Vermont payroll laws require employers to pay workers at least weekly, withhold both Vermont and federal income tax, contribute to unemployment insurance, report new hires within 10 days, provide earned sick time, and meet strict deadlines for filings and final paychecks. The Vermont Department of Taxes handles income tax withholding and the Health Care Fund contribution. The Vermont Department of Labor oversees wage-and-hour rules and unemployment insurance. Missing any one of these obligations can trigger penalties, interest, and back-tax liability that pile up fast.
Pay Frequency and Final Paychecks
Under 21 V.S.A. § 342, the default pay schedule in Vermont is weekly. Each paycheck must cover earnings up to a date no more than six days before the payment date. Employers who want a longer cycle can move to biweekly or semimonthly pay after giving each employee written notice.1Vermont General Assembly. Vermont Code 21 V.S.A. 342 – Weekly payment of wages
Final paycheck timing depends on how the job ended. A fired employee must be paid within 72 hours of discharge. A worker who resigns is paid on the next regular payday, or the following Friday if there is no set schedule. An employee absent on payday can demand immediate payment.1Vermont General Assembly. Vermont Code 21 V.S.A. 342 – Weekly payment of wages
One boundary worth naming: Vermont has no statute requiring payout of accrued but unused vacation at separation. Whether unused vacation gets paid depends entirely on your written policy or employment agreement. If your handbook promises a payout, that promise is enforceable as a wage obligation, so write the policy carefully.
Minimum Wage and Overtime
Vermont’s minimum wage is $14.42 per hour as of January 1, 2026. The rate is indexed to the Consumer Price Index each January and cannot decrease from one year to the next. Tipped employees in hotels, motels, and restaurants have a base rate of $7.21 per hour, exactly half the standard minimum. If tips plus base pay don’t reach $14.42 in a pay period, you owe the difference.2Vermont Department of Labor. Vermont Department of Labor Announces Minimum Wage Increase Starting January 2026
Some workers sit outside the minimum wage entirely: agricultural workers, full-time high school students, taxi drivers, and outside salespersons.3Vermont Department of Labor. A Summary of Vermont Wage and Hour Laws
Overtime is due after 40 hours in a workweek at 1.5 times the regular rate. Vermont’s overtime exemptions are narrower than many employers assume. The state exempts employees of retail or service establishments, hotels, motels, restaurants, state and municipal government, and certain seasonal amusement or recreational operations that run seven months or fewer per year.4Vermont General Assembly. Vermont Code 21 V.S.A. 384 – Employment; Wages
On the federal side, salaried employees classified as executive, administrative, or professional are exempt from overtime only if they earn at least $35,568 per year ($684 per week). This is the threshold the U.S. Department of Labor restored after the higher 2024 proposed levels were struck down. Anyone below that floor is entitled to overtime regardless of job title or duties.
Vermont Income Tax Withholding
Every new hire should complete Form W-4VT, the Vermont Employee’s Withholding Allowance Certificate, along with the federal W-4. The W-4VT gives you filing status and allowances so you can withhold the right amount of state tax.5Vermont Department of Taxes. Form W-4VT
Vermont has a graduated income tax with rates from 3.35% to 8.75%. There are no reciprocity agreements with neighboring states, so you generally withhold Vermont tax on wages earned in Vermont regardless of where the employee lives. A New Hampshire or New York resident working at your Vermont location has Vermont tax withheld, and they claim credits on their personal returns.6Vermont Department of Taxes. Vermont Department of Taxes – Frequently Asked Questions
For bonuses, commissions, and other supplemental wages, Vermont allows a flat withholding rate of 6.6% on amounts up to $1 million and 11.1% above that. The flat rate is simpler than running supplemental pay through the regular tables.
Federal Payroll Taxes
Vermont employers owe the same federal payroll taxes as businesses in every other state.
- Social Security (OASDI): 6.2% each from employer and employee on wages up to $184,500 in 2026. Withholding stops when year-to-date earnings hit the ceiling. Maximum per side: $11,439.
- Medicare: 1.45% each with no wage cap. Employees earning over $200,000 in a calendar year owe an additional 0.9% Medicare surtax, which you withhold but don’t match.
- Federal Unemployment (FUTA): 6.0% on the first $7,000 of each employee’s wages. Because Vermont’s unemployment program is federally approved, a 5.4% credit brings the effective rate to 0.6% per employee.
Copy A of Form W-2 for every employee is due to the Social Security Administration by February 2, 2026 for the 2025 tax year. Vermont also requires W-2 information to be submitted to the Department of Taxes.8Internal Revenue Service. Filing Forms W-2 and W-3
Unemployment Insurance and the Health Care Fund
Vermont employers pay into the state Unemployment Insurance Trust Fund on wages up to $15,400 per employee in 2026, up from $14,800 the year before.9Vermont Department of Labor. Vermont Department of Labor Announces Unemployment Insurance Taxable Wage Base 2026 New employers pay a standard entry rate until they build enough claims history for an experience rating. Businesses with few claims pay less; businesses with frequent layoffs pay more. Your assigned rate appears on the annual notice from the Department of Labor.10Vermont General Assembly. Vermont Code 21 V.S.A. 1301 – Definitions
Separately, 32 V.S.A. § 10503 creates a quarterly Health Care Fund contribution for employers who don’t provide health insurance. The assessment applies to each full-time equivalent uncovered employee beyond four. The rate started at $158.77 per uncovered employee per quarter in 2017 and adjusts annually in line with silver-level plan premiums on the Vermont Health Benefit Exchange. The Commissioner of Taxes sets the current-year amount based on those premium changes. If all of your full-time employees are on your plan, you owe nothing under this assessment.11Vermont General Assembly. Vermont Code 32 V.S.A. 10503 – Health Care Fund Contribution Assessment
New Hire Reporting
Under 33 V.S.A. § 4110, you must report each new hire to the Vermont Department of Labor within 10 calendar days of the employee’s first day. The Department shares that information with the Office of Child Support to enforce wage withholding orders and locate parents with support obligations.12Vermont General Assembly. Vermont Code 33 V.S.A. 4110 – Employer Obligations
The required fields are simple: employee name, address, Social Security number, and first day of work, plus your business name, address, and federal EIN. Reports can be filed electronically, by fax, by first-class mail, or by phone. The 10-day window is tight, so add new hire reporting to your onboarding checklist.12Vermont General Assembly. Vermont Code 33 V.S.A. 4110 – Employer Obligations
Earned Sick Time
The Vermont Earned Sick Time Act (21 V.S.A. §§ 481–487) requires paid sick leave for employees averaging at least 18 hours of work per week over the course of a year. Workers accrue one hour of earned sick time for every 52 hours worked, up to a maximum of 40 hours in a 12-month period.13Vermont General Assembly. Vermont Code 21 V.S.A. 482 – Earned Sick Time
Accrual starts on the first day of employment. You can impose a waiting period of up to one year before an employee actually uses the banked time. Workers can use earned sick time for their own illness, a family member’s medical needs, or related appointments. Unused earned sick time does not have to be paid out at separation.13Vermont General Assembly. Vermont Code 21 V.S.A. 482 – Earned Sick Time
Your payroll system should track accruals every pay period and display the running balance. Tracking failures are the most common compliance gap, because an employee who files a wage claim can request accrual records going back to their hire date.
Worker Classification
Getting employee-versus-contractor classification right is one of the highest-stakes calls in payroll. The IRS looks at three categories: behavioral control (do you direct how the work gets done), financial control (who supplies tools, how expenses and pay are handled), and the nature of the relationship (written contracts, benefits, permanence).14Internal Revenue Service. Worker Classification 101: Employee or Independent Contractor
Misclassify an employee as a contractor and you owe back employment taxes plus penalties and interest. For unintentional misclassification, the IRS penalty is 1.5% of wages paid plus 40% of the FICA that should have been withheld. Those percentages double if you never filed a 1099 for the worker. Intentional misclassification means 100% of the unpaid FICA (both shares), fines of 20% of all wages paid, and potential criminal charges of up to $1,000 and one year in prison per violation.14Internal Revenue Service. Worker Classification 101: Employee or Independent Contractor
Vermont’s Department of Labor also reviews classification during unemployment audits. If the state reclassifies a contractor as an employee, you owe back UI contributions plus interest. The safest rule: if you control when, where, and how someone does the work, treat them as an employee.
Filing Deadlines and Penalties
Vermont employers file and pay withholding through the myVTax portal. Your state filing frequency mirrors your federal withholding deposit schedule. If you deposit federal semiweekly, you do the same for Vermont; monthly or quarterly federal depositors follow the same rhythm at the state level.15Vermont Department of Taxes. Withholding
Late payments get expensive quickly. The Vermont Department of Taxes charges 5% of unpaid tax for each month a payment is late, capped at 25%. Returns filed more than 60 days past due trigger an additional $50 penalty even when no tax is owed, unless an extension was filed. Interest accrues from the original due date on top of penalties. Fraudulent or willful failure to pay carries a 100% penalty on the unpaid tax.16Vermont Department of Taxes. Interest and Penalties
Record-Keeping
The Fair Labor Standards Act requires payroll records to be kept at least three years. Records must include each employee’s name, address, pay rate, hours worked, straight-time and overtime earnings, deductions, and payment dates. Supporting documents such as time cards, schedules, and wage rate tables must be kept at least two years.
Vermont’s earned sick time law adds accrual and usage records for every covered employee. Keeping all payroll records for at least three years from the date of last entry gives you room for both federal and state audits. Electronic storage is fine as long as records are accessible and can be reproduced on request.