When you start a business or hire employees for the first time in Connecticut, there’s a lot of paperwork to do. You have to furnish Connecticut withholding forms to each employee and calculate how much to set aside for state taxes.
You also need to withhold unemployment insurance premiums from the first $15,000 of each employee’s income—at a tax rate of 2.8% for new employers.
Plus, there’s worker’s compensation to think about. And making sure you pay everyone the Connecticut minimum wage of $15.69 an hour. And don’t forget Connecticut’s Paid Sick Leave law, which applies to certain employers with 50 or more employees.
There are two ways you could go about running payroll in Connecticut: manually or with payroll software.
The Hard Way to Run Connecticut Payroll (Manually)
So you’ve opened the doors on your new Connecticut business, and you plan to hire one employee to start. But where do you begin?
Let’s go through each step you must take to manually set up your business—and your payroll—in Connecticut.
Register Your Company With the State
The first thing to do when you start a business in Connecticut is to register your business with the state. You’ll head over to the state’s Business Registration page to create an online account.
You’ll need to have some key pieces of information handy, including:
- Your desired business name (it must be unique—you can do a business records search to make sure your desired name isn’t taken)
- The business’s physical address
- Your North American Industry Classification System (NAICS) code, which you can find with the U.S. Bureau of Labor Statistics’ Industry Finder tool
- A business email address
- The name of your business agent (you can serve as your own business agent as long as you’re a Connecticut resident)
To make things even easier, Connecticut offers a personalized business checklist tool. All you need to do is answer a few questions about your business and you’ll get a handy list of to-dos. We definitely recommend using it to get started on the right foot in the Nutmeg State.
Report New Hires
As you do in all 50 U.S. states, you must report new hires or re-hires in Connecticut within 20 days of the person’s start date.
The easiest way to collect this information is via the state’s Form CT-W4, Employee’s Withholding Certificate, which all employees must fill out. You can fax or mail a copy of the form to the Connecticut Department of Labor or submit the information online.
The form contains all the information you need to provide the state—things like the employee’s name, Social Security Number (SSN), address, and hire date. It also provides a place for you to include your company name, Federal Employment Identification Number (FEIN), and address.
Withhold the Right State and Local Taxes
Connecticut charges a variety of taxes that you need to keep in mind. First, there’s unemployment insurance tax. You’ll need to pay unemployment insurance taxes at a rate of 2.8% of each employee’s first $15,000.
Then there’s a graduated state income tax that ranges from 3.00 to 6.99% depending on an individual’s income and filing status. Employees must fill out a Form CT-W4 so you know how much to withhold.
There’s also a corporate tax, which is 7.50% for multi-state corporations—and varies for everyone else. Check the Connecticut Department of Revenue’s Getting Started in Business guide to see if you need to pay any business tax.
The state also levies a 6.35% statewide general sales tax for all businesses that:
- Sell, rent, or lease goods
- Sell taxable services
- Operate lodging establishments, including hotels and bed and breakfasts
Some types of goods come with different sales tax rates. If you sell intangible software services for business use, all you need to worry about is withholding 1% in sales tax on each transaction.
But if you rent or lease passenger vehicles for 30 days or less, you’ll have to collect a whopping 9.35% tax on each transaction.
For more information on Connecticut tax rates, take a look at the Department of Revenue’s Sales and Use Tax Information page.
To sell any taxable items or services in Connecticut, you’ll need to obtain a Sales and Use Tax Permit. You can do that online via the state’s myconneCT portal. The good news here is that there are no local sales taxes to worry about. Just the state sales tax.
Get to Know All the Relevant Labor Laws
Connecticut provides its workers with some robust protections—which is a good thing. But you need to make sure you know what they are. If you don’t, you could end up in hot water for unintentionally failing to follow the labor laws.
Luckily, the state has a couple of in-depth resources to help you comply:
- Wage and Workplace Information: This page covers requirements for minimum wage, overtime, sick pay, and industry-specific requirements.
- Workforce Laws and Regulations: Find all the information you need to know about personnel file requirements, discrimination laws, unemployment, and labor relations.
- Minors: Learn the rules regarding the employment of minors—how many hours they can work and what rules you must follow.
- Workplace Safety: Discover everything you need to know about complying with Connecticut’s Occupational Safety and Health (CONN-OSHA) and federal OSHA rules.
Now, all you have to do is manually put it all together. Sound like a nightmare?
That’s because it is. But there’s a (much) easier way to run your payroll in Connecticut.
The Easy Way to Run Connecticut Payroll
Don’t you feel bad for people who had to run payroll and withhold taxes back before computers were invented? Even though payroll software is relatively new, taxes are not.
Luckily for you, there’s zero reason to be stuck in the past when it comes to running payroll. In fact, we actively recommend against trying to do any part of payroll manually.
There’s too much at stake.
If you miscalculate taxes, classify an employee the wrong way, or miss a critical reporting deadline, you could face steep fines. Or even legal action.
And even if you avoid making a mistake, you’ll still lose a lot of time. Running payroll manually takes a ton of time, and you’ll have to do it every two weeks or once a month, for the entire time you have a business. And the bigger you grow, the more complicated it will get.
A good payroll software takes care of everything for you.
Sure, you’ll still need to manually register your business with your state. But once you’re done with that, it’s smooth sailing. All you have to do is provide some key details—tax IDs and the like—and the software will calculate, file, and pay taxes on your behalf. Not just state taxes, either: payroll software takes care of those pesky federal and local taxes, too.
Check out our favorite payroll software services to get started on a stress-free Connecticut payroll journey.