#multistatepayroll

Payroll isn’t just about cutting checks anymore - especially when your workforce spans multiple states. With tax rules changing and remote work here to stay, keeping up with multi-state payroll requirements can feel overwhelming.

This webinar dives into the most important multi-state payroll tax issues for 2026, including withholding rules, compliance challenges for remote employees, and common mistakes that can lead to penalties. It’s a practical session designed to help payroll, HR, and tax professionals build stronger processes and stay compliant.

Multi-State Payroll Is Where Construction Payroll Breaks

Managing payroll for a construction company sounds simple—until your crews are working in multiple states at the same time.

One week it’s Texas. Next week it’s California. Then someone crosses into Nevada for a public works job.

Suddenly payroll isn’t “just payroll” anymore.

It’s prevailing wage, union fringes, certified payroll deadlines, and state tax rules that don’t agree with each other.

Why multi-state construction payroll gets complicated fast

Every state brings its own rules:

Different prevailing wage databases and classifications

Union contracts with unique fringe benefit requirements

Apprentice and training fund rules that change by location

State and local tax withholding that depends on where work happens—not just where workers live

Certified payroll reports with strict deadlines and zero tolerance for errors

One mistake can mean back pay, audits, penalties, or losing eligibility for future public works projects.

And spreadsheets? They collapse under that kind of pressure.

Prevailing wage isn’t flexible—and it’s not optional

Prevailing wage rates change by:

State

Trade

Project type

Funding source

Apprentice status

Miss an update or classify a worker incorrectly and the consequences are immediate: back pay liability, audit findings, or contract disqualification.

There’s no room for guesswork here.

Union fringes add another layer

Union payroll isn’t just hourly pay. It includes:

Pension contributions

Healthcare funds

Apprenticeship requirements

Training fund payments

Overtime rules that vary by contract

Now multiply that across several states with different union agreements.

Manual calculations don’t just slow things down—they introduce risk.

Certified payroll depends on upstream accuracy

Certified payroll reports only work if the payroll data behind them is flawless.

If:

Wage classifications are wrong

Fringe calculations are off

Hours are miscategorized

…the report fails. And failed reports trigger audits.

Certified payroll doesn’t forgive small mistakes.

Multi-state taxes make it even messier

Construction workers often live in one state and work in another. Some states tax residents differently than non-residents. Some have reciprocity agreements. Some have rules specific to construction labor.

Tracking all of that manually is how companies end up with tax exposure they never expected.

The difference automation makes

Construction-specific payroll systems are built for this reality.

They:

Pull prevailing wage rates directly from state databases

Apply union fringe rules automatically by contract

Generate certified payroll reports without rework

Track residency and job location for accurate tax withholding

Maintain audit-ready records across every project

What used to take hours becomes repeatable, accurate, and predictable.

Successful construction companies don’t “work harder” at payroll.

They stop trying to force general payroll tools and spreadsheets to handle construction complexity.

They use systems designed for:

Multi-state crews

Public works compliance

Union labor

Certified payroll reporting

And that shift turns payroll from a constant liability into a controlled process.

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In a construction company, you have thousands of moving parts to keep track of at all times — literally and figuratively. 

Besides maintaining and tracking equipment, bidding, hiring, and managing job sites, construction payroll alone can give you plenty to navigate. Just look at state taxes! And as your business expands across state borders — or as you consider expanding across state borders — understanding how tax regulations can vary from state to state can be, well, taxing.

Your business relationship (or “nexus”) to state tax jurisdictions and the amount owed to them (or “apportionment”) is determined by the overlapping state, federal and other mandates. 

On the one hand, this can lead to contractors being out of compliance with payroll tax obligations — just as often, it can mean paying more than required to additional tax authorities. But don’t let that hold you back from taking on out-of-state jobs. 

The key to success is recognizing some of these common pitfalls and getting help from tax, legal, and construction payroll experts to ensure you’re navigating these issues correctly.

Staying Current is Rule #1

The first key to thriving with multi state payroll is to stay current. Working in two to four states on the same payroll is not unusual for many contractors. 

While winning jobs out of state is good, it can quickly complicate things. The most challenging aspect of working in multiple states is that each jurisdiction has different rules and regulations for payroll and taxes. 

Furthermore, none of them are written in stone, and they can change at any time. When considering the several states that hold potential projects for your company, staying current can be a serious undertaking.

As an example, regulations on recordkeeping can vary from state to state. While some states have no recordkeeping requirements, most require that employers retain records for a minimum of three years. 

Be sure to learn these requirements before you begin work in a new state — especially if your home state doesn’t have such requirements. 

Penalties and fines will also differ from state to state, including civil penalties, misdemeanor convictions, jail time, and fines from $100 to $10,000.

Additionally, some states hold reciprocity agreements with each other. Reciprocity between two states is an agreement allowing workers to pay taxes only to the state where they live. When this article was written, Ohio and Pennsylvania have a reciprocity agreement in which Ohio residents who work in Pennsylvania don’t have to pay Pennsylvania taxes. 

But these laws change. Pennsylvania and New Jersey had a reciprocity agreement that lasted almost 40 years but ended on January 1, 2017. Suddenly, companies and workers had to pay taxes to both states.

Steer Clear of Double Taxation

Besides keeping up with different regulations, double taxation can also arise. This occurs when an employee pays taxes twice on the same income — once for State A and once for State B, doubling the income tax they’re paying. 

Avoiding double taxation requires time and attention to detail. Employers must ensure that work is allocated to the correct state on timecards. Employees should carefully check paystubs to verify that their work is being reported to the state where the job was performed.

At tax time, the employee must file a resident state income tax return to report all income, including income earned out of state. They’ll also file a non-resident state income tax return to report only the income earned in that state. 

The resident state will typically give a tax credit for taxes paid on out-of-state work. As a result, the employee will pay taxes only once on their income.

Avoiding Overpayment in Unemployment

Along the same lines as double taxation, many contractors unknowingly pay unemployment insurance to the additional states in which they work while only needing to pay their base state. To determine where to pay unemployment insurance, four factors set by the U.S. Department of Labor should be considered.

1. Are the services localized? Localized means that the work is performed entirely in one state or that the work performed in additional states is incidental — meaning temporary. For example, a Florida worker receives a request to complete a job in Georgia. The job in Georgia is completed in a few months, and he returns to Florida on his original job. 

In this case, work is localized to Florida since the work in Georgia was temporary. When work is localized, state unemployment tax (SUTA or SUI) will be paid to that state. If not, consider the following factors.

2. Does a base of operations exist for the employee? When services aren’t localized in one state, determine if there’s a base of operations for that employee. A base of operations can be an office or a place where employees get instructions, receive or repair supplies and equipment, designate mail service, or manage and maintain business records. SUTA or SUI goes to the state where a base of operations is located.

3. Is there a place of direction or control? You might not have a base of operations, but if there’s a location from which you direct or control an employee, taxes for all work performed will be reported to that state.

4. What’s the employee’s state of residence? Consider the state where the employee resides if there’s no localization, no base of operations, and no center of direction or control.

Once these four factors have been considered, you should have narrowed down the state to which SUTA or SUI will be paid for that employee. 

Unemployment should typically be paid to only one state per employee. Again, it is always best to consult your payroll or legal expert to confirm your thought process and decision.

Take Time Now to Avoid Issues Later: A Few Best Practices

Much like many other aspects of business — and life — what can help avoid issues with state taxes is being prepared and detailed from the beginning.  Once a job is awarded, thoroughly research the state tax rules and regulations.

Additionally, the more detailed your timecards are, the better. This includes cost codes, trades, and hours worked, broken out by each job. It’s also extremely important to make sure you have job and employee records up to date at all times, especially home addresses. This takes more time upfront but will pay off greatly as you file taxes.

Finally, ensure you have numerous reports available and processes in place to review your payroll details before payroll is processed. Running timecards and proofing reports may help you catch mistakes and avoid issues in the future.

Work With A Company That Knows How To Handle Multi-State Taxes

Having reviewed a handful of multi-state tax issues here, we’ve only scratched the surface regarding working in multiple states. However, contractors don’t have to — and shouldn’t — go it alone. 

Taxation and legal counsel are irreplaceable. Construction-specific CPAs are a must-have for contractors of any size, and along with their professional guidance, a construction-specific payroll service can execute tax-compliant processing without headaches.