Operational Gaze:
How to Run Payroll in Delaware?

January 31st 2024

In Delaware, managing payroll requires strict adherence to the state’s tax laws. This guide breaks down the process for employers, covering key steps like registering with tax agencies, calculating deductions accurately, and meeting important filing deadlines. It’s designed to give employers and employees in Delaware a clear understanding of payroll procedures, helping them handle it confidently while staying compliant.

This Article Covers

Laws That Affect Payroll Procedures in Delaware
Worker Classifications in Delaware
Payroll Forms and Relevant Bodies in Delaware
Applicable Taxes in Delaware
Key Pay Elements That Impact Payroll in Delaware
Step-by-Step Guide to Payroll in Delaware

Laws That Affect Payroll Procedures in Delaware

In the space of payroll procedures, certain legal regulations govern how employees are compensated and businesses must adhere to these rules. 

Delaware Laws

  • Minimum Wage: Delaware aligns with the federal minimum wage rate, currently set at $13.25 per hour for non-exempt employees, unless specific exemptions apply.
  • Wage Payment Statutes: The Delaware Wage Payment Statute outlines that employees must be paid at regular intervals, not exceeding 31 days. Salaries, wages, or amounts due upon separation should be settled by the subsequent payday.
  • Overtime Laws: In accordance with Delaware overtime laws, employers in Delaware are required to compensate non-exempt employees at 1.5 times the regular rate for hours worked over 40 in a standard workweek, following federal standards.
  • Paid Breaks and Lunch Periods: In Delaware, employees working 7.5 hours or more per day are entitled to a mandatory meal break lasting a minimum of 30 minutes. This break should be provided after the initial 2 hours of work and before the final 2 hours of the workday. For minors, a 30-minute break is mandated for every 5 hours worked.
  • Deduction from Wages: Delaware law restricts employers to deduct only legally authorized amounts, such as taxes or court-ordered garnishments, and those agreed upon in writing by the employee.
  • Final Paycheck Laws: In cases of employee resignation or termination, Delaware mandates that employers provide the final paycheck by the subsequent regular payday through designated payment channels or mail upon request.

Federal Laws

  • Fair Labor Standards Act (FLSA): In Delaware, the FLSA dictates specific guidelines regarding minimum wage, overtime pay, recordkeeping, exemptions, and regulations pertaining to child labor. It extends its jurisdiction across various sectors, including private businesses and government entities at different administrative levels. The FLSA plays a pivotal role in overseeing and regulating labor practices within the state.
  • Federal Insurance Contributions Act (FICA): Under the FICA in Delaware: both employers and employees bear the responsibility of contributing to Social Security and Medicare. Employers must withhold 6.2% for Social Security and 1.45% for Medicare from each employee’s earnings. Concurrently, employers match these deductions, resulting in a combined FICA payroll tax rate of 15.3% for each employee.
  • Federal Unemployment Tax Act (FUTA): FUTA in Delaware requires employers to contribute to unemployment taxes, providing benefits to eligible employees facing job loss. While not directly deducted from employee wages, FUTA contributions necessitate careful consideration in every payroll cycle. Typically, a 6% tax is imposed on the initial $7,000 distributed annually to an employee, subject to specific industry exceptions.

HR Laws

In Delaware, employers must adhere to specific rules about reporting new hires and displaying necessary posters.

  • New Hire Reporting: Delaware requires employers to inform the relevant department within 20 days of hiring, recalling, or rehiring a new employee. This report must include the employee’s full name, address, social security number, employer details, and Federal Tax ID number.
  • Posting Requirements: Delaware labor laws mandate that all employers prominently showcase various labor law posters in the workplace. These posters cover crucial topics like minimum wage, health and safety regulations, and other essential statutes to ensure employees are informed and compliant.

Worker Classifications in Delaware

Employees and Independent Contractors

In Delaware, correctly categorizing workers as employees or independent contractors is crucial. Classification is determined on factors like control, work independence, and job nature. Misclassification can lead to serious legal and financial troubles. Employers must comply with state and federal rules, including reporting guidelines, to ensure proper classification and follow employment laws.

To know more about the rights of salaried and hourly employees, check out our guides on your rights as a salaried employee in Delaware, and your rights as an hourly employee in Delaware. Understanding these resources helps navigate Delaware’s employment regulations effectively.

The Right to Control Test

Delaware relies on the “right of control” assessment to distinguish between employees and independent contractors, using the ABC test. In Delaware, a worker is presumed to be an employee unless:

  • They work without direct control or direction from the employer and will continue to do so while providing services.
  • Services are conducted away from the employer’s place(s) of business.
  • The worker is engaged in an independent occupation, trade, or business that aligns with the nature of the service they offer.

These conditions help courts in Delaware determine whether a worker falls under the category of an employee or an independent contractor.

Payroll Forms and Relevant Bodies in Delaware

Delaware Payroll Forms

  • Form W-4DE: Employee’s Withholding Allowance Certificate for Delaware state income tax withholding.
  • Employer’s Quarterly Return of Income Tax Withheld (Form W-1): Quarterly report of state income taxes withheld from employee wages.
  • UC-8A/UC-8: Unemployment Insurance Quarterly Wage Report and Tax Return. Employers report wages and pay unemployment insurance taxes using these forms.

Federal Payroll Forms

  • W-4 Form: This form assists employers with calculating how much tax they should take from their employees’ paychecks accurately.
  • Form 941:  This form is used quarterly, it tells the IRS how much employees earned and how much got taken out for FICA taxes from their pay.
  • Form 944: This form is completed and submitted once a year, it gives detailed info about employees’ pay and FICA tax deductions.
  • W-2 Form: This form provides a complete summary of how much each individual employee earned in a year.
  • W-3 Form: This form helps employers summarize all employees’ pay and tax info, packed into one.
  • Form 940: This report tells the IRS about the unemployment taxes a company owes.
  • 1099 Forms: These forms allow employers to officially report what employees earned in a year and how much FICA tax was taken out.

Federal and Delaware Payroll/ Tax Bodies

Applicable Taxes in Delaware

Taxation in Delaware operates under specific guidelines impacting residents and non-residents earning income in the state. These taxes fall into state and federal categories, each carrying distinct obligations for employers and employees.

State Taxes

  • Delaware State Income Tax: Individuals, whether residents or non-residents, earning income within Delaware, face a variable, progressive state income tax. Employers must accurately calculate and deduct this tax from employees’ regular wages, necessitating precise payroll management.
  • Delaware Unemployment Tax: Employers in Delaware contribute to the state’s unemployment insurance program via taxes, dependent on their history and the state’s fund balance. Although it doesn’t directly affect employee pay, it’s a significant obligation for employers concerning payroll management.
  • Delaware Workers’ Compensation Insurance: Although not a tax, Delaware mandates employers to carry workers’ compensation insurance, covering work-related injuries or illnesses. The cost varies based on industry and claim history, representing a crucial expense for employers ensuring both business and employee protection.

Federal Taxes

  • Federal Income Tax: Employers withhold federal income tax from employees’ paychecks based on their provided information and IRS tax tables. The progressive tax structure escalates with higher taxable income.
  • Social Security and Medicare Taxes (FICA): Both employers and employees contribute to Social Security and Medicare through FICA taxes. Employers are responsible for accurate withholding and matching contributions.
  • Federal Unemployment Tax Act (FUTA): Employers in Delaware separately pay FUTA, which funds the state unemployment system. Unlike other taxes, this isn’t withheld from employees’ wages, playing a vital role in supporting unemployed workers.

Key Pay Elements That Impact Payroll in Delaware

Minimum Wage

Employees in Delaware are entitled to a minimum wage of $13.25 per hour.

Overtime

Employees in Delaware who work beyond 40 hours in a workweek are entitled to overtime pay at 1.5 times their regular rate. Some exemptions exist, but for most workers, this rule applies. Overtime impacts payroll by increasing labor expenses for additional hours worked. Employers must accurately track hours to meet legal requirements and ensure employees receive proper compensation.

Workers’ Compensation Insurance

Employers in Delaware are required to carry workers’ compensation insurance, which covers medical expenses and lost wages resulting from work-related injuries or illnesses. This insurance is a crucial payroll consideration, influencing overall employment costs. It serves as a safety net for both employers and employees in unforeseen workplace incidents.

Pay Stub Laws

Delaware law stipulates that employers must furnish employees with a comprehensive statement for each pay period. This statement should detail gross earnings, deductions, and net pay. Providing this breakdown ensures transparency in compensation and deductions. Failure to comply may result in penalties. These regulations streamline payroll processing and foster mutual understanding between employers and employees.

Paycheck Deduction

Delaware employers may need to withhold wages for court-ordered garnishments, such as child support or tax levies. Accurate calculation, documentation, and remittance of these deductions to the relevant agency are essential. Comprehending garnishment laws is vital for payroll compliance, preventing legal consequences and safeguarding employee rights.

Final Paycheck

When employees Delaware either quit or get fired from their jobs, they must receive their final paycheck by the next regular payday. This paycheck should include compensation for all worked hours and accrued leave if applicable. Timely and accurate final paychecks are pivotal for compliance and maintaining a positive employer-employee relationship. Employers should ensure smooth processing to evade disputes and penalties.

Step-by-Step Guide to Payroll in Delaware

  • Step 1: Complying with State Payroll Laws: In Delaware, businesses must adhere to federal and state payroll regulations. Begin by registering your company with the Delaware Division of Revenue. Ensure compliance with the state’s minimum wage laws, which align with the federal standard. Overtime pay is mandated at 1.5 times the regular rate for hours exceeding 40 in a workweek. Unlike some states, Delaware doesn’t mandate pay stub distribution.
  • Step 2: Employee Documentation and Setup: Each employee should complete a federal W-4 Form for federal tax withholdings and a Delaware W-4 Form for state tax withholdings. Collect essential personal information and set up employee profiles in your payroll system. This includes their full name, nine-digit Social Security numbers (SSN) issued by the SSA, address, and agreed-upon wage. Accurate records are vital for tax purposes and to resolve any wage-related disputes.
  • Step 3: Processing Payroll: Once registration and documentation are complete, establish a consistent pay period – weekly, bi-weekly, or monthly. Calculate gross pay based on hours worked and the agreed wage. Deduct federal and state taxes using the data from W-4 and Delaware W-4 Forms. Consider additional deductions like retirement contributions. The resulting amount after deductions is the net pay received by the employee.
  • Step 4: Payroll Tax Compliance: Employers in Delaware must withhold federal income tax, Social Security, and Medicare taxes, as well as state income tax. It’s your responsibility to remit employer payroll taxes to the IRS and the Delaware Division of Revenue. Report and pay federal taxes using Forms 940 and 941, and state taxes through the Division of Revenue’s portal. Timely payments prevent penalties and interest on late payments.
  • Step 5: Year-End Documentation: Reconcile payroll records at year-end. Issue W-2 forms to employees by January 31st, displaying annual wage and tax details. File these forms with the Social Security Administration (SSA) for federal tax reporting and with the Delaware Division of Revenue for state taxes. Retain all payroll records for at least four years to facilitate potential audits.
  • Step 6: Record-Keeping and Addressing Discrepancies: Maintain comprehensive payroll records for each employee, detailing hours worked, wages paid, and deductions made. Should discrepancies arise, refer to these records for resolution. Delaware law necessitates retaining these records for at least three years. Regularly review your payroll procedures to ensure ongoing compliance with federal and state laws.
  • Step 7: Keeping Abreast of Changes: Payroll regulations evolve, so it’s important to stay informed about updates in federal and state laws that might impact your payroll system. To stay informed of updates from the IRS and the Delaware Division of Revenue, employers can actively participate in online forums. Attend seminars or training sessions on payroll management regularly. This proactive approach safeguards compliance and prevents costly errors due to outdated practices or misinterpretation of current laws.

Final Thoughts

Managing payroll in Delaware can be a challenging task. Employees must ensure they diligently adhere to Delaware’s strict payroll regulations. To simplify the often complex process of managing payroll, consider exploring our comprehensive list of the top 6 applications tailored to streamline payroll responsibilities in the United States. If you’ve already established a payroll system, we’ve provided ten tips to enhance your payroll procedure within the United States.

Important Cautionary Note

When making this guide, we have tried to make it accurate, but we do not give any guarantee that the information provided is correct or up-to-date. We therefore strongly advise you to seek advice from qualified professionals before acting on any information provided in this guide. We do not accept any liability for any damages or risks incurred for the use of this guide.