Vermont Payroll: Employer Tax and Software Guide

Vermont is a small state that files like a big one. If another founder asked me where to start with payroll here, I would say: learn the state's rules before you compare software prices. This guide follows that order: what Vermont requires of employers, then how 10 payroll providers compare, priced at 10, 25, and 50 employees where rates are published.

One quarterly return carries three separate taxes with three different bases, and one of those three is not a percentage of wages at all. It is a headcount charge measured in full-time equivalents. The income tax withholding on that return is graduated, not flat, and the child care payroll tax shares the form but has its own base and its own employee deduction rules.

That headcount charge is a health care assessment: it counts uncovered employees, requires a signed declaration from each of them every year, and bills you for the ones who never returned the form. Unemployment contributions stop at a capped wage base that most full-time employees cross partway through the year. And unless you have given your staff notice of another schedule, state law says you pay them every week.

None of this is exotic. It is just four systems that do not line up, run by a business that in most cases has no full-time payroll person. The next sections take them one at a time, then turn to the obligations that opening a withholding account does not hand you.

What Vermont requires from employers

Four state obligations sit on top of federal payroll: income tax withholding, unemployment insurance contributions, the Child Care Contribution, and the Health Care Fund Contribution Assessment. Three of the four are reported on the same quarterly form, which is why employers so often assume they are the same tax.

State income tax withholding

Vermont taxes wage income on a graduated schedule. The four marginal rates are 3.35 percent, 6.60 percent, 7.60 percent, and 8.75 percent, and there is no city, town, or county income tax anywhere in the state to layer on top.

Withholding is not a percentage of gross pay. The employer subtracts the employee's allowances from wages for the period, then reads the rate table for that filing status and pay frequency. Those tables live in GB-1210 (full title: Income Tax Withholding Instructions, Tables, and Charts), which the Vermont Department of Taxes reissues each January because the bracket thresholds are reset annually.

The withholding allowance resets with the tables: in the 2026 edition, one annual allowance is worth $5,400. Allowances, filing status, and any extra per-period amount all come from Form W-4VT, the Vermont Employee's Withholding Allowance Certificate, which is a separate document from the federal Form W-4.

Deposit schedules and returns

Vermont largely avoids inventing its own deposit tiers. Payment frequency generally mirrors the federal frequency: an employer required to deposit federal withholding semiweekly deposits Vermont withholding semiweekly, and the same for monthly and quarterly.

Every filer, regardless of deposit frequency, files Form WHT-436 at the close of each quarter and Form WHT-434 by the last day of January. Any employer submitting 10 or more W-2 or 1099 forms must file electronically, a threshold the Social Security Administration lowered from 25 and which now captures most Vermont employers with more than a handful of staff.

Unemployment insurance contributions

Unemployment insurance is an employer-only cost in Vermont; nothing comes out of the employee. The taxable wage base rose to $15,400 for 2026 from $14,800, an increase of $600 that the Department of Labor announced in an October 2025 release.

Because the base is capped, so is the annual cost per head: at the 1 percent new employer rate that is $154 per employee per year, and even the highest rate in the highest schedule tops out at about $1,294.

The cap also shapes when you pay. An employee earning about $61,600 a year clears the base by the end of the first quarter, while a full-time employee at the $14.42 minimum wage needs close to 27 weeks to get there. Budget accordingly: the contributions are front-loaded for your highest earners and spread across half the year for everyone else.

Most new employers pay 1 percent. The exception is an out-of-state construction corporation, classified under North American Industry Classification System (NAICS) codes 236, 237, or 238 (building, heavy and civil engineering, and specialty trade construction). It is assigned a rate based on the industry average instead.

Experience rating takes time to arrive: the law requires at least one complete calendar year of benefit liability, and because rates are recalculated only annually, most employers stay at the new employer rate for at least two years. When experience rating does apply, your rate comes from the statutory schedules below.

Section 1326 of the Vermont Unemployment Compensation Law provides those five schedules, each holding 21 tax rates, and a statutory formula picks which one is in effect. Your class within the schedule comes from a benefit ratio: the Vermont Department of Labor divides benefits charged to your record over the last one to three calendar years by the taxable wages you reported for the same period. Class 0 is reserved for employers with no benefits charged at all.

One scheduling detail matters for budgeting. Contribution rates run on a July to June year while the wage base changes on January 1, so a Vermont employer sees two separate changes to the same tax in the same twelve months. Federal unemployment tax runs alongside on the first $7,000 of wages, and paying state contributions on time is what keeps the federal rate at the reduced level.

The Child Care Contribution

Act 76 of 2023 created a 0.44 percent payroll tax on Vermont wages, effective for wages paid on or after July 1, 2024, to fund the state child care system. According to the Vermont Child Care Contribution guidance, the employer owes the whole 0.44 percent and may elect to recover up to one quarter of it, meaning not more than 0.11 percent of any employee's wages, by deduction.

Take the maximum deduction and the split lands at 0.11 percent from the employee and 0.33 percent from the employer. Take nothing and the employer carries the whole 0.44 percent. Anything in between is allowed, and the election is made per employee rather than company-wide, so an employer may deduct from some people and not others.

Two details get missed. Anything withheld is reported in Box 14 of that employee's W-2, which means the deduction election has a year-end consequence as well as a per-run one.

The second detail is the base, which is narrower than your total payroll: only wages subject to Vermont income tax withholding are subject to the contribution, so wages for work physically performed outside Vermont are excluded even when an out-of-state employer voluntarily withholds Vermont tax as a courtesy to a resident employee.

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The local layer that state registration does not cover

Vermont has no municipal payroll taxes and no local income tax, so employers reasonably assume that a withholding account and an unemployment account finish the job. They do not. Four obligations sit outside those two registrations, and three of them are documentation problems rather than calculation problems.

The health care assessment counts people, not dollars

The Health Care Fund Contribution Assessment is charged per uncovered full-time equivalent employee, per quarter. The arithmetic, set out in the Vermont statutes at 32 V.S.A. section 10504, is unlike anything else in a payroll run.

Start by totaling the hours worked by all uncovered employees during the quarter, capping any single individual at 520 hours no matter how much they actually worked. Divide that total by 520, round down, then subtract four. The first four uncovered full-time equivalents are exempt for every employer.

The rate per remaining uncovered full-time equivalent changes every year, adjusted to match the change in premiums for the second-lowest-cost silver-level plan on the Vermont Health Benefit Exchange. Because it tracks insurance pricing rather than an inflation index, it moves upward with health costs. Confirm the current quarterly rate on the HC-1 worksheet before each filing rather than carrying last year's number forward.

Earned sick time accrues at a rate nobody guesses correctly

Under 21 V.S.A. section 482, Vermont requires earned sick time at not less than one hour for every 52 hours worked, a slower accrual than the one-per-30 rate several other states use. An employer may cap accrual at 40 hours in a 12-month period and may impose a waiting period of up to one year for new hires, during which time still accrues but cannot be used.

Coverage is defined by hours, not headcount. The law defines a covered employee as someone employed for an average of no less than 18 hours per week during a year, and the carve-outs are narrower than employers assume.

Those carve-outs include people under 18, someone employed 20 weeks or fewer in a 12-month period who is also in a job scheduled to last 20 weeks or fewer, and health care facility staff who work only on a per diem or intermittent basis.

Earned sick time is paid at the greater of the employee's normal hourly rate or the state minimum wage, and accrual must be calculated either each pay period or quarterly.

Weekly pay is the default, not the option

Under 21 V.S.A. section 342, an employer doing business in Vermont pays each employee every week, for wages earned to a day not more than six days before the payment date. Biweekly and semimonthly are permitted, but only after giving notice to each employee, and the six-day lag still applies. A collective bargaining agreement can extend the lag to 13 days.

The 72-hour discharge rule is the one that costs money. It does not wait for your cycle, and a provider that charges per off-cycle run or needs two business days to originate a direct deposit will turn a routine termination into either a fee or a violation. Ask about off-cycle runs before you sign, not after your first firing.

The border is a payroll question

Vermont borders three states with entirely different payroll mechanics, and small Vermont employers cross those lines constantly. An out-of-state employer is not required to begin withholding Vermont income tax until an employee has been working from a Vermont location for thirty days.

The thirty-day threshold is about when the employer must withhold, not about what the employee owes. An employee who lives and works remotely in Vermont is taxable on income earned during the entire period they live there, even if they claim another state as their domicile (their permanent legal home).

For nonresidents who split a pay period between Vermont and elsewhere, the tax is computed on the full payment and then multiplied by the ratio of Vermont hours to total hours. For Vermont residents paid for services performed in another state, withholding is computed on the full payment and then reduced by the tax withheld for that other state.

Minimum wage, by contrast, is where Vermont is refreshingly simple: there are no local minimum wage ordinances to track. The rate is $14.42 per hour as of January 1, 2026, up from $14.01, with a basic tipped wage of $7.21, exactly half the full minimum.

Vermont indexes the rate under 21 V.S.A. section 384: it rises each January by the smaller of five percent or the change in the Consumer Price Index for all urban consumers over the 12 months preceding the previous September 1, rounded to the nearest cent, and it can never fall.

The tipped rate applies to service employees of hotels, motels, tourist places, and restaurants who customarily receive more than $120 a month in tips, with the employer covering any shortfall.

Registration and the rest of the setup

A Vermont employer opens a business tax account with the Department of Taxes for withholding, and a separate unemployment insurance account with the Department of Labor for quarterly wage and contribution reporting. The Child Care Contribution and the health care assessment do not require their own registrations; they attach to the withholding account and appear on Form WHT-436. New hires are reported to the state directory, and workers compensation coverage is required.

10 payroll providers for Vermont employers compared

Every provider below files Vermont income tax withholding and unemployment contributions on its full-service plans. The real differences for Vermont payroll services are whether the platform populates the Child Care Contribution and health care assessment lines on Form WHT-436 without manual entry, how it handles off-cycle runs for the 72-hour discharge rule, and what a second state costs.

OnPay

OnPay has one payroll plan at $49 per month plus $6 per employee, with HR tools and time tracking sold as optional add-ons rather than tiers.

Tax filing covers all 50 states with no multi-state surcharge, and year-end W-2 and 1099 filing sits in the base price rather than being billed separately. For a Vermont employer with a few people over the New Hampshire line, that flat structure removes the single biggest pricing variable in the state.

Gusto

Gusto is a common first payroll purchase for US small businesses. Tax filing is automatic, the interface is pleasant, and pricing is published. Simple runs $49 per month plus $6 per employee, after a base increase from $40 during 2025.

The catch for Vermont is geography. Simple covers single-state payroll only, and a Vermont company is unusually likely to hire in New Hampshire, New York, or Massachusetts. One such hire moves you to Plus at $80 plus $12 per employee, which nearly doubles a 25-person bill. Model the Plus number if a cross-border hire is even plausible within the next year.

Patriot Software

Patriot is the lowest-cost full-service option here at every headcount the cost table models. Full Service is $37 per month plus $5 per employee and includes federal, state, and local tax filing, though you still file new hire reports with the state yourself.

Basic is $17 a month plus $4 per employee if you file taxes yourself, which for a Vermont employer means hand-filing WHT-436 with three separate tax sections every quarter. Additional state filings cost $12 per month each, so a Vermont company with two people in New Hampshire pays $12 more rather than jumping a tier. Unlimited pay runs make the weekly Vermont default affordable.

SurePayroll

SurePayroll is owned by Paychex and aimed at very small employers and household employers. The Small Business plan is $29 per month plus $7 per employee, with a flat $9.99 monthly multi-state fee regardless of how many states are involved. For a company straddling the New Hampshire border, flat beats per-state.

QuickBooks Workforce Payroll

QuickBooks Workforce (formerly QuickBooks Payroll) took its new name in May 2026, and the entry tier once called Core is now Workforce Payroll at $50 per month plus $7 per employee. Per-employee pricing rose across all tiers on July 1, 2026, and each additional state adds $12 a month below the Elite tier.

The reason to pick it has always been the same: if your books already live in QuickBooks Online, payroll entries reach the general ledger without an export step.

ADP RUN

ADP pays roughly one in six American workers, according to its fiscal 2026 annual report, and it says every RUN package calculates, files, deposits, and reconciles payroll taxes, with ADP paying the resulting fines if it makes a tax filing error.

For a Vermont employer the practical argument is maintenance. The January wage base change and the July contribution rate change both land with ADP, which includes State Unemployment Insurance management from its Enhanced package up. Confirm in writing how the annual health care assessment rate reset reaches your account.

The cost is opacity. ADP does not publish RUN pricing: the Essential, Enhanced, Complete, and HR Pro packages are all quoted individually. ADP also says no contract is required and you can end service at any time.

Paychex Flex

Paychex competes with ADP on service rather than software, with a payroll specialist included on its top Complete package. Every payroll package (Basic, Foundations, Advanced, and Complete) is priced on request, so like ADP it gives you no published floor to budget against. Worth a call if you would rather ask a person how the HC-2 collection works than read the assessment worksheet.

Paylocity

Paylocity sits between small-business payroll and full HCM (human capital management), aimed at companies that have outgrown basic payroll but do not want enterprise complexity. It maintains detailed per-state tax compliance resources, and the HR module covers performance, learning, and engagement alongside payroll. Pricing is quote-based, and implementation is a project rather than a signup.

Rippling

Rippling sells a unified employee record where payroll, HR, and IT provisioning share one data model. Its pricing page lists no rates, but Rippling's small-business page starts payroll plans at $8 per user per month plus a $40 monthly base fee, and its blog prices the core platform and the payroll module at $8 per employee a month each (payroll is $10 billed monthly), so a configured quote runs higher.

Rippling's blog also estimates roughly $15 to $25 per employee per month for a 100-employee company running the human resources information system (HRIS), payroll, benefits administration, and time and attendance modules, so a working configuration costs well above the headline core rate.

Justworks

Justworks sells two products under one name. Payroll is $50 per month plus $8 per employee and is straightforward software. The other is a professional employer organization (PEO): PEO Basic, at $79 per employee per month, is a co-employment arrangement covering compliance, HR tools, 24/7 support, and a 401(k), but not medical coverage.

Justworks PEO Plus, at $124 per employee per month, adds medical, dental, and vision administration, giving a small Vermont business access to benefits priced off a much larger risk pool. In a state where the health care assessment is driven by how many employees are uncovered, that pooling argument has a second edge, because covering more employees can also shrink the assessment.

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What each provider actually costs a Vermont employer

The table below models published rates at three headcounts, plus what happens when a second state enters the picture. That second-state column carries more weight in Vermont than in almost any other state, because the population centers sit within commuting distance of two or three borders.

Two patterns stand out. Patriot stays cheapest at every headcount, and at 50 employees it runs $62 a month below OnPay and Gusto Simple and $92 below SurePayroll. But the second-state column reorders things: Gusto Simple matches OnPay exactly until one cross-border hire forces the Plus tier, at which point a 25-person payroll goes from $199 to $380 per month while OnPay stays at $199.

Software price is also not the whole Vermont number. An employer with 25 full-time people, no group health plan, and nobody insured elsewhere reaches 25 uncovered full-time equivalents, and after the four-equivalent exemption owes the health care assessment on 21 of them every quarter. Multiply 21 by the current per-equivalent rate before you decide the subscription is the big line.

The Child Care Contribution adds 0.44 percent of Vermont wages on top, or 0.33 percent if you take the maximum employee deduction. Both are statutory costs no provider changes, and they belong in the budget next to the subscription line rather than in a separate mental category.

Choosing a payroll provider for Vermont

Four questions separate providers that will work here from providers that will quietly generate correction notices.

One item sits outside the payroll engine entirely: the new-hire paperwork. Every Vermont new hire needs a federal I-9 and W-4, plus a W-4VT, which you have to ask each employee for rather than wait to receive.

A new hire who is not joining your health plan also needs an HC-2, and anyone paid electronically needs a signed direct deposit authorization before you can pay them that way at all.

Before you choose

FirstHR is an onboarding and HR platform, not a payroll provider. The providers above calculate Vermont withholding, move money, administer benefits, and file payroll taxes, from the quarterly WHT-436 to the annual WHT-434 reconciliation.

Every provider above does something we do not, and if running payroll is the problem in front of you, one of them is the answer rather than us.

What we handle is the layer that feeds payroll: onboarding workflows that put the I-9, the W-4, and Form W-4VT on each new hire's first-day task list, e-signatures on offer letters, employee records, and HR document management for small US teams at a flat $98 a month for up to 10 people or $198 for 11 to 50.

If the recurring problem in your Vermont payroll is that the W-4VT never got requested, three people never returned an HC-2 and you paid the assessment for them anyway, and nobody is sure whether the direct deposit form was ever signed, that is a document collection failure rather than a payroll processing failure, and it is the kind of gap we built for.

Each of those forms can sit on the onboarding plan as a task with a deadline. The forms themselves are completed outside the platform, and the signed copies are kept in the employee file.

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Frequently Asked Questions

What is the Vermont income tax rate for payroll withholding?

Vermont uses a graduated schedule with four marginal rates: 3.35, 6.60, 7.60, and 8.75 percent. Withholding is calculated by subtracting the employee's allowances from wages and applying the table for that filing status and pay period from GB-1210, which the Department of Taxes reissues each January. No Vermont municipality levies an income tax.

Do Vermont employees have to complete Form W-4VT?

The Department of Taxes strongly recommends that employers require it. Without a W-4VT the employer may use the federal W-4, but the Department warns this can under-withhold, particularly for employees who adjusted their federal withholding for a federal credit and for employees in a civil union or civil marriage.

How does extra withholding on a federal W-4 affect Vermont tax?

It converts at 30 percent. If an employee requests extra federal withholding on the federal W-4 each pay period, Vermont withholding rises by 30 percent of that extra amount rather than by the full figure. Putting the intended Vermont amount on a W-4VT avoids the conversion entirely.

What is the Vermont unemployment insurance wage base?

$15,400 per employee for calendar year 2026, up $600 from $14,800. Contributions are employer-paid with nothing withheld from employees. The cap limits the annual cost per head to $154 at the 1 percent new employer rate and about $1,294 at the highest statutory rate, and someone earning about $61,600 a year hits it within the first quarter.

What unemployment rate does a new Vermont employer pay?

One percent for most new employers. Out-of-state corporations in NAICS 236, 237, and 238, the construction groupings, are assigned an industry-average rate instead. Because experience rating needs a full calendar year of benefit liability at minimum and rates are reset only once a year, most employers pay the new employer rate for two years or longer.

How are experience-rated unemployment rates calculated?

From a benefit ratio: the benefits charged to your account over the past one to three calendar years, divided by your taxable wages for those years. The Department of Labor uses that ratio to place you in one of 21 rate classes. Section 1326 provides five rate schedules, each with 21 rates, running from a low of 0.4 percent to a high of 8.4 percent.

What is the Vermont Child Care Contribution?

A 0.44 percent payroll tax on Vermont wages, created by Act 76 of 2023 and effective for wages paid on or after July 1, 2024. The employer owes the full amount and may elect to deduct up to one quarter of it, meaning 0.11 percent, from employee wages, leaving 0.33 percent as the employer share.

How is the Child Care Contribution reported?

On Form WHT-436, the quarterly withholding reconciliation, using dedicated lines. Payments are remitted at the same frequency as Vermont income tax withholding. Any portion deducted from an employee is reported in Box 14 of that employee's W-2, and only wages subject to Vermont withholding are subject to the contribution.

What is the Health Care Fund Contribution Assessment?

A quarterly employer assessment per uncovered full-time equivalent employee. Divide total hours worked by uncovered employees by 520, capping any individual at 520 hours, round down, subtract four for the exemption, and multiply by the current rate. The rate resets annually to track the second-lowest-cost silver plan on the Vermont Health Benefit Exchange.

Why does Form HC-2 matter for Vermont employers?

Because an employee with no HC-2 on file must be treated as uncovered, and the Department is required to assess for them on audit. Declarations are collected annually and again whenever coverage changes. Employers keep HC-2 and HC-1 for three years without filing them, and an employer with four or fewer uncovered full-time equivalents still files a zero return.

How often must Vermont employers pay employees?

Weekly by default under 21 V.S.A. section 342, for wages earned to a day not more than six days before payment. Biweekly or semimonthly is allowed after giving notice to each employee, and a collective bargaining agreement can push the lag to 13 days. Direct deposit and pay cards require written authorization.

What is the final paycheck deadline in Vermont?

A discharged employee must be paid within 72 hours of discharge. An employee who quits is paid on the last regular pay day, or the following Friday if there is no regular pay day. An employee absent from the workplace on payday is entitled to payment upon demand.

What is the Vermont minimum wage and is it indexed?

$14.42 an hour since January 1, 2026, up from $14.01, and the basic tipped wage is $7.21. Yes, it is indexed: each January, 21 V.S.A. section 384 raises the rate by five percent or by the 12-month change in the Consumer Price Index for all urban consumers to the previous September 1, whichever is smaller, and the rate can never decrease.

How much does payroll software cost for a Vermont small business?

At 10 employees, published October 2026 rates run roughly $87 for Patriot Full Service, $99 for SurePayroll, $109 for OnPay or Gusto Simple, $120 for QuickBooks Workforce Payroll, and $130 for Justworks Payroll. At 50 employees the same plans land between $287 and $450, while ADP RUN, Paychex Flex, and Paylocity quote every account.