5 Payroll Tax Issues - and How to Avoid Them
Are Your Payroll Taxes Going to the Right Ohio City?
Your employees get paid on time. Their hours are right. Their paychecks look normal.
But that does not always mean their local taxes are set up correctly.
An employee might move to a different office. A crew might start a new job site. Someone might begin working from home. If those changes never reach payroll, taxes could keep going to the wrong city.
This is easy to miss. Paychecks still go out. No one notices a problem until a question comes up or someone reviews the records.
For Ohio businesses, work locations should be part of your regular payroll review. That is especially helpful for construction companies, restaurants with several locations, and medical offices where staff move between branches.
Start with where the employee works
In Ohio, employers generally withhold city income tax based on where employees earn their wages. There are exceptions, so the right setup depends on the situation.
Where an employee lives matters, too. But it is a separate question. Ohio law also allows employers to withhold taxes for an employee’s home city at the employee’s request.
Start with a few basic questions:
Where does the employee live?
Where do they usually work?
Do they work at more than one location?
Has their schedule or work location changed?
For example, a restaurant employee might live in one city and work in another. A medical assistant might spend three days at one office and two days at a second office. A construction employee might report to the shop, then head out to different job sites.
Those details help payroll decide what to review. A home address or company headquarters address alone may not be enough.
Check the full street address
Do not rely only on the city name in a mailing address.
Use the full street address to check which tax area applies. This is especially helpful when a location is near a city boundary.
The Ohio Department of Taxation’s The Finder lets you look up tax information by address. The department recommends checking the results with the proper city or county auditor, even if the tool shows no tax is due.
Do this when you add a new office, restaurant, or job site. Keep the result with your payroll records.
For a construction company, that means giving payroll the actual job site address. “Smith project” or “north side job” may make sense to the crew. It does not give payroll enough information to check the city tax setup.
The 20-day rule has exceptions
You may have heard that employees can work in another Ohio city for 20 days before you need to change withholding.
That is not a rule you can apply to every job.
When Ohio’s occasional entrant exception applies, an employer can generally keep withholding for the employee’s main work city during short assignments elsewhere. Withholding for the other city generally starts with the employee’s 21st workday there during the calendar year.
Construction companies need to check one important exception. If the employer reasonably expects to provide services at a temporary job site for more than 20 days, withholding can be required from day one. That can apply even if a particular employee will work there for fewer than 20 days.
Ohio also has a separate rule for businesses that meet the law’s definition of a small employer.
For example, your company might expect a project to take six weeks. One employee may only help for three days. Do not assume those three days automatically qualify for the exception.
Before work starts, give your payroll provider the site address and expected project length. Ask them to confirm which rule applies.
Location changes can slip through the cracks
An employee’s pay rate and job title can stay the same while their work location changes.
A restaurant manager might cover shifts at another store. A receptionist might transfer to a different medical office. A construction crew might finish one project and start another across a city line.
If payroll only receives total hours, it may never see the change.
Think about a restaurant employee who works 30 hours at their usual location and 10 hours at another location. A time report that only shows “40 hours” leaves out something payroll may need.
Your records should show enough detail for payroll to review where the work happened. Have your provider confirm how wages should be assigned when employees work in more than one place.
Tell payroll when remote work changes
Working from home is a work location change, too.
If someone starts a remote or hybrid schedule, let payroll know. Share:
The address where they work from home.
The date the arrangement starts.
Whether they work from home full time or part time.
Their usual office schedule.
Have your payroll provider review the setup and any exceptions that apply.
The same goes for an employee who moves while working remotely. Updating their mailing address is one step. Checking their withholding setup is another.
A simple form can help. Use it whenever someone changes offices, starts remote work, or moves to a new home work address.
Make it easy for managers to report changes
Payroll cannot review information it never receives.
A supervisor may know the crew moved to a new site. An office manager may know someone now works at a different branch. But payroll might still be using last month’s location.
Give managers one clear way to report these changes.
Ask them to send the work address, start date, expected end date, and employees involved. For construction jobs, include how long the company expects to provide services at the site.
Set a deadline before payroll is processed. Choose one person to receive the updates and make sure they are reviewed.
The process does not need to be complicated. A short form or shared report can work. What matters is that the information reaches payroll in time.
Review what is already in your system
Start with employees who move between locations or have changed work arrangements.
Compare where they actually work with the locations listed in payroll. Then check the tax codes tied to those locations.
A useful review includes:
Home addresses. Are they complete and current?
Work addresses. Does payroll have the full address for each location?
City tax settings. Do they match the reviewed work locations?
Time records. Can you tell where employees worked?
Exceptions. Has your provider checked which rules apply?
Tax records. Do payments and year-end reports match the reviewed setup?
Software can calculate taxes from the settings entered into it. But it still needs current information.
If an old location stays in the system, the software may keep using it each payday.
If you find a mistake, check how far back it goes
Before changing a tax code, gather the employee’s work history.
Find out when the location changed. Identify the affected pay periods. Check what was withheld and where the money was sent.
Then work with your payroll provider and the proper tax office to decide how to correct it.
Fixing future paychecks may be part of the answer. Earlier payments or tax filings may need attention, too.
Keep notes on what happened, who reviewed it, and what was corrected. Those records will help if an employee or tax office asks questions later.
A quick review now can save work later
When payroll runs smoothly, it is easy to assume everything is right.
But getting employees paid and keeping their local tax setup current are both part of the job.
Build location checks into hiring, transfers, new projects, and remote work changes. Review employees who move between sites. Make sure managers know what information payroll needs.
You do not need to wait for a tax notice to take a closer look.
Not sure your payroll setup matches where your team works? Aquila Payroll Services can help with a free Payroll Health Check.
We can review your setup, spot questions that need attention, and help you understand the next steps.