Operational Gaze:
How to Run Payroll in South Carolina?

August 8th 2024

Are you navigating the complexities of running payroll in South Carolina? Understanding state-specific regulations is crucial for both employers and employees. This comprehensive guide provides an insightful overview of the essential steps, from tax obligations to compliance with local labor laws. It’s designed to ensure your payroll process is both efficient and compliant, helping you avoid common pitfalls and maintain a smooth operation in the Palmetto State.

This Article Covers

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

Laws That Affect Payroll Procedures in South Carolina

South Carolina Laws

  • Unemployment Insurance Tax: South Carolina mandates unemployment insurance tax as part of the US Department of Labor program under the Social Security Act. New employers pay 0.55% of the payroll liability for the first year. Subsequently, these rates are recalculated annually based on the employer’s claim history. This tax is in addition to both state and federal unemployment taxes under the FUTA, ensuring financial support for unemployed workers.
  • Payroll Tax Due Dates: Employers must adhere to specific due dates for payroll tax submissions based on the amount withheld. If less than $500 is withheld per quarter, payments are due quarterly by the end of the following month. For amounts exceeding $500 per quarter, monthly payments are required by the 15th of the following month, ensuring timely remittance​​.
  • Submission of Payroll Taxes: Employers are required to file payroll taxes electronically through MyDORWAY, especially if withholding exceeds $15,000 per quarter or if there are 24 or more withholding payments in a year. This user-friendly platform facilitates uploading W2s, filing taxes, making electronic tax payments, and checking filing status efficiently and securely.
  • Local Tax Laws: In South Carolina, there are no local taxes. Employers need only concern themselves with state withholding when filing payroll taxes, simplifying the tax filing process​​.
  • Nonprofit Organizations and Payroll Taxes: In South Carolina, 501(c)(3) nonprofit organizations are generally exempt from paying certain payroll taxes, including state unemployment insurance taxes, as per the provisions of the South Carolina Unemployment Insurance Act (SUIA). However, they must still comply with other applicable tax requirements.
  • Workers’ Compensation Coverage: Employers with 4 more employees are required to purchase workers’ compensation insurance. This covers medical expenses and wages for employees injured on the job. Compliance with state regulations for this coverage is mandatory​​.

Federal Laws

As compared to state-mandated laws, federal laws provide a nationwide framework for payroll procedures that must be adhered to by employers in South Carolina and across the USA.

  • Fair Labor Standards Act (FLSA): The FLSA is a federal law that sets standards for minimum wage, overtime pay, recordkeeping, and youth employment. As of the last update, the federal minimum wage is $7.25 per hour, although employers in South Carolina must comply if state minimum wage laws dictate a higher amount. Overtime must be paid at a rate of at least one and one-half times the employee’s regular rate for hours worked beyond 40 in a workweek.
  • Family and Medical Leave Act (FMLA): The FMLA sets out provisions for leave entitlement. Eligible employees have the right to take up to 12 weeks of unpaid leave for events such as childbirth, adoption, or the care of a family member with a serious health condition.
  • Federal Insurance Contributions Act (FICA): The FICA requires that employers deduct Social Security and Medicare taxes from paychecks and also make a matching contribution. As of the current information available, the Social Security tax rate was 6.2% for the employer and 6.2% for the employee on earnings up to the applicable taxable maximum amount. Medicare tax was 1.45% each for both employer and employee, with an additional 0.9% for high earners.
  • Federal Unemployment Tax Act (FUTA): FUTA imposes a federal payroll tax on employers to help fund state unemployment agencies. Employers pay this tax annually, and it is calculated at 6% of the first $7,000 paid to each employee as wages during the fiscal year. Significantly, employers can receive a credit of up to 5.4% for making timely and full payments of state unemployment taxes, effectively reducing the FUTA rate to a more manageable 0.6%.

HR Laws

  • New Hire Reporting: Employers must report all new and rehired employees within 20 days of date using the South Carolina New Hire Reporting portal. The report must include employer and employee information. Failure to report or provide false information incurs penalties​​.
  • Meal Breaks: Under current South Carolina law, there is no state mandate requiring meal breaks or lunch periods for employees. Employers may choose to offer breaks at their discretion, but they are not legally obligated to do so. If breaks are offered, the specific details and policies should be clearly outlined in the company’s employee handbook for reference and clarity.
  • Paid Sick Leave & Paid Time Off: There is currently no law mandating private sector employers to provide either paid or unpaid sick leave or vacation time in South Carolina. However, if employers voluntarily promise such time off to employees, it then creates a binding legal obligation that must be honored according to employment contracts and company policies.
  • Child Labor Laws: South Carolina has specific regulations on child labor, aligned with the Department of Labor’s Wage and Hour Regulations. Restrictions vary based on age, with minors under 14 generally prohibited from working. For ages 14-15, there are limits on hours and types of jobs. Ages 16-17 have fewer restrictions. These laws ensure the protection of minors.

Worker Classifications in South Carolina

In South Carolina, it’s crucial for both employers and employees to understand the distinction between employees and independent contractors accurately. Note that this classification carries significant legal, tax, and financial implications, affecting rights, benefits, and obligations under employment law. Correctly identifying the status of workers ensures compliance with South Carolina and federal regulations, thereby avoiding potential legal disputes or financial penalties.

Employees and Independent Contractors

The primary difference between an employee and an independent contractor in South Carolina lies in the level of control an employer has over the worker and the independence of the worker.

Employees are typically under the direct control of the employer. This control can manifest in the form of set work hours (monthly/weekly), specific job duties, and the employer’s power to dictate how tasks are performed. Employees are usually entitled to benefits such as health insurance, retirement plans, and workers’ compensation. They are also protected under employment laws, including minimum wage and overtime regulations. From a tax perspective, employers withhold taxes such as Social Security and Medicare from employees’ paychecks.

Independent Contractors, on the other hand, operate with more autonomy. In simple words, they usually have more control over how and when they complete their work, often working on a project-by-project basis. Independent contractors are not typically entitled to employee benefits and are responsible for paying their own taxes, including self-employment tax. They are also not covered by most employment laws, such as those governing minimum wage and overtime.

Common Law

Under “Common Law” rules, the determination of whether a worker is an employee or an independent contractor depends largely on the degree of control and independence. The “right-to-control test” is often used in this assessment. It examines factors such as:

  • Degree of Control: How much control does the employer have over what the worker does?
  • Financial Control: Does the employer control the business aspects of the job? This includes how the worker is paid, whether expenses are reimbursed, and who provides tools and supplies.
  • Relationship Type: Are there written contracts or employee-type benefits such as a pension plan, insurance, or vacation pay? The relationship permanency and the extent to which services provided by the worker are a key aspect of the business of the company are also considered.

The classification of a worker as an employee or an independent contractor in South Carolina is more than a mere label. It’s a critical legal determination that affects legal rights, obligations, and protections for both workers and employers. Therefore, it’s essential for parties on both sides of the employment relationship to understand these distinctions and seek guidance to ensure compliance with relevant state laws and regulations, and to avoid potential legal issues.

To learn more about the rights of salaried and hourly employees, read our guides on your rights as a salaried employee in South Carolina and your rights as an hourly employee in South Carolina.

Payroll Forms and Relevant Bodies in South Carolina

South Carolina Payroll Forms

  • South Carolina Withholding Certificate (Form WH-1605): Form WH-1605 is used by employees to establish state income tax withholding preferences. This form allows employees to specify marital status, allowances, and withholding amount they wish to have deducted from each paycheck. Accurate completion of this form ensures that the correct amount of state income tax is withheld from the employee’s wages, aligning with their individual tax situation.
  • South Carolina New Hire Reporting Form: Employers are required to complete the South Carolina New Hire Reporting Form for each newly hired or rehired employee in the company. This form assists in child support enforcement and is used to report basic information about the new employee, including their name, address, Social Security number, and date of hire. Timely submission of this form is vital for compliance with state child support enforcement laws.
  • South Carolina Unemployment Insurance Tax Registration: Businesses must register for Unemployment Insurance Tax using this form. It’s a key requirement for employers to contribute to the state’s unemployment insurance fund. The form gathers details about the business and its employment history. Accurate registration and timely payment of this tax help fund unemployment benefits for workers who have lost jobs through no fault of their own.
  • South Carolina Employee’s Withholding Allowance Certificate (SC W-4): The SC W-4 is a state-specific version of the federal W-4 form in South Carolina. Employees use this form to determine state tax withholding amounts. By declaring allowances and any additional withholding, employees can ensure their employer withholds the correct amount of state income tax from their paychecks, which is crucial for accurate tax reporting and compliance.
  • South Carolina Quarterly Wage Report (Form UCE-120): Form UCE-120 is the Quarterly Wage Report that employers must file. This form reports wages and is essential for calculating unemployment insurance contributions. The report provides details on each employee’s earnings and is crucial for maintaining accurate records of unemployment benefits. Timely and accurate filing of this report is critical for compliance with state employment laws.

Federal Payroll Forms

Alongside South Carolina-specific documentation, federal payroll forms are equally important:

  • Form W-4 (Employee’s Withholding Certificate): The Form W-4, or Employee’s Withholding Certificate, is a federal document that employees across the United States fill out to inform employers about how much federal income tax should be withheld from the wages. The Form W-4 takes into account various factors like marital status, dependents, and additional income to tailor the withholding to the employee’s unique tax situation. With periodic updates, especially after major life events or changes in financial circumstances, the W-4 ensures that employees neither overpay nor underpay the federal income taxes throughout the year.
  • Form W-2 (Wage and Tax Statement): Employers use the Form W-2, known as the Wage and Tax Statement, to report the annual wages paid to each of their employees and the specific amount of taxes withheld. This federal form, issued to every employee before the end of January each year, is vital for individuals when preparing their personal income tax returns. For the employee, it offers a clear summary of their earnings and tax withholdings, while for the IRS, it serves as a record of the individual’s employment-related earnings and tax obligations.
  • Form W-3 (Transmittal of Wage and Tax Statements): The Form W-3 is basically a document used by employers to submit the total of all W-2 forms to the Social Security Administration. This form summarizes the total earnings, Social Security wages, Medicare wages, and withholding for all employees for the year. The W-3, which must accompany the W-2 forms, is an essential tool for the SSA to verify an employee’s income and tax information.
  • Form 940 (Federal Unemployment Tax Act Return): Form 940 is a federal form that employers utilize to report annual Federal Unemployment Tax Act (FUTA) tax. This tax provides funds for state unemployment agencies and supports unemployed workers. The form calculates the employer’s federal unemployment tax liability, considering any state unemployment tax they’ve already paid. By accurately completing and submitting this form, employers contribute to a system that offers financial support to individuals during periods of joblessness.
  • Form 941 (Employer’s Quarterly Federal Tax Return): Used by employers, Form 941, titled the Employer’s Quarterly Federal Tax Return, reports the wages they’ve paid and the corresponding taxes withheld every quarter. It captures details related to federal income tax, Social Security, and Medicare withholdings. By submitting this form quarterly, employers maintain a consistent record with the IRS, ensuring they meet tax obligations as required.
  • Form 944 (Employer’s Annual Federal Tax Return): Designed for smaller employers, the Form 944 allows them to report income and FICA taxes withheld from employees’ paychecks just once a year instead of quarterly. This form simplifies the reporting process for eligible small businesses by reducing the number of times they must submit tax withholding information, easing the administrative burden and allowing them to focus on running their business.
  • Form 1099 (Miscellaneous Income): The 1099 forms are a series of documents the IRS uses to account for various types of non-employment income. There are many different types of 1099 forms, but one of the most common is the 1099-MISC, which is given to independent contractors or freelancers to report payments made to them for services rendered in the course of trade or business. This form is critical for the IRS to track income that might otherwise go unreported and for contractors to accurately report their income and calculate the taxes.

Federal and South Carolina Payroll/Tax Bodies

  • South Carolina Department of Employment and Workforce (DEW): DEW is integral to the employment sector, primarily handling unemployment insurance. It requires businesses to file specific forms, like the UCE-101 for employer quarterly contributions and UCE-120 for quarterly wage reporting. These forms, due at the end of the following month, help manage and contribute to the state’s unemployment insurance fund, ensuring support for unemployed workers. Compliance with DEW’s regulations is essential to uphold the legal responsibilities.
  • South Carolina Department of Revenue (SCDOR): SCDOR plays a pivotal role by overseeing the collection of state taxes, including withholding taxes from employee wages. Key forms include WH-1601 for withholding tax payments, WH-1605 for quarterly withholding tax returns, and WH-1606 for annual reconciliation. These forms, essential for tax compliance, are due at specified times throughout the year. The department ensures businesses adhere to state tax laws, contributing to the state’s fiscal health and compliance with tax regulations.
  • Internal Revenue Service (IRS): The IRS stands as the United States’ primary federal tax authority. Its mandate covers the vast spectrum of federal tax matters, inclusive of payroll taxes. By providing regulatory guidelines, tax codes, and essential resources, the IRS facilitates nationwide tax compliance. It is important to note that both employers and employees rely on the IRS’s directives to understand their federal tax obligations and ensure adherence.
  • U.S. Department of Labor (DOL): Believe it or not, theU.S. DOL has a broad role, impacting various facets of employment across the nation. Among its chief responsibilities are the formulation and enforcement of wage and hour standards. The DOL ensures fair labor practices, safeguards employee rights, and fosters a balanced work environment. This guidance assists employers in aligning the operations with federal employment norms and standards.
  • Social Security Administration (SSA): The Social Security Administration (SSA) runs programs for retirement, disability, survivor benefits, and family support. They also assist people in signing up for Medicare. The SSA is also the government body responsible for issuing Social Security Numbers— crucial for employment, finances, and accessing government services.
  • Wage and Hour Division (WHD): The WHD is a part of the U.S. DOL, whose main job is to ensure employers follow labor standards to protect workers’ rights. The WHD enforces laws like the Fair Labor Standards Act (FLSA), which covers things like minimum wage, overtime pay, recordkeeping, and child labor rules. It also enforces other laws like the Migrant and Seasonal Agricultural Worker Protection Act, Employee Polygraph Protection Act, and the FMLA.

Applicable Taxes in South Carolina

State Taxes

  • Individual Income Tax: South Carolina imposes a graduated individual income tax, with rates ranging from 0.00% to 6.50%. This type of tax is applicable to all residents and non-residents earning income in South Carolina. The rate varies depending on the income bracket, ensuring a progressive tax system where tax liability increases with higher earnings​​.
  • Corporate Income Tax: South Carolina levies a flat corporate income tax rate of 5.00%. This rate is applied to the taxable income of corporations operating within the state. It’s a crucial tax for businesses, as it directly affects their financial operations and overall tax planning strategies​​.
  • Sales Tax: South Carolina has a 6.00% sales tax rate, with localities allowed to add up to an additional 3.00%, making the maximum possible combined rate 9.00%. The average combined state and local sales tax rate is approximately 7.43%. It’s important to note that sales tax is applied to most retail services, playing a significant role in the state’s revenue generation.​

Federal Taxes

  • Federal Income Tax: Employers are obligated to withhold federal income tax from employees’ paychecks. The amount withheld is determined by the information the employee furnishes on Form W-4 and is calculated according to the IRS-provided tax tables. This tax is progressive, with the applicable rate escalating as the employee’s taxable income increases.
  • Social Security and Medicare Taxes (FICA): Both employers and employees are mandated to contribute to Social Security and Medicare through the Federal Insurance Contributions Act (FICA) tax. Employers are responsible for accurately withholding the specified amount from their employees’ wages and also for contributing a corresponding matching amount.
  • Federal Unemployment Tax Act (FUTA): Employers pay this federal tax separately from other taxes, and it is not withheld from employees’ wages. FUTA, working in conjunction with the state unemployment system, provides critical funds for workers who are unemployed.

Key Pay Elements That Impact Payroll in South Carolina

Minimum Wage

South Carolina adheres to the federal minimum wage, which is $7.25 per hour as of 2024. However, it does not have its own minimum wage law. Employers in South Carolina must comply with this federal standard. This wage applies to most employees, with some exceptions like tipped employees, who have a different minimum wage calculation under federal law.

Overtime

Under the FLSA, South Carolina employees are entitled to overtime pay. Overtime is calculated as one and a half times the regular pay rate for hours worked over 40 in a workweek. This applies to most hourly and salaried employees, though there are exemptions, such as certain professional, administrative, and executive employees, who are not eligible for overtime.

Pay Stub Laws

South Carolina does not require employers to provide a pay stub to their employees. However, if an employer chooses to issue pay stubs, the stub should accurately reflect hours worked, wage rate, and deductions. While not mandated, providing pay stubs is a best practice for transparency and record-keeping and helps in resolving any discrepancies regarding wages.

Workers’ Compensation Insurance

Employers are required to carry workers’ compensation insurance if they have four or more employees, either full-time or part-time. This insurance provides medical benefits and wage replacement to employees injured at work. It is crucial for employers to maintain compliance with this requirement to avoid legal penalties and to ensure protection for their employees.

Garnishments and Deductions

Employers in South Carolina may be required to withhold a portion of an employee’s wages for garnishments like child support, alimony, or tax levies. These deductions are typically mandated by court orders or federal/South Carolina state laws. Employers must comply with these legal requirements while ensuring that the deductions do not exceed the limits set by law.

Final Paycheck

In South Carolina, when an employee is terminated or resigns, their final paycheck must be given on the next scheduled payday. There is no requirement for immediate payment. The final paycheck should include compensation for all hours worked. In case of disputes, it’s advised to consult with legal professionals to ensure compliance with state laws and regulations.

Step-by-Step Guide to Payroll in South Carolina

  • Step 1: Establish Your Payroll Schedule: Decide on a payroll frequency that aligns with your business operations – weekly, bi-weekly, semi-monthly, or monthly. While South Carolina doesn’t mandate a specific frequency, consistency is crucial. A regular schedule meets employee expectations and aligns with labor laws. Consider the cash flow and operational aspects of your business to determine the most suitable and sustainable payroll schedule for your specific needs.
  • Step 2: Register for Employer Taxes in South Carolina: Before processing payroll, it’s essential to register your business with the South Carolina Department of Revenue. Obtain an Employer Identification Number (EIN) and set up an account for state income tax withholding and unemployment insurance contributions. This step is fundamental, as it legally recognizes your business for tax purposes, ensures compliance, and enables accurate and proper tax filings.
  • Step 3: Calculate Employee Withholding Taxes: Utilize South Carolina’s withholding tables to calculate state income tax from employees’ wages. These tables consider various factors like total earnings, filing status, and allowances. Accurate tax withholding is critical for full compliance with state laws and for ensuring correct employee tax liabilities. Always stay updated with the latest withholding tables to ensure precision and accuracy in your payroll calculations.
  • Step 4: Pay State Unemployment Tax (SUTA): As an employer in South Carolina, it’s important to pay the SUTA. This rate varies based on your industry and claim history. Timely SUTA payments are essential for legal compliance and supporting the state’s unemployment insurance system. Regularly review your rate and make timely payments to avoid penalties.
  • Step 5: Maintain Accurate Payroll Records: Keep detailed payroll records for at least three years. This includes hours worked, wages paid, tax withholdings, and other deductions. Accurate record-keeping is not only a legal requirement but also aids in audits and resolving disputes. Use a reliable payroll system to streamline record-keeping and ensure compliance.
  • Step 6: File Payroll Taxes and Reports: Regularly file payroll taxes and reports with the South Carolina Department of Revenue. This includes state income tax withholdings and unemployment tax contributions. Adhering to filing deadlines is crucial to avoid penalties and maintain good standing. Ensure accurate and timely submissions of all documents to maintain strict compliance with state tax laws and regulations, thus avoiding any legal complications.
  • Step 7: Stay Informed and Compliant: Payroll regulations can change, so staying informed is vital. Keep abreast of state and federal payroll law updates. Regularly review your payroll processes for compliance with the latest regulations. This approach helps avoid legal issues and ensures a smooth payroll process for both employers and employees in South Carolina.

Final Thoughts

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

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.