Why Are Census Designated Places Important To Human Resources and Payroll?

Hybrid and remote work have spread today’s workforce across more locations than ever. As of 2025, this trend shows no sign of slowing. HR and payroll professionals understand that the location where employees work can directly affect compliance and compensation. 

It’s not just about the state—they also need to know if an employee’s address lies inside an incorporated city or in an unincorporated area. One often-overlooked detail is whether a location is part of a city or a Census Designated Place (CDP). 

Understanding CDPs and how they differ from cities is now critical for accurate payroll and HR processes in 2025, and that’s what this article will cover for you. 

What Are Census Designated Places (CDPs)?

A Census Designated Place (CDP) is an unincorporated community identified by the U.S. Census Bureau for statistical purposes. 

Unlike an incorporated city or town, a CDP has no local government or city council of its own—it’s simply a populated area with a recognized name​. 

The Census Bureau treats CDPs as the statistical equivalent of a city. This way, they can ensure these places appear in population counts and data for the target population.

For example, East Los Angeles (population around 119,000) is a CDP—a large community with no municipal government (Los Angeles County provides its services)​. California alone had over 1,100 CDPs in the 2020 census​. CDPs exist across the nation, including in the Non-Contiguous U.S. areas like Alaska and Hawaii, and in territories such as Puerto Rico.

CDPs can be small villages or large suburbs, like remote communities or areas with significant population size—for example, Paradise, Nevada (population ~191,000 as of 2020) is a CDP that contains the Las Vegas Strip. If it were incorporated, it would be the fifth-largest city in Nevada​. 

To summarize:

• A CDP is defined for data collection.
• An incorporated city exists as a legal entity with governmental powers.

Local Labor Laws and Minimum Wage Compliance

Local labor ordinances—especially minimum wage laws—often apply only within a city’s official boundaries. 

If an employee works in an unincorporated area (a CDP) just outside a city, the city’s wage-and-hour laws (like minimum wage or paid sick leave) usually do not apply; the standard state or county rules cover the employee, enforced by agencies such as the U.S. Department of Labor.

Seattle’s minimum wage law (which sets a much higher rate than the rest of Washington) covers only employees working within Seattle. Someone working immediately outside Seattle in a neighboring CDP area is subject to Washington State’s lower minimum wage, not the Seattle rate.

The same principle applies to any local law, from safety regulations to scheduling requirements—they typically only cover workers in the city’s jurisdiction. Employers must pinpoint each worker’s location to apply the correct laws. 

Otherwise, they risk underpaying workers inside a city (violating that city’s ordinance) or overpaying those who are not. 

City regulators enforce their labor standards, so a company that underpays due to misidentifying a worker’s location could face fines or owe back pay.

Payroll Tax Withholding and Local Taxes

Whether or not a work location is in a city will also influence payroll taxes and withholding.

Some cities and counties levy income or payroll taxes on residents and workers. Usually, those taxes stop at the city line. Employees living or working in a CDP outside the city generally wouldn’t owe the city’s tax. 

For instance, a New York City resident must pay NYC city income tax, but someone living just outside the city limits generally pays no NYC tax​. 

Similarly, local city taxes are only withheld in states like Pennsylvania or Ohio if the employee’s address is within that city’s jurisdiction. 

(Learn more about state and local Pennsylvania and Ohio taxes).

This makes it even more important for payroll to classify addresses accurately. 

Misidentifying a CDP address as “in the city” could mean withholding taxes that don’t apply (and an unhappy employee), while missing a city designation could lead to under-withholding and compliance issues. 

Likewise, cities with local taxes expect accurate withholding – employers can be penalized for not withholding when required or for withholding taxes that shouldn’t be taken. 

Consider an employee who splits her week between a company’s city office and her home in a CDP—payroll may need to handle different local tax rules for the days in each location.

Don’t miss this article next: What Happens When You Enter Incorrect W-4 Information.

Geolocation-Based Compensation Practices

Location also influences compensation strategy. 

You’ll often find that pay rates for the same job differ between major cities and smaller communities. Typically, this is thanks to cost-of-living and labor market differences. The challenge is accurately specifying the “local” market. 

Many organizations historically used broad regions or Metropolitan Statistical Areas (MSAs) to set pay ranges, but MSAs can be too broad and misleading for pay analysis​.

An MSA might group a high-pay urban core with lower-pay suburbs, and this will obscure real differences. 

For example, the Seattle MSA combines Seattle with Tacoma, and even though Tacoma’s market wages are significantly lower, using an MSA-wide average would inflate pay rates for Tacoma​. 

More and more, companies look to granular data when benchmarking salaries to be fair and competitive across different roles, including Management Occupations, Healthcare Practitioners and Technical Occupations, and Architecture and Engineering Occupations.

Even federal data reflects this granularity – the Bureau of Labor Statistics publishes separate wage estimates for almost 600 local areas (metro and non-metro) across the U.S., underscoring how pay can vary widely by location, which impacts average salaries and annual wages.

With remote work becoming mainstream, many employers are tying compensation to an employee’s location. Surveys indicate roughly one-third of organizations currently apply geographic pay differentials​.

Some experts predict that pay strategies will become mostly national—for example, tech companies might pay "Silicon Valley rates minus 10%" no matter where an employee is based​. 

In other words, talent markets may become less about city versus suburb and more about skills, but even a 10% adjustment still requires knowing an employee’s location. 

For instance, a company might pay a higher salary for a software engineer in a high-cost city like San Francisco and a lower rate for the same role in a rural area. These practices make it crucial to know an employee’s exact location. 

If you think someone is in a big city when they’re actually in a nearby CDP with lower living costs (or vice versa), you might overpay or underpay them relative to your intended policy.

Frequently Asked Questions About Census Designated Places

Tying It All Together: Location, Compliance, and Pay Accuracy

Do you know exactly what applies to where your employees work? Are you absolutely positive of the boundary lines of every city, county, and other wage-defining spaces? 

Understanding the nuance between incorporated cities and Census Designated Places is increasingly important for HR and payroll professionals, especially with today’s remote and hybrid teams. 

Symmetry Software offers a suite of payroll tax compliance tools designed to ensure accurate and efficient payroll processing. 

Symmetry Payroll Point® combines advanced geocoding technology with a comprehensive tax engine to determine precise federal, state, and local withholding taxes based on exact geographic coordinates. 

This system utilizes over 35,000 geospatial tax boundary shapefiles to deliver accurate tax rates, enhancing compliance and reducing errors in payroll calculations.​

Avoid overpaying employees, labor compliance penalties, and major payroll headaches by using exact geo-location to define minimum wage rates.