Hiring your first employee in South Dakota

What do you have to register for before your first payroll?

There is no single business registration, but South Dakota asks for less than most states because there is no income tax withholding account to open at all. A new employer opens one payroll account, the Reemployment Assistance tax account with the Department of Labor and Regulation, and that one account covers both the reemployment assistance contribution and the investment fee that rides on top of it. Everything else is separate. New hire reports go to the New Hire Reporting Center, which sits inside the same Reemployment Assistance Division but is a different submission with a different address, and the Division states plainly that filing your quarterly wage report does not count as reporting a new hire. The sales tax licence is a separate application to the Department of Revenue at sd.gov/taxapp. Foreign qualification is a separate filing with the Secretary of State. Workers compensation is a private insurance purchase that the state does not register at all, and is optional.

Does South Dakota require income tax withholding?

No. South Dakota does not tax wage income, so there is no state withholding account to open and nothing to deduct from a paycheck for the state.

South Dakota levies no personal income tax on wages, so there is no state withholding account, no state W-4 and no state wage statement to file. The Legislature says so in statute rather than only on a web page: SDCL 10-64-1(2), the findings block behind the remote seller law the Supreme Court upheld in South Dakota v. Wayfair, records that revenue loss is especially serious in South Dakota because the state has no income tax. Note the difference from Texas and Nevada, which both wrote the ban into their constitutions. South Dakota simply does not levy the tax, so this is a legislative choice rather than a constitutional bar. What you still owe as an employer: federal income tax withholding, Social Security and Medicare, and federal unemployment tax, which drops from 6.0% to 0.6% once you are current on your South Dakota reemployment assistance reports and payments; the state reemployment assistance contribution plus the 0.55% investment fee; a new hire report within 20 days; and the state minimum wage, which is $11.85 an hour and $5.925 for tipped employees from 1 January 2026 and is reset every January against the Consumer Price Index. There is also no corporate income tax. The only state tax on business income is the bank franchise tax on financial institutions under SDCL 10-43-4, which is 6% of net income assignable to the state on the first $400 million with a $200 annual minimum, and which steps down at higher income bands.

What unemployment insurance does South Dakota charge a new employer?

A new South Dakota employer pays 1.2% on the first $15,000 each employee earns, so roughly $180 per employee in the first year. The headline rate in this field is the reemployment assistance contribution for a new non-construction employer, which SDCL 61-5-24 fixes at 1.20% in the first year and 1.00% in years two and three provided the account balance is positive. Budget for more than that, because every employer that is not yet experience rated also pays the 0.55% investment fee under SDCL 61-5-29, taking a new non-construction employer to 1.75% in year one and 1.55% in years two and three. Construction is far more expensive: 6.00% plus the 0.55% fee in year one, then 3.00% plus the fee, and the classification follows Sector 23 of the NAICS manual rather than what you call yourself. The saving grace is the wage base. Tax is owed only on the first $15,000 of each employee's wages, which has been the figure since 2015 and which the Department confirms stays at $15,000 for calendar year 2026, so the worst case for a new non-construction employer is about $262.50 per employee in year one. The 0.08% administrative fee the Department publishes for 2026 does not apply here: it falls only on employers already eligible for experience rating under SDCL 61-5-24. After three years your rate is recalculated annually from your reserve ratio on an 18 step schedule running from 0.00% to 9.45%. You become liable, and must register, once any one of these is true: you employed one or more people in 20 different calendar weeks in the current or preceding year; you paid $1,500 or more in wages in a calendar quarter; you are already covered by FUTA or another state's unemployment law; you acquired all or part of a covered business; or you cross the separate agricultural, domestic or non-profit tests. Out-of-state employers should note the 90 day rule: South Dakota residents working in South Dakota are reported to South Dakota however briefly they work, and out-of-state employees working in the state for more than 90 days are reported here too. Quarterly reports are due by the last day of April, July, October and January, with interest of 1.5% per month from the due date. The wage base and the rate schedule are both set by the Legislature and can move in any session.

Do you need workers compensation insurance in South Dakota?

Not for most private employers. South Dakota is one of the few states where workers compensation is elective rather than mandatory. That is not the same as having no exposure, and the trade-off is the important part.

It is still mandatory for these:

• a business that operates threshing machines, grain combines, corn shellers, cornhuskers, shredders, silage cutters or seed hullers for profit, which under SDCL 62-3-16 must secure coverage before operating the machine, and whose contract for that work is null and void if it has not
• the state, municipalities and other political subdivisions, which SDCL 62-5-6 and 62-5-7 keep inside the Act whether or not they buy a policy, though they may self-fund instead of insuring

South Dakota is the second state, alongside Texas, where workers compensation is genuinely optional for private employers, and there is no headcount that triggers it. The Department states it in one line: there is no law in South Dakota requiring any employer to carry workers compensation insurance. The statute works by election rather than by mandate. SDCL 62-3-3 presumes every employer has accepted the Act, but SDCL 62-3-5 says no private employer is deemed to have accepted it unless it has actually secured payment of compensation by buying a policy under SDCL 62-5-2 or 62-5-3 or by qualifying as a self-insurer under SDCL 62-5-5, and SDCL 62-5-7 then deems any private employer that has not done so to have elected not to operate under the Act. Read the DLR Coverage page carefully against this. That page opens by saying the law covers all employers with only limited exceptions, which reads like a mandate; it is describing who falls inside the Act once an employer has elected in, not creating a duty to insure. Where the two readings diverge, the statute and the Department's own main workers compensation page agree that coverage is elective. Here is what going without actually costs you, and it is worse than simply having no insurance. Buying coverage buys the exclusive remedy in SDCL 62-3-2, which caps an employer's exposure for a workplace injury at the schedule of benefits in Title 62. Skip it and that cap is gone, and SDCL 62-3-11 hands the choice to the injured worker: they may sue you at law for full damages, or they may elect to proceed against you under Title 62 as if you had insured, in which case the measure is the medical care required by SDCL 62-4-1 plus twice the amount of every other benefit the Act allows. They pick whichever is worth more, and you pay it out of the business rather than out of a policy. Coverage is also commonly demanded by contract, and the Department runs a public Coverage Verification Service that lets a customer check whether you carry it. Even an employer that does insure should know which people are outside the Act: SDCL 62-3-15 excludes domestic servants unless they work more than 20 hours in a calendar week and more than six weeks in any 13 week period, farm and agricultural labourers, and work activity participants, and SDCL 62-1-3 excludes anyone whose employment is not in the usual course of your trade or business, which is the route by which properly certified independent contractors sit outside. Corporate executive officers may reject coverage for themselves in writing under SDCL 62-3-5.1, at their election or more than 30 days before the injury.

None. Unlike Texas, South Dakota asks for no election form, no annual notice to the state, no workplace posting and no separate injury reporting from an employer that carries no coverage. Going without is silent, which is exactly what makes it easy to do without realising what you gave up.

How quickly must you report a new hire in South Dakota?

Within 20 days of the employee's first day of work for pay, or by two monthly electronic transmissions 12 to 16 days apart, and again for any rehire who has gone 30 days or more without wages from you. Reports go to the South Dakota New Hire Reporting Center, Department of Labor and Regulation, Reemployment Assistance Division.

SDCL 25-7A-3.3 sets the 20 day clock and the alternative twice-monthly electronic schedule, and requires the employee's name, address and Social Security number plus your business name, address and federal employer identification number. Since January 2013 the date of hire is required as well. The Division is unusually blunt that there are no exceptions: family members, temporary and seasonal workers, students, minors, day labourers and rehires all get reported, and a rehire counts again once the worker has gone 30 days or more without pay from you. The two traps are procedural. First, your quarterly wage report is not a new hire report; the Division says so explicitly, and the two go to different systems. Second, use the same federal employer identification number on both, as SDCL 61-1-3 requires, or the records will not match. Genuine independent contractors are not reported. A copy of the W-4 is an acceptable format as long as it is legible and carries all the required items. A multistate employer may report every state's hires to one state, but only electronically and only after filing the federal multistate election. SDCL 25-7A-3.3 makes an intentional failure to comply a petty offence. The Department publishes no dollar penalty and we did not find one on a primary page, so treat the report as mandatory rather than as priced.

Does South Dakota have paid family leave or state disability insurance?

No. South Dakota runs no state paid family leave fund and no state disability insurance, so there is no payroll deduction of that kind and no extra account to open.

South Dakota runs no state disability insurance fund and no paid family and medical leave programme, so there is no payroll deduction and no employer contribution for either, and it has no statewide paid sick leave mandate. The Department of Labor and Regulation's employment laws pages list minimum wage, child labour, wage payment and the posting requirements, and carry no state leave benefit at all. Any paid leave you offer in South Dakota is voluntary or contractual. The one wage cost that does move on you every year is the minimum wage, which SDCL 60-11-3.1 indexes to the Consumer Price Index each January and which cannot fall; it is $11.85 an hour, and $5.925 for tipped employees, effective 1 January 2026.

Do you need a sales tax permit in South Dakota?

The licence itself is free. The Department states there is no fee for a sales or contractor's excise tax licence, and SDCL 10-45-25 makes each permit valid without further payment of fees until it is cancelled or revoked, so there is nothing to renew. Read the free-licence source with one eye open: the Department's License Requirements tax fact is the January 2019 edition and is stale in two places, printing the old 4.5% state rate and the 200 transaction nexus prong that was repealed in 2023, and quoting a $1,000 maximum fine for operating unlicensed where SDCL 22-6-2 now puts a Class 1 misdemeanour at up to $2,000 or a year in jail. The current Sales and Use Tax Guide and the statute agree on the substance: no fee, and operating a taxable business without a licence is a criminal offence. You need a permit for each place of business under SDCL 10-45-24, though a business with identical ownership, the same federal identification number and the same classification across its locations may ask for a single statewide permit and file one consolidated return. On rates, the state sales and use tax is 4.2%, municipalities add 1% to 2%, and a municipal gross receipts tax of 1% can sit on top of that for alcohol, eating establishments, lodging, and admissions to amusement, athletic and cultural events. Watch the 4.2%: SDCL 10-45-2 carries a second version, effective 1 July 2027, that returns the rate to 4.5%, so the reduction has a hard sunset unless the Legislature extends it. Once you hold the licence you must file every reporting period even with no sales, at a $10 minimum penalty if you file late with nothing due; electronic returns are due the 20th of the month and electronic payments the 25th, and late tax carries a 10% penalty and 1% monthly interest. Selling at three or fewer events a year does not need a permanent licence, since the event organiser supplies a special event return instead.

Security deposits. SDCL 10-45-26 lets the secretary of revenue require a bond or other adequate security as a condition of issuing a licence or of staying in business, with no published standard amount. The one place the Department does publish a figure is the Sturgis rally, where new concessionaires and those with poor filing histories post a bond of at least $500, refundable once the taxes are paid.

Does a marketplace like Amazon or Etsy handle the tax for you?

South Dakota has had a marketplace provider law since 1 March 2019, in SDCL chapter 10-65. A marketplace provider must hold its own licence and remit the tax on everything it facilitates into South Dakota if it is itself a remote seller, or if it facilitates for at least one seller that meets the remote seller test, or if the combined sales of two or more of its sellers meet it. The practical consequence for a seller is the useful half: the Department states that where a marketplace is remitting because the $100,000 threshold is met, the South Dakota business is not responsible for remitting tax on sales made through that marketplace. Do not read that as a general exemption. Any business with a physical presence in South Dakota must hold a sales tax licence regardless of the threshold and regardless of how it sells, so a seller located in the state still registers and still files even if every order comes through a marketplace.

If your sales drop, when can you stop collecting?

This is the state that produced South Dakota v. Wayfair, so get the current threshold right rather than the famous one. The law upheld in 2018 had two prongs, more than $100,000 of gross sales or 200 or more separate transactions. The transaction count is gone: SL 2023 ch 38 amended SDCL 10-64-2 to leave only gross revenue exceeding $100,000 into South Dakota in the previous or current calendar year. The Department's current sales tax guide and its Remote Seller Bulletin both carry the single threshold, but its older License Requirements tax fact still prints the 200 transaction prong, so believe the statute. There is no separate small seller cushion and no physical presence needed. The trailing effect comes from the words previous or current calendar year rather than from a de-registration rule. The Department's own guidance is that a business meeting the threshold in the previous calendar year must be licensed and remit for the following year, so crossing $100,000 once binds you for the rest of that year and the whole of the next, and only then can falling short of the threshold in a full calendar year leave you outside the test. What the Department does not publish is an explicit rule for cancelling a licence after you drop below, which is why this is not a primary reading. Its published cancellation triggers are closing the business, selling it or changing its ownership, and the duty to file a return every period continues for as long as the licence is open, so treat closing the account as a step you take deliberately rather than one that happens on its own.

Does South Dakota charge a tax on revenue rather than profit?

South Dakota has no broad gross receipts tax in the mould of Washington's B&O or Ohio's CAT, but it does tax one industry on revenue, and the trap is that construction work is taxed here instead of under sales tax rather than in addition to it. Anyone entering into a contract for construction services, meaning construction, building, installation, repair or remodelling of real property, needs a contractor's excise tax licence before starting work in South Dakota, and the licence requirement applies regardless of how small the receipts are. The 2% is charged on the total contract price including labour and materials under SDCL 10-46A-3, including materials the owner furnished, and you may not deduct what you pay subcontractors. There is also no minimum and no exclusion threshold, which is why this field is null rather than a number. The mechanics differ by project type. On an ordinary project the prime contractor owes the tax and must issue a prime contractor's exemption certificate to every subcontractor, naming that specific project, and a subcontractor without a certificate on file is treated as a prime contractor and taxed itself. On a qualified utility project, meaning work paid for directly by an electric, gas, water, heating, power, railroad, rural electric, telephone or rural water utility, both the prime and the subcontractors owe the tax on their own gross receipts and no exemption certificates may be issued at all. Two other South Dakota taxes are also computed on gross receipts and are easy to miss: the municipal gross receipts tax of 1%, which cities may levy on alcohol, eating establishments, lodging and admissions on top of municipal sales tax, and the 1.5% tourism tax on certain lodging and amusement services and vehicle rentals.

Do you have to register your out-of-state company in South Dakota?

$750 filed electronically for both a foreign LLC certificate of authority and a foreign corporation application for certificate of authority, or $765 on paper, which includes a $15 paper filing surcharge. The fee does not vary by authorised shares or by member count. Both entity types then file an annual report at $55 online or $70 on paper. Amending later is where they diverge sharply: an amended foreign certificate of authority is $250 for a corporation and $750 for an LLC.

South Dakota is expensive to enter, at the same $750 as Texas, but unusually gentle if you are late. SDCL 47-1A-1502 for corporations and SDCL 47-34A-1008 for LLCs both impose one consequence and only one: while you are unqualified you cannot bring or maintain a proceeding in a South Dakota court, and neither statute charges a per-year penalty or back fees the way Texas does. Being unqualified does not void your contracts, does not stop you defending a suit, and does not make members or managers personally liable, though it does appoint the Secretary of State as your agent for service of process, and the attorney general may sue to enjoin an unqualified LLC from doing business under SDCL 47-34A-1009. On whether a single South Dakota employee puts you inside the requirement, be careful. SDCL 47-1A-1501 lists the activities that do not count as transacting business, including holding bank accounts, owning property without more, selling through independent contractors, soliciting orders that must be accepted out of state, and transacting business in interstate commerce. Employing a person who works in the state is not on that list, and the Secretary of State publishes no bright line test, so an employer with a South Dakota based worker should assume it is outside the safe harbour and take advice rather than rely on the absence of a rule. Note also that qualifying with the Secretary of State is a different filing from registering with the Department of Revenue for sales tax and from opening a reemployment assistance account with the Department of Labor and Regulation; none of the three tells the others.

Where these figures come from

Every number on this page was read on South Dakota's own agency pages, its statute, or a current-year official form, and this record was last reviewed on 2026-09-08. Where a state's explainer page disagreed with its statute or its current form, we followed the statute or the form and said so in the relevant section, because a state's consumer-facing pages are often the last thing updated when a figure changes.

Anything we could not confirm on a primary source is left blank rather than estimated. A missing figure on this page means we could not verify it, not that it is zero.

This is general information, not legal or tax advice. Rules change and your circumstances matter. Confirm anything you are about to act on with the agency named beside it.