How to Choose a Payroll Company or PEO in Your State

Federal payroll rules are the same everywhere. What changes at a state line is the wage base, whether there is an income tax to withhold at all, who reports your wages when you use a PEO, who is allowed to sell you workers’ compensation, and how many local wage ordinances sit on top of the state rate.

Those differences are large enough to change which kind of company can handle your payroll. Each page below covers what the state costs an employer this year, the rules that catch people out, and the payroll and PEO companies headquartered there. Every figure traces to the state agency that publishes it.

• Arizona
• California
• Florida
• Nevada
• New Jersey
• North Carolina
• South Carolina
• Washington

That state doesn’t have a page yet. More are in progress.

What changes at a state line

Five things vary enough between states to change which kind of company can actually handle your payroll.

• Local payroll taxes. Most states have none. Where they exist, a provider that files your state returns may leave the city returns to you.
• Workers’ compensation. Coverage becomes mandatory at one employee in some states, and at four or six in others depending on industry. Subcontractors can pull a contractor in regardless of headcount. A few states sell the coverage themselves and bar private carriers, which changes what a PEO can bundle.
• PEO regulation. Some states license PEOs, some only register them, and California has no PEO statute at all. What varies most is whose account reports your wages and what happens to your unemployment rate when you join or leave.
• Withholding mechanics. Some states have no income tax to withhold at all. Among those that do, several publish a withholding rate that differs from the income tax rate, and a few change it annually.
• Federal unemployment tax. A state that borrowed from the federal government to pay unemployment benefits and has not repaid loses part of the federal credit. Employers there pay several times the normal federal unemployment tax on the same $7,000 of wages, and the gap widens for each year the loan stands.

Where you run payroll in more than one state, each one brings its own registration, filing calendar, and returns.

Who reports your wages under a PEO

This is the question with the widest spread between states, and the one buyers are least likely to ask. Five states, five different answers, each set by a different statute.

Two of these are worth asking about before signing. In Florida the election belongs to the PEO, covers every client it has, and cannot be reversed. In California the answer turns on which of six functions the provider actually performs, so it is a question for the agreement rather than the brochure.

Costs that exist in some states and not others

Four line items appear on a payroll bill in one state and are absent in the next. Each one is set by the state and none of them moves because of which provider you pick.

• A reduced federal unemployment credit. A state that borrowed from the federal government to pay benefits and has not repaid loses part of the 5.4% credit. California employers paid an effective 1.8% for 2025, or $126 per employee against $42 elsewhere, and the reduction grows 0.3% for each year the loan stands.
• A state-run workers’ compensation fund. Washington bars private carriers and sells coverage itself, priced per hour worked instead of on payroll, with roughly a quarter of the premium deducted from the worker. A PEO cannot bundle coverage there at all.
• A payroll tax without an income tax. Nevada collects no income tax and still charges the Modified Business Tax at 1.17% on quarterly wages above $50,000. Employers who moved for the tax treatment tend to meet it on the first return.
• Local wage ordinances. Washington has eight jurisdictions above the state floor and California has dozens, each keyed to where the work is physically performed. Florida preempts local wage ordinances entirely, so one rate covers the state.

Which kind of company fits

• Payroll software. You register with each state agency and run the system yourself. More on payroll and HR software
• A payroll service. Files under your own EIN and handles the state returns for you. More on payroll services
• A PEO. Becomes a co-employer and takes on payroll, benefits, and HR administration. What it can bundle, and whether it reports your wages under its own unemployment account, both vary by state. More on PEOs