07% for 2023.

Income Tax Withholding in Pennsylvania

Employers in Pennsylvania must withhold federal income tax from employee wages, as well as Social Security tax and Medicare tax (both of which require a matching contribution from employers).
Additionally, employers are required to withhold state income tax from employees’ wages, remitting any withheld amounts to the PA Department of Revenue. These taxes must be withheld from payment of wages to employees, whether they are resident employees performing within or outside of Pennsylvania, or nonresident employees performing services within Pennsylvania. Income tax may be withheld on a semi-weekly, semi-monthly, monthly, or quarterly basis, depending on a number of factors outlined here.

After completing Pennsylvania Business Tax Registration, employers can start withholding income tax at the current rate of 3.07%. The PA-W3 form is used to reconcile the employer withholding activities for each calendar quarter to the payments paid for PA income tax. The PA-W3 is still due if withholding did not occur. If one or more of your employees reside in a reciprocal state (Indiana, Maryland, New Jersey, Ohio, West Virginia, or Virginia), they must complete Form REV-419 and you should contact the Department of Revenue in the state where the employee resides.

Local Taxes in Pennsylvania

Navigating local tax requirements as a Pennsylvania employer is uniquely complex, namely due to the over 3,000 local tax jurisdictions and political subdivisions (PSD)s that affect employer responsibilities and employee tax rates.

In Pennsylvania, any employer with a Pennsylvania worksite (office, branch, factory, warehouse, or remote employee residency) must withhold and remit Earned Income Tax (EIT) to fulfill Pennsylvania local income taxes. In some cases, Local Services Tax (LST) also applies based on location or the amount of total annual income an employee earns.

For local tax purposes, you must determine each employee’s local tax rate by verifying the PSD code, EIT rate, and LST rate (in some cases) that applies to the municipality where they work or live (for EIT, the higher of the two applies). For LST rate, employer deduction applies to the jurisdiction where an employee works, assuming the worksite is in an LST taxing jurisdiction.

Additionally, you are required to register your business with each municipal tax agency or complete the Employer Registration for Local Earned Income Tax Withholding form, which allows you to obtain a local tax ID number. Bear in mind that, in some cases, it is possible to remit EIT for employees across locations to one tax collection district.

Earned income tax (EIT) and local services tax (LST) requirements can vary based on where an employee works and lives, as well as other factors like the employee’s total earned income; school taxes that apply to the municipality where they live or work; or an employee’s qualification for upfront or low-income exemption from LST.

CAVU specializes in supporting PA businesses with payroll efficiency and compliance, whether your organization utilizes multiple worksites/locations or employs a workforce that lives and works in a range of municipalities. Local taxes are particularly challenging in Pennsylvania, which is why we leverage automated software and regulatory expertise to streamline and simplify the process for your entire business, eliminating compliance concerns so you can focus on your core tasks.