Tennessee payroll laws 2025: Updates, rules, resources, and employer tips

Payroll laws form the foundation for how businesses compensate their employees, covering everything from wages and taxes to deductions and reporting. Tennessee's payroll laws largely mirror federal standards, which makes compliance relatively straightforward. There are no local payroll taxes to manage, and reporting requirements are minimal compared to other states. Understanding this alignment with federal law can simplify ongoing compliance.

This 2025 guide outlines key Tennessee payroll laws, where they differ from federal requirements, and the taxes and employer obligations you need to know. It also highlights tips, tools, and payroll services to help you stay compliant*.*

What are payroll laws?

Payroll laws are regulations that govern how employers compensate employees. They include rules about wages, tax withholdings, overtime pay, recordkeeping, and employee classification at both federal and state levels.

Why are payroll laws important?

Payroll laws help protect workers’ rights and ensure businesses meet their legal responsibilities. Following these laws reduces the risk of fines, lawsuits, and payroll errors that can affect employee trust and company operations.

What do payroll laws cover?

Payroll laws outline how employees must be paid, how taxes are withheld and reported, and what rights and responsibilities both parties have. In Tennessee, this includes:

• Ensuring employees are paid fairly and on time, following federal minimum wage and overtime laws.
• Setting clear policies for wages, overtime, meal and rest breaks, and deductions. These are governed by federal law, with some added state-specific rules.
• Requiring accurate payroll and timekeeping records for all non-exempt workers, in line with FLSA recordkeeping requirements such as hours worked, pay rate, and deductions.
• Enforcing tax obligations at both the federal level and state level, with employer-only state unemployment insurance taxes.

When businesses follow these laws, they avoid penalties and build a stronger, more compliant workplace.

Who must follow Tennessee payroll laws?

Whether you are running a startup, managing a local business, or hiring household help, Tennessee payroll laws apply once you hire your first employee and pay wages above the required thresholds. These rules apply regardless of the size of your company or the industry you operate in.

Here’s who must comply:

• Any business or nonprofit with one or more employees working in Tennessee, including those with headquarters outside the state.
• Employers who pay $1,500 or more in wages during a calendar quarter.

In summary, if you have employees in Tennessee and meet the minimum pay thresholds, you must follow the state’s payroll requirements for wages, tax withholding, and reporting.

New payroll laws to know in 2025

This is an update to Tennessee’s payroll laws in 2025 that employers should be aware of:

• Paid Family Leave for State Employees: Effective July 1, 2025, eligible state government employees, including public school educators, will be granted up to six workweeks of paid leave for the birth of a child, adoption, or to care for a family member with a serious health condition. This leave can be taken intermittently or on a reduced schedule, in accordance with federal Family and Medical Leave Act provisions.

Federal payroll laws every employer should know

While payroll laws vary by state, federal payroll laws set the baseline that all employers across the U.S.—including those in Tennessee—must follow. These laws regulate how wages are paid, how taxes are withheld, and what benefits employers must offer in certain situations. Here's a look at the key federal regulations that impact payroll:

Fair Labor Standards Act (FLSA)

The FLSA establishes federal standards for minimum wage, overtime pay, recordkeeping, and child labor. It applies to most full-time and part-time workers in the private sector and in federal, state, and local governments. These are some of the payroll laws that fall under the FLSA.

• Federal minimum wage: As of 2025, the federal minimum wage is $7.25 per hour.
• Employers can pay tipped employees less than the full minimum wage—as long as the employee earns at least $30 per month in tips and their total pay (wages plus tips) adds up to at least the federal minimum wage of $7.25 per hour.
• Overtime pay: Nonexempt employees must be paid 1.5 times their regular rate for hours worked over 40 in a week.
• Recordkeeping: The FLSA requires employers to keep accurate, accessible records for all nonexempt employees. This includes basic information like name, address, Social Security number, occupation, hours worked, wages paid, and pay rates. Employers using the tip credit must also maintain weekly records of reported tips and the amount of credit claimed.
• Keep for at least 3 years: Payroll records, collective bargaining agreements, and sales or purchase records
• Keep for at least 2 years: Timecards, wage rate tables, schedules, and records of wage changes

Internal Revenue Service (IRS) Regulations

Employers are required to comply with IRS rules pertaining to payroll taxes. Taxes must be calculated, withheld, and submitted accurately and on time. Employers need to:

• Withhold federal income tax from employee wages based on Form W-4 information and current IRS federal withholding tax tables.
• Withhold and match Social Security and Medicare taxes (FICA) from employee wages. For 2025:
• Social Security tax: 6.2% each for employer and employee, up to a wage base limit of $176,100.
• Medicare tax: 1.45% each for employer and employee, with no wage base limit.
• Pay Federal Unemployment Tax Act (FUTA) taxes:
• Employers must pay a federal unemployment tax of 6.0% on the first $7,000 of each employee’s annual wages.
• If all state unemployment taxes are paid on time and the employer’s state is not designated as a credit reduction state, the FUTA tax may be reduced by a credit of up to 5.4%, resulting in an effective rate of 0.6%.
• Only employers pay FUTA; it is not withheld from employee wages.
• FUTA taxes are reported annually using IRS Form 940.

Affordable Care Act (ACA)

The Affordable Care Act (ACA) requires employers with 50+ full-time employees to offer affordable health insurance and report coverage to the IRS.

• They must offer affordable, minimum-value coverage to at least 95% of full-time employees and dependents.
• "Affordable" means the employee's share of self-only coverage doesn’t exceed a set income-based percentage.
• Employers must file Forms 1094-C and 1095-C with the IRS annually to report coverage details.
• Visit the IRS website to see if the ACA applies to your business.

Smaller businesses with fewer than 50 full-time employees may still be subject to certain ACA requirements depending on their specific circumstances. Check the IRS website for additional information on ACA tax provisions for small employers.

Key Tennessee payroll laws

Tennessee’s payroll laws follow federal guidelines closely, with a few notable exceptions. The state sets rules on pay frequency and final paychecks, and employers must follow certain requirements for employee classification and permitted deductions. Staying up to date with these standards can help businesses avoid compliance issues and costly penalties.

Minimum wage in Tennessee for 2025

Tennessee does not have its own state minimum wage law. Instead, employers must follow the federal minimum wage, which is $7.25 per hour in 2025. This rate applies to most nonexempt employees, as outlined in FLSA rules and regulations.

Tennessee also does not mandate a separate rate for tipped employees. Under federal rules, employers may pay tipped workers as little as $2.13 per hour if their tips bring them up to the minimum wage. If combined tips and base pay do not meet the $7.25 minimum, the employer must make up the difference.

Tennessee overtime rules

Tennessee follows federal overtime regulations under the FLSA, requiring overtime pay for most nonexempt employees.

• Standard overtime pay:
• Employees must receive 1.5 times their regular rate of pay for all hours worked over 40 in a workweek.
• Overtime is calculated on a weekly basis, not daily.
• Certain employees classified as exempt under FLSA, such as executive, administrative, and professional workers, are not eligible for overtime pay.
• Double-time pay:
• Tennessee does not require double-time pay under state law.
• Employers may voluntarily offer double-time pay as part of company policy or collective bargaining agreements, but it is not mandated.

Meal and rest breaks

Tennessee law requires a 30-minute unpaid break for employees scheduled to work six or more consecutive hours, unless the nature of the job allows for regular breaks (e.g., food service or security roles). Failing to provide this break violates state law. No additional breaks are required under Tennessee law.

Pay frequency

Tennessee law requires employers to follow consistent and timely wage payment schedules under the Tennessee Wage Regulations Act (Tenn. Code Ann. § 50‑2‑103). Here’s how pay frequency rules apply in 2025:

• All private sector employers must pay employees at least once per month.

Semi-monthly pay periods

If wages are paid semi‑monthly or more frequently, there are specific deadlines:

• Wages earned before the 1st of any month are due by the 20th of that month.
• Wages earned before the 16th are due by the 5th of the following month.

These rules help maintain predictability in payroll timing.

Other pay periods (weekly, biweekly, etc.)

• Employers may choose to pay employees on a weekly, biweekly, semi‑monthly, or monthly schedule. Tennessee law requires that employees be paid at least once per month.
• If paying more frequently than monthly, wages earned before the first of the month must be paid by the 20th of the month; wages earned before the 16th must be paid by the 5th of the following month.

Overtime pay

• Tennessee follows FLSA rules and regulations: overtime (1.5× regular rate) must be paid for hours worked over 40 in a workweek. There are no state-specific daily thresholds or double-time mandates.
• Employers must include overtime pay on the next regular payday after the pay period in which it was earned. If the exact amount is not immediately available, it must be paid as soon as practical, but no later than the next regular pay period.

Exception for exempt employees

Employees classified as exempt under FLSA (executive, administrative, professional roles meeting salary thresholds) may be paid once per month, provided the full salary for the period is paid on or before the scheduled payday.

Final paycheck laws in Tennessee

When an employee’s job ends—whether through termination or resignation—the following rules apply under Tennessee law:

• Termination (fired or laid off): Employers must issue the final paycheck by the next regularly scheduled payday or within 21 calendar days, whichever comes later.
• Voluntary resignation: Final wages must be paid by the next scheduled payday or within 21 days of resignation.
• With 72+ hours’ notice: There is no separate rule under Tennessee law for notice-based resignation. The same timelines apply.
• Without notice: Final pay must still be issued by the next payday or within 21 days.
• Accrued vacation (PTO payout): Unused vacation or PTO payout is not required by law and depends on company policy or employment agreement.
• Additional considerations: Deductions from a final paycheck are only permitted if there is written authorization and must not reduce wages below the federal minimum.
• Payments can be made via direct deposit (if authorized), mail, or check.
• Sick leave: Tennessee does not require payout of accrued sick leave unless stated in a policy or contract.
• Severance pay: No state law requires severance pay unless it is contractually obligated or offered by employer policy.
• Deductions: Any allowed deduction must be pre-authorized in writing and cannot bring wages below the minimum wage standard.

For more detailed information, refer to the Tennessee Department of Labor and Workforce Development or consult Tennessee Code Annotated § 50-2-103.

Family leave policies

Eligible state government employees are granted up to six workweeks of paid leave for the birth of a child, adoption, or to care for a family member with a serious health condition. This leave can be taken intermittently or on a reduced schedule.

There are no state requirements regarding paid leave for private sector employees, however, although some companies have their own individual programs..

Tennessee-specific recordkeeping requirements

In Tennessee, employers must follow both federal and state regulations when it comes to payroll and employment recordkeeping. The Tennessee Department of Labor and Workforce Development (TDLWD) enforces these rules to ensure compliance and protect workers’ rights.

Employers are required to maintain accurate and accessible records for each employee, including:

• Employee name, address, and Social Security number
• Job classification and wage rate
• Hours worked each day and week
• Total wages paid, including deductions and benefits
• Records of overtime hours and pay rates
• Time and method of payment (payroll schedule details)
• Employee leave records (vacation, sick leave, FMLA)

These records must be kept for at least three years for most payroll-related documents.

Tennessee payroll taxes

While federal payroll taxes apply nationwide, some states have their own additional tax requirements. Tennessee makes compliance relatively easy for employers, since there is only one additional tax.

State Unemployment Insurance (SUI)

Employers in Tennessee must pay state unemployment taxes based on the first $9,000 of each employee’s wages annually. Tax rates range from 0.01% to 10.1%, depending on employer experience and industry classification. New employers typically begin at a standard rate of 2.7%. Tennessee’s Department of Labor and Workforce Development administers these taxes.

Tennessee payroll compliance requirements

While federal payroll laws apply across all states, Tennessee’s payroll compliance requirements are generally straightforward, making it easier for businesses to meet obligations.

Register as an employer

Employers must register with the Tennessee Department of Labor and Workforce Development (TDLWD) for unemployment insurance tax purposes before paying wages. Any private employer with 35+ employees is required to use E-Verify for new hires.

Penalty: Failing to comply with Tennessee's E-Verify law can lead to fines starting at $500 per unverified hire, increasing to $2,500 for repeat violations. Employers may also be fined $500 for not enrolling and $500 per day for failing to provide compliance records.

Make timely wage payments

Employers must pay employees on regularly scheduled paydays as agreed upon and comply with Tennessee’s final paycheck laws after termination.

Penalty: Employers who delay wage payments may receive a warning for a first unintentional offense, but repeat or willful violations can result in a Class B misdemeanor with fines of $100–$500 or civil penalties of $500–$1,000 per violation. Each infraction is treated as a separate offense.

Avoid underpayment violations

Underpaying an employee is a violation of state law and can carry specific state penalties as well as federal consequences. Employees may file a wage complaint with the Tennessee Department of Labor to recover unpaid wages.

Penalty: Employers may be required to pay full back wages and could face civil penalties or enforcement actions by the Department of Labor.

File and report payroll taxes on time

Employers must file quarterly unemployment tax reports and remit payments to the TDLWD. Additionally, they must file federal payroll taxes according to IRS schedules.

Penalty: Late payments may result in penalties, interest, and potential state audits.

Keep accurate records

Employers are required to keep payroll records, including hours worked, wages paid, and tax withholdings, to support compliance and audits.

Can an employer withhold a paycheck for any reason?

No. Employers cannot withhold a paycheck for any reason not allowed by law. They are legally required to pay all earned wages on time. Deductions are only permitted if:

• Required by law (e.g., taxes, wage garnishments)
• Authorized in writing by the employee (e.g., benefits)
• Covered under a collective bargaining agreement

Employers may not withhold wages as punishment or for issues like property damage. Unlawful withholding can lead to legal action by the employee.

Consequences of non-compliance

Failing to follow Tennessee's payroll rules can lead to several consequences for your business:

Financial penalties

Employers who do not comply with Tennessee payroll laws may face monetary fines and penalties. These can include late payment fees for unemployment taxes, interest on unpaid amounts, and penalties for failing to properly maintain payroll records. The TDLWD enforces these penalties to encourage timely compliance.

Employee claims and lawsuits

Non-compliance can lead to employee disputes over unpaid wages, missed overtime, or incorrect deductions. Employees may file claims with the TDLWD or pursue lawsuits seeking back pay, damages, and attorney fees. This can create costly legal challenges and financial liabilities for your business.

Audits and investigations

Failure to adhere to payroll tax and wage laws increases the risk of audits or investigations by state agencies or the IRS. These reviews can be time-consuming, disruptive, and may result in further penalties if violations are discovered.

Reputation damage

Ignoring payroll compliance can harm your company’s reputation among employees, customers, and business partners. Negative publicity or word-of-mouth about wage disputes or legal troubles can damage trust and impact your ability to attract and retain talent.

Operational setbacks

Legal issues, fines, and audits related to payroll non-compliance can divert time and resources from core business activities. This may slow down growth, affect cash flow, and complicate your overall business operations.

Common payroll mistakes (and how to avoid them)

Payroll mistakes can cost businesses more than just money—they can lead to fines, compliance violations, and damaged employee trust. Below are some of the most frequent errors companies make, along with ways to prevent them.

Misclassifying employees

Properly classifying workers as either employees or independent contractors is crucial to comply with Tennessee payroll laws. Misclassification can lead to serious legal and financial consequences, including back taxes, penalties, and interest.

Employers must understand the distinctions between a W-2 and a 1099. A W-2 employee is subject to payroll tax withholding and labor protections, and a 1099 form goes to an independent contractor, who handles their own taxes and generally does not receive employee benefits. Misclassifying an employee as a contractor to avoid tax obligations or benefits is illegal and can trigger audits from both state and federal agencies.

How to avoid this:

• Use IRS and TDLWD criteria to distinguish contractors from employees
• Use QuickBooks payroll features to categorize workers and file the correct forms.
• Audit classifications regularly to stay compliant.

Underpaying employees

Underpaying employees, even accidentally, can lead to serious consequences. Employers may face back wage payments, fines, and legal action. Consistently checking wage rates and hours worked helps avoid costly errors.

How to avoid this:

• Stay current on wage and hour laws.
• Run regular payroll audits.
• Use automated payroll and time-tracking tools, like a time card calculator.
• Train staff on compliance basics.
• Keep accurate, organized records.

Miscalculating overtime

Overtime mistakes are a top source of wage claims. Errors like not separating regular from overtime hours or applying the wrong rate can add up fast.

How to avoid this:

• Make sure your payroll system automatically correctly tracks and calculates overtime.
• Review exempt vs. nonexempt classifications.
• Train staff on both federal and Tennessee overtime rules.
• Use timesheet templates to help employees accurately track their hours and overtime.

Late wage payments

Paying employees late damages trust and can lead to penalties.

How to avoid this:

• Automate payroll with scheduled direct deposits.
• Monitor cash flow regularly.
• Use payroll calendar templates, alerts, and reminders to track due dates and meet deadlines.

Poor recordkeeping

Incomplete or inaccurate records can derail compliance, lead to fines, and make it hard to defend against claims.

How to avoid this:

• Keep detailed records of hours, wages, classifications, and deductions.
• Use secure, digital payroll software to track and store information.
• Back up your data regularly.

Timesheet errors

According to QuickBooks research, U.S. employers report needing to fix errors on 80% of employee-submitted timesheets. One of the main causes? Employees forget to clock in or out and later struggle to recall their actual hours worked.

How to avoid this:

• Employ digital time-tracking software and tools with real-time clock-in/clock-out features.
• Enable automated reminders or mobile alerts to prompt employees throughout the day.
• Train staff on proper timekeeping procedures and the importance of accurate reporting.
• Review timesheets regularly before processing payroll to catch discrepancies early.

Incorrect tax withholding

Failing to withhold the correct amount of federal, state, or local taxes can result in penalties.

How to avoid it:

• Use payroll software that automatically calculates and withholds the correct taxes for each jurisdiction.
• Stay up to date with IRS and state tax rate changes each year.
• Review employee W-4 forms regularly and update them as needed.
• Reconcile payroll tax filings with payment records to catch discrepancies early.
• Consider working with a payroll provider that offers tax filing and accuracy guarantees.
• Accurately estimate taxes and net pay by using a Tennessee paycheck calculator before processing payroll.
• Consult with a tax professional in Tennessee who understands the state’s payroll landscape to ensure you're meeting all local obligations and staying compliant.

Payroll resources for Tennessee employers

Employers in Tennessee must comply with both state and federal requirements, which involves coordination with several government agencies. Here's a summary of the most relevant ones:

• Tennessee Department of Revenue: Handles state tax registration and collection, including payroll-related taxes like the state unemployment tax (SUTA). Employers can register, file, and pay taxes through the TNTAP system.
• Tennessee Department of Labor and Workforce Development: Oversees wage and hour laws, unemployment insurance, and worker classification. Employers can also find resources for labor law posters and claims management.
• Tennessee Secretary of State: Handles business formation and registration. Employers must ensure their businesses are properly registered to operate and hire workers in the state.
• Tennessee Department of Human Resources: Offers resources and guidelines for state employers, especially those managing public-sector payroll or HR functions.
• TNTAP – Tennessee Taxpayer Access Point: The state’s online portal for managing business tax accounts, including unemployment and other payroll-related filings.
• Internal Revenue Service (IRS): Handles federal payroll tax responsibilities, including federal income tax withholding, Social Security, Medicare, and Federal Unemployment Tax Act (FUTA) compliance.
• U.S. Department of Labor (DOL): Enforces federal labor laws under the Fair Labor Standards Act (FLSA), including minimum wage, overtime, and recordkeeping rules.

Simplify payroll law compliance for your Tennessee business

Payroll compliance in Tennessee, while generally more straightforward than in some other states, still requires accuracy, timely filing, and careful recordkeeping. QuickBooks Payroll helps you stay accurate and compliant by automatically calculating, filing, and paying your federal and state payroll taxes—backed by a 100% accuracy guarantee and tax penalty protection.** On-the-go time tracking with QuickBooks Time keeps employee hours organized and synced. Plus, as your business grows, QuickBooks scales with you, offering the right tools to support faster, more seamless payroll.

Disclaimer:

****Accuracy Guaranteed**: Available with QuickBooks Online Payroll Core, Premium, and Elite. We assume responsibility for federal and state payroll filings and payments directly from your account(s) based on the data you supply. As long as the information you provide us is correct and on time, and you have sufficient funds in your account, we'll file your tax forms and payments accurately and on time or we'll pay the resulting payroll tax penalties. Guarantee terms and conditions are subject to change at any time without notice.

Tax penalty protection: If you receive a tax notice and send it to us within 15 days of the tax notice we will cover the payroll tax penalty, up to $25,000. Additional conditions and restrictions apply. Only QuickBooks Online Payroll Elite users are eligible to receive tax penalty protection.

*This content is for information purposes only and information provided should not be considered legal, accounting or tax advice or a substitute for obtaining such advice specific to your business. Additional information and exceptions may apply. Applicable laws may vary by state or locality. No assurance is given that the information is comprehensive in its coverage or that it is suitable in dealing with a customer's particular situation. Intuit Inc. does not have any responsibility for updating or revising any information presented herein. Accordingly, the information provided should not be relied upon as a substitute for independent research. Intuit Inc. cannot warrant that the material contained herein will continue to be accurate, nor that it is completely free of errors when published. Readers should verify statements before relying on them.*