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New South Dakota Labor Law

January 5th, 2007 Posted by Mark

South Dakota would like all of its employers to know of an important rule change that occurred in 2006, and if you already know about it, I would assume then that a reminder is just good enough. The South Dakota legislature in 2006 passed a new law, called Senate Bill 108, that changes the way that tax status is decided for certain employers for unemployment insurance taxes.

More specifically, the law changes the way that payments are handled that go to IRS qualified retirement plans, like a 401k or similar type programs such as 403b plans and 408K plans. Any payments to these retirements plan will henceforth—in fact, since July 2006—no longer be considered wages when it comes to unemployment insurance tax calculations.

That means, South Dakota employers, when you get about to your quarterly wage earnings reports to the South Dakota unemployment system, you no longer have to report money that goes to these retirement investment accounts in your Quarterly Contribution, Investment Fee and Wage Reports. The first quarter that employers could make this de facto deduction was the third quarter of 2006.

Normally, under South Dakota labor law, wages are meant to include monies that your employee makes in service for you. But it doesn’t include now any payment for services or goods performed for you by an employee that are then redirected by the employee into a 401k plan, 403b plan, or a 408K plan.

Does this mean that you could save money on your taxes? Possibly, if you had been counting your contributions to your employees’ retirement funds as part of their income, then you could save on taxes now that you don’t have to report that money. But it will also require even more precise and careful bookkeeping and personnel records on your part.