Running a pharmacy means navigating more than prescriptions and reimbursements—it means managing labor, payroll, expenses, and regulatory compliance across geographies. When you employ staff across state lines (or plan to), multi-state payroll compliance becomes a critical focus. Oversight in this area can lead to unexpected costs, fines, or audit exposure.

Here’s a deeper look at the payroll pitfalls pharmacy owners face, and how you can steer clear of them.

1. State Income Tax Withholding for Out-of-State Employees

Even a single remote employee working from another state can create withholding obligations for your pharmacy. States may require you to register as an employer, withhold income tax, and file returns for that state.

What to do:

• Maintain a document listing each employee’s physical work location, state by state.
• Use payroll software that tracks multi-state withholding rules or outsource to a payroll provider experienced with multi-state firms.
• Reconcile state registrations and wage disclosures quarterly.

2. Unemployment Insurance (SUI) and State Rate Changes

State unemployment insurance (SUI) rates vary widely and depend on your experience-rated account history. Hiring in a new state may shift your unemployment tax base or subject you to a blended rate.

What to do:

• Before hiring in a new state, obtain the state’s SUI rate table and determine the impact.
• Ensure employees are attached to the correct state rate and verify wage bases (some states have lower or higher taxable wage bases).
• Regularly review your state SUI accounts for credit transfers if you move or expand.

3. Local Payroll Tax and City/County Requirements

Some states or municipalities impose city/county-level payroll tax, local registration fees, or metropolitan tax. Many pharmacies underestimate this risk when hiring staff working from home or branches in different jurisdictions.

What to do:

• For every new work location, check whether local payroll tax applies.
• Register the business accordingly, and apply the correct withholding/filing structure for employees in those jurisdictions.
• Use your HR/payroll vendor or a state-tax specialist to verify local tax obligations.

4. Worker Classification Across States

Rules around independent contractors versus employees vary state-by-state. Misclassification may result in back tax liability, wage claims, and penalties—especially for multi-state operations.

What to do:

• Adopt a consistent classification checklist across the entire firm regardless of location.
• Update agreements when hiring remotely or in a new state.
• Consult your CPA to determine whether state-specific rules apply based on hours, location, and services performed.

5. Payroll Nexus Trigger Events and Registration

Hiring an employee in a new state, offering testing services using rented equipment, or paying a remote employee may trigger employer registration and payroll withholding requirements. Many pharmacies don’t realize a single remote worker can create payroll nexus.

What to do:

• Conduct an annual nexus review for payroll purposes (not just sales-tax nexus).
• Maintain a register of states where you are registered and compare to work-location data.
• For previously remote operations, explore voluntary disclosure programs before audit triggers.

6. Compliance with Pharmacy-Specific Payroll Issues

Pharmacies face unique issues: variable hours due to shifts, overtime for pharmacists/technicians, union rules, and bonus pay for meeting prescription metrics. These can complicate payroll taxes and withholding across states.

What to do:

• Use shift-based payroll tracking that distinguishes overtime by location/state.
• Check state laws regarding pharmacist overtime exemption and ensure payroll systems capture the correct basis.
• Align bonus and incentive payments with state tax treatment and withhold appropriately.

Final Thoughts

Payroll compliance isn’t just a back-office task—it’s a risk management strategy. For multi-state pharmacies, payroll mistakes can equal financial exposure and operational disruption. By tackling these six areas proactively, you’ll better protect your business, maintain compliance, and support growth.

If you’d like help assessing your payroll strategy, conducting a multi-state payroll risk review, or integrating payroll compliance into your broader advisory plan, the team at HCJ CPAs & Advisors is ready to help.