Running Payroll in Michigan—Step by Step Instructions

Running payroll in Michigan is not as complicated or difficult as you might think. Here’s a step-by-step guide to help your small business run smoothly and efficiently.

The Michigan Department of Treasury has created a pay-stub guide for employers in the state. The step by step instructions walk you through how to file payroll and generate paychecks, including when to use IRAs or 401Ks instead of traditional taxable income.

The “how to keep track of payroll” is a step by step guide that will help you ensure your payroll runs smoothly.

There are a few things to keep in mind while processing Michigan payroll: mandatory local and state taxes, as well as the implementation of the Michigan Paid Family Leave Law. The fundamental stages for processing payroll are outlined here, with a focus on Michigan requirements.

Consult our page on how to conduct payroll for further information on general payroll methods.

Step 1: Register your company as an employer. You’ll need your Employer Identification Number (EIN) and an account with the Electronic Federal Tax Payment System (EFTPS) at the federal level (EFTPS).

Step 2: Register with the Michigan Department of State.

Step 3: Create a payroll system. You may choose from three options:

• You can perform your own payroll, which is the most time-consuming alternative and has the largest risk of payroll mistake.
• Create a payroll template in Excel. Although using a template is still a manual procedure (although one that is less so than doing it by hand), it does offer you with more structure, which will help you avoid frequent payroll mistakes.
• Enroll in a payroll service. We strongly advise utilizing a payroll provider since it is the quickest of all procedures. It also provides you with a support system to turn to if you need more help.

Step 4: Collect payroll paperwork from employees.

Onboarding is the optimum time to gather payroll paperwork. W-4, I-9, and Direct Deposit information are all included on Forms for Payroll. You must also submit a Michigan W-4 form. This would be a great moment to look up which Michigan locality you need to send taxes to using your employee’s address.

Step 5: Collect, evaluate, and approve hourly and non-exempt employee time sheets. You may choose from three options:

Step 6: Work out your payroll, pay your staff, and file your taxes.

Employees may be paid in a variety of methods (cash, cheque, direct deposit), and federal taxes should be paid via the EFTPS.

Step 7: Submit payroll tax returns to the federal, state, and municipal agencies.

For federal taxes, including Unemployment Insurancees, follow the IRS guidelines. The IRS allows you to purchase official tax forms.

• Michigan State Taxes: You must submit an annual withholding tax report to Michigan. You must also file withholding tax reports on a regular or quarterly basis. For monthly or quarterly filings, use Form 5080, and for yearly filings, use Form 5081. You may file online for free or by mailing a cheque to the Michigan Department of Treasury. You must make payments according to the following schedule:

• Local Taxes in Michigan: You must maintain track of the municipalities to which you have contributed employer and employee taxes in Michigan. You’ll need to contact the local government’s business office for payment alternatives for each one.

Step 8: Keep track of your payroll data.

It is critical to retain records for all workers, even those who have been fired, for many years. Please read our post on maintaining payroll records if you need assistance deciding which documents to preserve. Because Michigan has no special document storage standards or restrictions, please follow the federal recommendations.

Step 9: Complete your year-end payroll tax returns.

W-2s (for workers) and 1099s (for non-employees) are the government documents that must be completed (for contractors). By January 31 of the following year, these forms should be given to workers and contractors. In Michigan, state W-2s are necessary, and these forms must be submitted by the final day of February the following year.

Payroll Laws, Taxes, and Regulations in Michigan

This section will go over everything you need to know about Taxes in Michigan, legislation, and regulations in great depth. There are a few things that aren’t covered by federal rules. Both state and municipal Taxes on income apply in Michigan. In contrast to the federal income tax rate, which varies as personal income rises, these tax amounts are fixed. Minors in Michigan are additionally subject to a different minimum wage rate, as well as extra overtime obligations.

*Please keep in mind that you must pay FICA taxes (Social Security and Medicare). 15.3 percent is the total amount that must be withheld. The employer covers half of the cost. The remaining half is deducted from the employee’s net compensation. Both of these sums must be paid to the IRS.

Taxes in Michigan

In addition to federal taxes, employers are obliged to pay a variety of payroll taxes. State Taxes on income, municipal Taxes on income, and state Unemployment Insurancees are among them.

Taxes on income

Michigan is a tax-free state. The state requires that you withhold 4.25 percent of each employee’s gross salary.

There are also local Taxes on income. Tax rates depend on the local jurisdiction on where the employee works. A list of localities is shown below.

Table of Michigan Local Taxes Albion Battle Creek is a small town in the state of Benton Harbor is a town in the state of Washington. Big Rapids is a city in Michigan. East Lansing is a city in Michigan. FlintGrayling Hamtramck Hudson IoniaJackson Lansing Lapeer Muskegon Muskegon Heights is a town in Muskegon County, Michigan Pontiac Port Huron is a city in Michigan. Portland Springfield Walker Detroit Grand Rapids is a city in Michigan. Highland Park is a neighborhood in the city of Denver Saginaw

**Please contact the local municipal authority for the most up-to-date pricing.

Unemployment Insurance

As an employer, you are required to pay Unemployment Insurancees. These taxes are used to fund benefit programs for employees who are involuntarily terminated.

Michigan’s Unemployment Insurance rate is 2.7% for new employers. New employers are defined by being in business for two years or less. The one exception for the rate is the construction industry. Their rate for the first two years is the average of the employers in the construction industry.

The unemployment rate in years three and four is partially based on your company’s taxable payroll and the benefits paid out to your former employees. Beginning in year five, the rate is primarily based on your payroll and unemployment benefits paid using a formula created by the State of Michigan. In short, employers who have many workers applying for benefits pay a higher Unemployment Insurance rate than employers who have few workers applying for unemployment benefits.

Note: The Federal Unemployment Insurance (FUTA) rate is 6.0% on the first $7,000 that you paid to each employee in that year. When you pay state unemployment insurance taxes (SUTA), you may qualify for a discount on your federal unemployment insurance taxes (FUTA).

Compensation for Employees

In almost all cases, even for public employers, you are required by law to carry Compensation for Employees insurance for your employees.

Private employers, you are required to carry Compensation for Employees if the following occurs:

• Over the course of a year, you have at least one employee that works more than 35 hours per week for 13 weeks or longer. Homeowners who employ domestic help are included in this category.
• At any one moment, you have at least three workers.

The one exception is the agricultural industry. Businesses in this industry are required to carry Compensation for Employees insurance if they have three employees who work over 35 hours a week for 13 weeks or longer in a yearlong period.

The cost of Compensation for Employees insurance is around $.70 for each $100 payroll you processed. For example, a company that processes $500,000 of payroll can expect to pay around $3,500 in insurance.

Tips and the Minimum Wage

Most occupations require you to pay your staff at least the minimum wage. Read our guide to federal minimum wage exemptions if you have any queries about the government requirements.

The current minimum wage in Michigan is $9.65 per hour, and it is likely to rise in the next years if the state’s unemployment rate remains below 8.5 percent. The table below shows the predicted gains.

Increases in Michigan’s Minimum Wage

The state of Michigan’s minimum wage laws include a few exceptions. Employers may pay 16- and 17-year-olds 85 percent of the standard minimum wage if they do not replace an adult employee with a child. Employers may additionally pay tipped workers a minimum wage of $3.67 per hour, as long as the wage plus tips matches the state’s minimum wage of $9.65 per hour.

Overtime

Any hours worked beyond 40 in a workweek should be compensated at 1.5 times the employee’s usual hourly rate, according to federal requirements. In Michigan, however, there are extra requirements for companies to pay overtime. If an employer’s gross revenue exceeds $500,000.00, the federal government mandates them to pay overtime (if applicable). In Michigan, every company with two or more workers is required to pay overtime regardless of gross revenue.

Pay Stub Regulations

In Michigan, you must furnish each employee with a wage statement that details the amount of wages received, the pay period, and a complete list of deductions made.

Minimum Pay Period

Employees in Michigan might be paid weekly, bimonthly, semimonthly, or monthly. You may choose what works best for your business—consider industry standards—but rules demand that you maintain a constant frequency.

If you’re going to modify your pay frequency policy, it’s a good idea to notify your workers ahead of time. Consider utilizing a defined payroll calendar to keep track of payment dates and assess the consequences of altering pay frequency. We have various free pay calendars available that feature the above-mentioned pay schedules. Biweekly and semimonthly regimens are the most prevalent.

A note on Hand Harvesters: One exception to the Pay Stub Law and Minimum Pay Period section is for employers who employ hand harvesters. Those employees need to be paid weekly, and you must provide them with a pay stub that includes total numbers of units harvested if they are paid per unit.

Payroll Deduction Regulations

Payroll taxes, garnishments, and the employee’s share of benefits payments are the most prevalent deductions in Michigan (i.e., medical insurance).

You may also take overpayments from an employee’s check without the employee’s written approval provided the following conditions are met:

• Within six months of the overpayment, a deduction is made.
• Human mistake or miscalculation resulted in the overpayment.
• At least one pay month in advance, the employee receives a written explanation of the deduction.
• The deduction is less than 15% of the employee’s total earnings.
• The employee’s hourly rate is not reduced below the minimum wage as a result of the overpayment.

Laws Regarding Final Paychecks

In Michigan, you must pay dismissed workers’ last earnings by the following scheduled payday. In Michigan, you are not compelled to provide vacation days to workers or to pay for wasted vacation days. You must, however, adhere to your company’s vacation payment policy.

HR Laws in Michigan That Affect Payroll

Almost all of Michigan’s human resources legislation are in compliance with federal labor regulations. Michigan’s Paid Family Leave statute and Michigan’s Laws Concerning Child Labor are two things to keep in mind since they vary from federal law.

Reporting on New Hires in Michigan

In Michigan, you must disclose new hiring within 20 days of the employee’s start date. You may submit a report by mail, fax, or online via Michigan’s Child Support Website.

Requirements for breaks, lunches, and time off

When it comes to sick leave, Michigan’s standards for paid time off (PTO) are a little stricter than federal law.

Lunches and Breaks

For every five hours of continuous employment, minors (under 18) must take a 30-minute break. Employers in Michigan are not required to give breaks to employees aged 18 and above. If you do give a break, it must be unpaid since the employee must be released of all job duties during that time.

Sick Leave and Vacation

In Michigan, there are no laws mandating vacation time. Sick leave has its own set of rules, which will be discussed in more depth in the section on family leave.

Family Leave in Michigan

Unlike many other states, Michigan has its own paid sick leave legislation, which mandates businesses to provide one hour of sick leave for every 35 hours worked to qualifying workers. Businesses with 50 or more workers are required by federal law to give up to 12 weeks of paid time off under certain situations, but it is not required to be paid. There are 12 situations in which an employee is ineligible, however the following are the three most common:

• Under the Fair Labor Standards Act, the employee is exempt from working overtime. The great majority of your “white-collar” paid employees fall into this category.
• A person who works mostly in another state
• Part-time workers that work less than 25 hours per week or for fewer than 25 weeks each year

Employees must also be allowed to utilize 40 hours of sick leave and carry over 40 hours of unused sick pay throughout an eligible year. Giving each qualified employee 40 hours of leave (vacation, sick, PTO, or discretionary time off) at the start of each year is one approach to keep in compliance with the law. There is no carryover requirement with this option since an employee may use up to 40 sick days per year.

Please keep in mind that the Family and Medical Leave Act requires you to follow certain requirements (FMLA). The Family and Medical Leave Act (FMLA) is a federal statute that applies to organizations with 50 or more workers and enables qualified employees to take up to 12 weeks off in certain situations.

See the Department of Labor’s guide to FMLA for further information on the requirements.

Disability Insurance Provided by the State

Although companies are not required to obtain disability insurance in Michigan, the state does maintain a disability program. Employees should be given access to any resources that are accessible and helpful to them.

Laws Concerning Child Labor

There are federal Laws Concerning Child Labor governing when minors can and cannot work, i.e., 14- and 15-year-olds can’t work during school hours or before 7 a.m. or after 7 p.m., except during the summer, and state regulations—Michigan’s rules tend to be less restrictive, so it’s best to adhere to federal regulations.

Minors cannot work more than three hours on a school day, including Fridays, more than eight hours on a non-school day, more than 18 hours weekly during a school week, or more than 40 hours weekly during a non-school week, according to federal law.

Michigan, like the Department of Labor, prohibits minors from working while attending school. This might change depending on the schedule of each student. Minors are also prohibited from working more than six days per week, for more than ten hours per day, or dedicating more than 48 hours per week to school teaching and labor. Minors who work on farms are exempt from the rule, although their combined school and labor hours cannot exceed 40 hours.

In Michigan, minors are not permitted to work.

*Note the disparities in the amount of time that kids are prohibited from working under Michigan law vs federal law.

Forms for Payroll

The federal and state forms listed below are required to provide proper pay for workers, as well as compliance payroll reporting and tax remittance for businesses.

Michigan Forms for Payroll

Federal Forms for Payroll

• W-4 Form: This form assists companies in calculating tax withholding for their workers.
• W-2 Form: Shows total yearly earnings (one per employee)
• W-3 Form: Reports all workers’ total pay and taxes.
• Form 940: Calculates and reports Unemployment Insurancees due to the IRS
• Form 941 is used to report quarterly income and FICA taxes withheld from paychecks.
• Annual income and FICA taxes withheld from paychecks are reported on Form 944.
• 1099 Forms: These forms provide contractors pay information that they may use to figure out how much tax they owe the IRS.

Payroll Tax Resources and Sources in Michigan

Conclusion

Michigan payroll differs from other states because of its local and state Taxes on income requirements as well as the Family and Medical Leave act. Be sure to adhere to deadlines and requirements of federal, state, and local governments.

Running payroll in Michigan can be a tedious process. This step-by-step guide will help you make employee payroll software in Excel. Reference: how to make employee payroll software in excel.

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