Processing Payroll in Connecticut: What Employers Need to Know

Employers processing payroll in Connecticut starts like payroll in most other states with determining employee pay, hours worked, overtime, any withholding or deductions, payroll tax rates, and ultimately paying employees and delivering vendor payments. Employers should be aware of final pay and lawful deductions when payments are in dispute.

Knowing what the current federal laws and Connecticut labor laws and legislation are regarding payroll is imperative right from the start.

Connecticut Minimum Wage 

Connecticut's minimum wage is currently $13.00 per hour. This is dictated by Minimum Wage Public Act No. 19-4, which was passed in May 2019 and incrementally raises the Minimum Wage for 5 years until it reaches $15.00 per hour in 2023.

In 2024 and thereafter, gradual increases will be calculated according to Federal Economic Indicators calculated by the U.S. Department of Labor (DOL). 

In the meantime, here is the schedule of anticipated Connecticut minimum wage changes based on the above state law: 

• October 1, 2019 - $11.00 per hour
• September 1, 2020 - $12.00 per hour
• August 1, 2021 - $13.00 per hour
• July 1, 2022 - $14.00 per hour  
• June 1, 2023 - $15.00 per hour
• January 1, 2024 - Adjusted based on the increase, if any, to the employment cost index.

In Connecticut, the minimum wage for minors (employees under the age of 18) is $11.05 (or 85% of the current minimum wage) for the first 200 hours of employment. However, if employed at a farm or as a government employee the 85% reduction from the current minimum wage rate can be paid indefinitely. 

Connecticut employers may not pay less than the hourly minimum wage unless the employee or occupation is specifically exempt under Connecticut law or federal pay rules like the Fair Labor Standards Act (FLSA).

Connecticut Overtime Pay Law

Employers in Connecticut must adhere to both Federal and state overtime regulations defining how much overtime must be paid, and which employees are entitled to overtime pay.

Overtime exemptions or non-exempt status are set by an FLSA categorization for each employee. An employee's FLSA status will categorize the individual as "non-exempt" or "exempt" from overtime pay.

Overtime pay is granted to non-exempt employees in Connecticut who have worked over 40 hours in a workweek. These non-exempt employees are entitled to overtime pay of 1.5 times their average hourly rate for every hour worked over 40 in a single week. Time worked does not include vacation or sick time or holidays thus, such days do not count when calculating overtime.

On the other hand, exempt employees are just that, exempt from overtime pay regardless of weekly hours worked. 

Connecticut Pay Period & Payroll Schedule Requirements 

Connecticut payment laws require employers to pay employees on a regularly scheduled pay frequency or payday either weekly or every two weeks, which is also known as a bi-weekly pay period. If a regular payday falls on a non-workday, payment shall be made on the preceding workday.

Exceptions to these pay frequency requirements can include collective bargaining agreements, private and parochial schools, and state-aided institutions. 

Connecticut Payroll Deductions  

A Connecticut employer may not withhold or deduct wages from an employee’s paycheck, unless:

• The employer is required or empowered to do so by state or federal law,
• The employer has written authorization from the employee for deductions on a form approved by the Connecticut Department of Labor;
• The deductions are authorized by the employee, in writing, for medical, surgical, or hospital care or service, without financial benefit to the employer and recorded in the employer’s wage record book;
• The deductions are for contributions attributable to automatic enrollment in a retirement plan described in Section 401(k), 403(b), 408, 408A, or 457 of the Internal Revenue Code of 1986, or any subsequent corresponding internal revenue code of the United States, established by the employer.

A Connecticut employer may not deduct the following from an employee’s wages unless the employee has signed a form approved by the Connecticut Department of Labor:

• Cash shortages
• Damaged or lost property
• The cost of uniforms or necessary uniforms
• Tools or other necessary equipment
• Any similar deductions.

Connecticut Paid Family and Medical Leave (PFMLA) Deduction

As of January 1, 2021 employees are required to contribute 0.5% of their income of the first $142,800 of wages (the same as Social Security) through a mandatory payroll tax, withheld by employers, contributed to a Family and Medical Leave Insurance trust fund. This is all part of the Connecticut Paid Family Medical Leave Act (PFMLA).

Payroll is a lengthy process, but understanding Connecticut and Federal law will help make processing payroll in Connecticut much easier. Your alternative? Outsource payroll processing to an expert.

2022 Connecticut PFMLA Deduction Catch-Up Period

The Connecticut Paid Leave Authority recently discovered that there was an issue with the employer notification system for employee leave claim status updates. Employers were not being notified of status updates. Until the situation is resolved, employers can contact their employees or email CTPL.benefits@ct.gov with the employee’s name and claim number for status and approval updates.

The Connecticut Department of Labor has authorized a temporary catch-up period until March 31st. During this time, employers may deduct an additional 1% from employee wages (for a total of 1.5%) to make up for contributions that they did not make in 2021. After March 31, 2022, only the statutory 0.5% may be deducted.

Connecticut Unemployment Tax

Connecticut employers are liable for Connecticut Unemployment Tax as well as for Federal Unemployment Tax under the Federal Unemployment Tax Act (FUTA). An employee must pay Connecticut Unemployment Tax if during the current or prior calendar year, the employer; 

• Paid wages of $1,500 or more in any calendar quarter or
• Had one or more employees at work throughout 20 different weeks, whether consecutive weeks or not

Federal Unemployment Tax Act (FUTA) 2023 Rates for Connecticut

According to the U.S. Department of Labor, on November 10, 2022, Connecticut became a Federal Unemployment Tax Act (FUTA) credit reduction state (along with California, Illinois, and New York).

As a result, the FUTA credit rate reduction will lead to a 0.3% federal unemployment tax rate increase for Connecticut employers. This is due to the fact that Connecticut has an outstanding loan balance of $76 million and did not repay it before November 10, 2022.

Employers in Connecticut need to pay an additional 0.3% in federal unemployment tax for wages paid to employees, or up to $21 in additional tax for each employee, based on the FUTA taxable wage base of $7,000, from January 1, 2023, through December 31, 2023.

Connecticut Unemployment 2023 Rates

For the 2023 calendar year, the Connecticut unemployment tax rate is reduced by 0.2% to mitigate the impact of the Federal Unemployment Tax Act (FUTA) increase for CT employers, according to the Public Act 22-118.

All employers (new and existing) will receive a temporary 0.2% reduction in the state unemployment tax rate during the 2023 calendar year:

• The state’s new employer rate, originally 3.0% for 2023, is reduced to 2.8%.
• The fund solvency tax, originally 1.4% for 2023, is reduced to 1.2%.

The 2022 calendar year FUTA tax return payments are due and payable in January 2023. 

Connecticut Income Tax Withholding

Only seven states still don’t have income withholding tax - Alaska, Florida, Nevada, South Dakota, Texas, Washington, and Wyoming. Connecticut, however, does have a state income tax which is 6.99%. Income tax withholding is the money an employer withholds from each employee's wages to help prepay the state income tax of the employee.

An employer must withhold Connecticut tax if the employee is a resident of Connecticut, performing services in the state. Wages of a nonresident are subject to Connecticut income tax withholding if the wages are paid for services performed in Connecticut. The employer remits the withholding to the state and will issue the employee a W-2 statement indicating the amount of state income tax withheld for the employee.

Social Security Payroll Taxes

Social Security tax is the tax levied on both employers and employees to fund the Social Security program. Social Security tax is collected in the form of a payroll tax mandated by the Federal Insurance Contributions Act (FICA) or a self-employment tax mandated by the Self-Employed Contributions Act (SECA).

Effective as of January 1, 2023, the Social Security Administration (SSA) announced maximum earnings subject to the Social Security payroll tax have increased by 8.7 percent to $160,200. This is quite significant compared to the 2022 maximum, an increase of 5.9% to $147,000 — and for historical reference, a 1.3% increase to $142,800 for the 2021 maximum, and a 1.6% increase to $137,700 for the 2020 maximum.

The tax rate for Social Security or OASDI at 6.20% (or more commonly viewed as a combined rate of 7.65% when coupled with Medicare), however, remains unchanged for 2023. For the self-employed, the OASDI rate also remains unchanged at 12.40% (with a combined rate of 15.30%). 

Federal 401(k) Limit

In October 2022, the IRS announced changes to 401(k) limits and planning. Changes were made to the amount individuals may contribute to their 401(k) starting in 2023. Now, employees may contribute up to $22,500, up from $20,500 in 2022. 

The contribution limit applies for employees participating in 401(k)s, 403(b)s, most 457 plans, and Thrift Savings Plans.

Income ranges also increased for determining eligibility for traditional Individual Retirement Arrangements (IRAs), Roth IRAs, and to claim the Saver's Credit. These ranges are referred to as 401(k) eligibility "phase-out" ranges. 

Connecticut Salary Disclosure

On October 1st, 2021, the Connecticut Salary Range Disclosure Law became effective, putting into place new provisions regarding the disclosure of salary ranges and wages, as well as an update to the Connecticut wage discrimination law. These updates were made in an attempt to help limit wage and salary discrimination throughout the state.