South Dakota may not have any state income tax for you to worry about, but running payroll is still a chore. There’s the state minimum wage of $11.20 an hour, for starters. Plus new hire reporting laws, record maintenance laws, and all that fun stuff.
We’ve got two different ways that you can run payroll in South Dakota: the hard way or the easy way.
Understanding the hard way makes the easy way make more sense. So let’s explore what it takes to run payroll in The Mount Rushmore State. (Yes, that’s really the state’s official nickname.)
How to Run South Dakota Payroll Manually
First, we’ll start with the hard way—running payroll manually.
Before you can run your first payroll, you’ll need to register your company with the state. If you’re already a registered business but are hiring your first employee, there are special steps to take for that, too.
Here’s a step-by-step guide for getting started.
Register Your Company With the State
Registering a business in South Dakota is relatively simple. You’ll head over to the Secretary of State’s Business Registration page and click the green Start a New Business button. You can also file by paper, but e-filing is the easiest way to file your business entity with the state since you can use your credit card to pay the fees.
You might need to pay a few different fees, including:
- Doing Business As (DBA) Fictitious Business Name Registration — $10
- Reservation of Name — $25
- Certificate of Good Standing/Existence — $20 (when filed online)
- Domestic Articles of Incorporation (for corporations only) — $150
- Annual Report — $50
You can see the full list of fees on the South Dakota Secretary of State’s Filing Fees page.
Report All New Hires
Both state and federal law requires all South Dakota employers to report new hires within 20 days of their first day of work for wages.
You’ll need to provide the state with:
- Employer Information: Federal Employee Identification Number (FEIN), business name, and address
- Employee Information: Social Security Number (SSN), legal name, address, and date of hire
The quickest way to report new hires is through the Department of Labor’s New Hire Reporting dashboard.
Keep in mind that just about every type of business imaginable must report new hires, from government agencies to nonprofits to corporations. Re-hires must also be reported. Same with seasonal, temporary, and part-time workers—even if they’re minors or family members.
Prepare to Pay South Dakota’s Reemployment Assistance Tax
South Dakota is unique in that it approaches unemployment insurance differently from most other states. Instead of calling it unemployment insurance, the state has something called Reemployment Assistance Tax.
It serves the same function as the Federal Unemployment Insurance Tax Act (FUTA) taxes you’ll already need to pay to the federal government. In short, you pay unemployment taxes on a portion of your employees’ income.
New employers will pay a 1.20% Reemployment Assistance (RA) Tax rate plus a 0.55% investment fee during their first year of business. (Or their first year of having an employee.) One caveat: employers in the construction industry will pay a 6% RA Tax rate during the first year.
The rate goes down to 1.0% with a 0.55% investment fee during the second year for non-construction businesses. For construction companies, the rate drops to 3% with a 0.55% investment fee.
After that, you’ll pay RA Tax rates based on your reserve ratio—the balance in your state unemployment account vs. the amount withdrawn for payouts.
To start paying your RA Tax in South Dakota, you’ll register your business online with the South Dakota Department of Labor.
Get a Sales Tax License
If your business has a physical presence in South Dakota, you must obtain a Sales Tax License, even if you don’t necessarily plan to sell taxable goods or services. The state law is clear: if your business has a physical home in the state, you must get that license.
Remote businesses also need to get a South Dakota tax license if they gross more than $100,000 in sales in a single year.
You can apply for a tax license using the state’s online tax license application.
The South Dakota state sales tax rate is 4.2%. The state allows municipalities to impose sales tax of up to 2%. All local taxes are managed by the South Dakota Department of Revenue, so you won’t need to register elsewhere if your municipality charges sales tax.
Learn more about South Dakota’s Sales and Use Tax here.
Get Familiar With South Dakota’s Labor Laws
Before you hire your first employee, make sure you understand South Dakota’s labor and wage laws. Start with this list of resources:
- Employment Laws – Minimum Wage: Provides information about South Dakota’s minimum wage for tipped and non-tipped workers, along with special exemptions.
- South Dakota Labor and Employment Laws: Covers what you need to know about PTO payouts, sick leave, jury duty, and final paycheck laws.
- General Employment Laws: Gives you a starting point for understanding every single one of the Mount Rushmore State’s employment-related laws.
Now, you’re ready to cobble all of this information together with everything you’ve learned about South Dakota taxes. And cross your fingers that you don’t make any mistakes when you run payroll for the first time.
Or, you can run payroll the easy way.
How to Automate Many of the Steps for Running Payroll in South Dakota
Whatever you do, don’t try to run payroll manually.
There’s this thing called human error, and it can cost you a lot of money. And time. And energy you could be spending scaling your business.
Instead, leave your payroll in the capable hands of a computer.
No, really.
Humans have the creativity market cornered, but computers can follow procedures like nobody’s business. And that’s all payroll is: a set of laborious, time-sucking procedures.
Payroll software services like Gusto and BambooHR can:
- Calculate how much tax to withhold from each employee’s paycheck
- Automatically withhold payroll taxes
- Keep track of state, local, and federal tax requirements
- File and pay taxes to state, local, and federal governments
- Manage your employee benefits
- Create quarterly and annual reports
And that’s just the tip of the iceberg.
There’s usually a bit of legwork to do when you’re starting out. But payroll software tools make this really easy. They walk you through all the steps. They tell you what registrations you need, which tax ID numbers you need to input, and so on.
It’s like having a payroll team in your pocket, and it’s worth every penny.
See our favorite payroll software tools here.
