PAYROLL LAW. Presented by Pamela Shull

Transcription

1 PAYROLL LAW Presented by Pamela Shull

2 Today s Presentation Slides Take a picture of this slide with your cell phone You can download copies of today s presentation slides: Click on services Under the Payroll Classes section click on your state.

3 True or False? WB-1 Payroll law compliance is more about how you interpret the law than the actual Math

4 Payroll law compliance is more about how you interpret the law than the actual math. 1+1 = 2 is Correct. True or False? Unless, 1+1 should have been 1+2. Failing to properly interpret the law can render your payroll department out of compliance even if the math is correct.

5 Which law is used most often in Payroll? A. FMLA B. FLSA C. ADAA Fair Labor Standards Act Department of Labor (DOL)

6 Which audit types may involve the payroll department? A. IRS B. DOL C. OIG D. ICE All of these E. OSHA F. Workers Comp

7 Payroll Role In The Company 1. Understand the realities, rules and risks. (page 2) 2. Understand the top 3 questions auditors will ask you (page 3) 3. Be audit ready (pages 4 5)

8 Top 3 Questions Your Auditor Will Ask WB-3 1. Where do you get your information / guidance? REASONABLE BASIS 2. Where are your PnP, SOP Job Descriptions & Training Records? SUBSTANTIVE CONSISTENCY 3. Have you sent all required reports, returns, and forms? REPORTING CONSISTENCY

9 1. FLSA Exempt Positions 5 Vital Payroll Audits WB Contractor vs. Employee Classification 3. Nonexempt issues 4. W-4- taxable vs. nontaxable 5. Garnishments These 5 audits relate very little to the math.

10 Audit Tools Company Tools Employee Handbook what the law says Ultimate Employer Payroll Policies and Procedure Manual how the law works Helpdesk for Payroll Job Descriptions overtime or not? Contractor or employee? Ultimate Employer

11 Order Form

12 PO Form Locks In Price for 5 Days

13 Exempt Employees Module 2 Pages 6-18

14 Exempt vs. Nonexempt WB 6 Exempt employees Guaranteed weekly salary Hours do not apply to them Paid a salary to get the job done Overtime is not a factor Nonexempt employees May be salaried or hourly Gets paid for every hour worked Paid overtime if physically works over 40 in a workweek

15 Partial Non-Exempts Special exempt categories based on industry App. 65 and App. 68 Hospital and Residential Care Facilities App. 66 Retail and Service Industry Inside Sales App. 67 Prevailing Minimum Wage App Day Rule for Firefighters and Police Officers App. 72 Tipped Employees App. 75

16 Exempt Classifications WB-6 Federal Salary Requirements $455 per week guaranteed or Highly compensated - $100K per year must include guaranteed salary of at least $455 and meet all job duties requirements Categories: Executive (pg 7) Professional some are paid on a fee basis (pg 8-9) Highly Skilled Computer Professionals may be paid hourly or salaried (pg 10) Administrative (pgs 11-12) Outside Sales no salary requirement (pg 13)

17 Executive Exempt Requirements WB-7 Run a recognized portion of the company Ability to hire, terminate, change policy, set budgets, make decisions, etc. Supervise 2 or more full-time persons or the equivalent of

18 Professional Exempt Requirements WB-8-9 Learned Professional (WB 8) Advanced knowledge in a recognized professional field Impart knowledge Use discretionary judgment Creative-Artistic Professional (WB 9) Use of creative and artistic abilities Cannot be told how to create the work

19 Highly Skilled in a Computer-Related Occupation WB-10 Federal Pay Option Salary (at least $455 per week) or Hourly rate of $27.63 an hour Computer programmers, designers of computers and system analysts Does not include: computer operators, repairpersons, technicians, data entry or help desks

20 Administrative Exempt Requirements WB Office or non-manual work pertaining to general business operations. Work of substantial importance with higher learning or experience. Limited powers of responsibility, authority and influence. Must report directly to another exempt employee

21 Example of Organizational Chart Director of Accounting Executive Exempt Controller Professional Exempt Executive Secretary Non-exempt Accounts Receivable Mgr Admin. Exempt Accounts Payable Mgr. Admin. Exempt Payroll Mgr. Admin. Exempt A/R Clerk Non-Exempt A/P Clerk Non-Exempt Payroll Clerk Non-Exempt

22 RULE Primary Duty Test No more than 50% of any workweek can be spent doing non-exempt type work. Clerical, manual labor Routine, repetitive, directed-type work What you pay a non-exempt employee to do

23 Exempt Employee Pay Requirement WB An exempt employee must receive the same amount of pay per workweek regardless of the number of hours they work or the quality of their work ( 29 CFR and.602)

24 Contractors vs. Employees Module 3 Pages 19-38

25 Employee or Independent Contractor WB Paid thru Payroll W2 Common Law Employee Statutory Employee Agent-drivers, commission-drivers, full-time life insurance agents, industrial homeworkers Paid thru Accounts Payable Statutory Non-Employee Direct sellers, real-estate agents Independent Contractors 2 5

26 Employee or Contractor? WB-19 Type Worker FITW SITW FICA/MEDICARE FUTA SUTA Common Law Employee X X X X X Statutory Employee X X X Statutory Nonemployee Contractor

27 IRS Test vs. ABC Test WB Pages IRS Test (pgs ) Behavioral control Financial control (pg. 21 and 22) Relationship of the parties ABC Test (pgs ) Absence of control Business is unusual or away Customarily doing business as an independent contractor

28 IRS Section 530 Safe Harbor WB - 25 Result of previous IRS audit IRS ruling use of form SS-8 Industry-wide practice of long standing

29 Contractor vs. Employee Recordkeeping WB: and Contractor (pgs 26-29) Contract or PO W-9 (Form 8832 for LLC filing as Corp.), or W-8 (foreign vendors) Proof of bona-fide business Invoices 1099-MISC (if applicable) or 1042-S Employee (pgs 31-38) W-4 New hire reporting W-2 E-Verify (not required by law or most states) I-9 Job description Payroll records

30 Invalid W-4 WB xxxxxx

31 Steps to Accuracy of W-2 WB Every Payroll Period 1. Double check numbers of gross vs. net 2. Current percentages correct 3. No missing paychecks 2. Every Quarter 1. FICA/Medicare percentages correct Balances with amounts remitted

32 Steps to Accuracy of W-2 3. Every Year and all 941 s match s and W-2/W-3 match

33 SSN Matching/I-9 E-Verify WB Social Security Number verification is suggested for all new hires after they are hired and before they are scheduled to work Business Services On-Line tab E-verify tab

34 Payroll and the Nonexempt Employee Module 4 Pages 39-47

35 Application of Principles to Establish Physical Hours Worked WB Minimum wage requirement Overtime requirement for hours physically worked over 40 in a workweek Requirement to keep an accurate time record Meal/Rest Break Rules Suffered or permitted rules Establish workweek Can be hourly or salaried

36 Salaried Non-Exempt Purple Squirrel WB-41 Can be paid fixed or fluctuating Pay fixed when: employee s schedule is a fixed schedule and rarely has overtime Pay fluctuating when: employee s schedule will always fluctuate and almost always has overtime but you never know how much Must keep a time record

37 Salaried Fixed Calculation Jim works 48 hours one workweek. His salary is $3000 per month $3000 x 12 = $36,000 $36, = $ $ = $17.31 $17.31 x 1.5 x 8 = $ $ $ = $900.03

38 Salaried Fluctuating Calculation Jim works 48 hours one workweek. His salary is $3000 per month $3000 x 12 = $36,000 $36, = $ $ = $14.42 $14.42 x.5 x 8 = $57.68 $ $57.68 = $ Must be stated in the job description and employee must sign an agreement to be paid this way.

39 KY Meal/Rest Break Rules A reasonable lunch period must be given as close to the middle of the work schedule as possible, and from 3 to 5 hours after beginning of work. Also, employers must give 10 additional minutes rest for each 4 hours worked. Minors receive 30-minute meal break for 5 hours of work.

40 Federal Meal/Rest Break Rules WB 42 If the employee is offered a meal break they must have 30 minutes uninterrupted as unpaid. If they get interrupted during the 30 minutes, they must be paid for the whole 30 minutes. If the employee is offered a rest break all rest breaks of 20 minutes or less must be paid rest breaks

41 Lectures, Meetings and Training Programs WB 42 Not counted as working time (must meet all four requirements) 1. Attendance is outside the employee s regular working hours 2. Attendance is voluntary 3. The course, lecture or meeting is not directly related to the employee s current job. 4. The employee does not perform any productive work during such attendance.

42 Comp Time for Non-Exempt Employees WB 43 Private entities not allowed in California Same week it s worked, or Same pay period at time and a half Public entities Up to 240 hours for non-emergency personnel Up to 480 hours for emergency personnel Must be banked at time and a half No use it or lose it policy allowed

43 Military Pay Page 46 Supplemental Military Pay Compensation paid to employees while on military duty that represents the difference between employee s regular pay and the pay provided by the state or federal government. Temporary assignment FITW, FICA, Medicare and unemployment taxes Indefinite assignment MISC (over $600)

44 Special Payroll Considerations and Hot Tips for Maintaining Compliance Module 5 Pages 48-57

45 PERKS AND BENEFITS WB-48 Examples of Taxable Fringes Cash ALWAYS Even Gift Cards IRC 132 (e) (1) Bonuses Commissions Tips Incentive programs Awards, except qualified length of service or safety awards Salary advances and overpayments Sick, vacation, and holiday pay Pay for absences such as bereavement or jury duty And many more

46 Examples of Non-Taxable Fringe Benefits (if qualified) Accident or health plans Achievement awards Adoption assistance Athletic facilities Club memberships (related to job duties/business) De Minimis (minimal) benefits* Dependent care benefits Educational assistance And many more PERKS AND BENEFITS WB-49 De Minimis = Cost of item is less than the cost of accounting for the item.

47 Prizes, Awards, Gifts and Bonuses WB 48 Cash taxable Gift Certificates taxable Tangible Property nontaxable if de minimis Achievement Awards Safety or Length of Service (5 year increments only) Tangible property only Up to $1600 non-taxable if qualified plan Up to $400 non-taxable if non-qualified plan

48 Withholding Methods WB Regular Wages Regular paycheck with no extras on it Use the Wage-bracket method (W4) Supplemental Wages Definition: Anything other than normal paycheck (overtime, sick pay, prizes, commissions, bonuses, etc) Regular Supplemental use W-4 Examples: overtime, sick pay, holiday pay, etc. Lump Sum Supplemental Percentage method (flat-rate percent of 25%) Aggregate/Cumulative method

49 Sample Aggregate/Cumulative Method WB-51 Example: You pay Sharon a base salary on the 1 st of each month. She is single and claims 1 allowance. Her May 1 pay is $2,000. Using the wage bracket method you withhold $190 according to tables. On May 14 she receives an annual bonus of $1,000. Using the aggregate/cumulative method you withhold as follows:

50 Sample Aggregate/Cumulative Method WB-51 Example: (continued) 1. Add the bonus amount to the amount of wages from the most recent base salary pay date ($2,000 + $1,000 = $3,000) 2. Determine the amount of withholding on the combined $3,000 using the wage bracket tables ($340.00) 3. Subtract the amount withheld from wages on the most recent base salary pay date ($340 - $190 = $150) 4. Withhold $150 from bonus payment

51 Sample Percentage Method Example: Using the same facts as Example 2, you withhold using the percentage (flat rate) method. You would withhold 25% of $1,000 e.g. $250 from bonus payment

52 Gross Up Example Net pay is $500 Federal flat rate 25% State flat rate 4.25% (example only) FICA and Medicare 6.2% % = 7.65% = 63.10% $500 / 63.10% = $792.39

53 Non-Taxable Employee Expense Reimbursement Accountable Plan WB-52 Accountable expenses Must have receipt Show business connection Non-Accountable expenses Per Diem Allowance varies from city to city see pub Mileage reimbursement up to 53.5 (Jan. 1, 2017) De Minimis up to $75.00** Most Allowances are taxable

54 Employee Loans - Page 53 Loans in the amount of $10,000 or more without interest charged at applicable federal interest rate difference in rate is taxable Subject to FICA/Medicare and unemployment taxes Not subject to federal or state income tax Forgiven loans are fully taxable

55 Pages 54-56

56 Three Types of Deductions WB-54 Mandated Statutory taxes Railroad retirement contributions State mandated disability and retirement contributions Involuntary Garnishments Voluntary Health insurance, S-T-D and L-T-D, union dues, 401(k), etc.)

57 Court Order Priority WB Bankruptcy (unless Support Order or IRS levy is served first) 2. Support Order 3. IRS Tax Levy 4. Federal Student Loan (AWG) 5. Federal Non-tax debt (AWG) 6. State Tax Levy 7. State Student Loan 8. State Non-tax debt 9. Local Tax Levy 10. Creditors

58 Federal Law Limits Garnishments WB - 55 Bankruptcy No limit Support based on disposable pay 50% if there is a second family, 60% if there is not a second family and 5% additional for arrearage. Once a child support is taking 25% of more of disposable you cannot honor a creditor or student loan. KY is the same as federal. IRS Levy based on take home pay Calculation based on 668-W and employee actual income tax deductions

59 Federal Law Limits Garnishments WB - 55 Student Loans and non-tax debt based on disposable 15% - Federal (AWG) 10% - State only State and Local Tax Levies 25% of disposable or read the order

60 Federal Law Limits Garnishments Creditor 25% of disposable or 30 times federal minimum wage from disposable (as of 7/24/09 = $ per week) KY is the same as federal.

61 How The Calculations Work WB-54 and 56 Take Home Pay (IRS) Gross minus: Taxes Existing voluntary deductions Child supports Equals Take Home Pay Less: 668-W Chart (this becomes the net pay) Disposable Pay (All Other garnishments) Gross minus: Taxes Medical insurance premium (only if a medical insurance support order.) Equals IRS Levy Amount

62

63 Take Home Pay Calculation WB-56 Gross: $ Less: ( 85.00) FICA/Fed With ( 15.00) State Withholding ( 45.00) Medical Ins. ( 25.00) 401(k) THP: $ Less: (275.92) 668-W Chart Levy Amt: $ Amt. to deduct from wages

64 Illustration of Disposable Pay for General Garnishment - WB-56 and 59 Normal Withholdings: FITW $75.00 FICA $38.25 State W/H $20.00 Medical Ins $ (k) $50.00 Disposable Pay: Gross $ Taxes (133.25) Disp. Pay $ x $7.25 (217.50) $ Limit 25% $91.69 Limit 10% $36.68

65 Illustration of Disposable Pay for Child Support Medical Support WB-56 and 59 Normal Withholdings: FITW $75.00 FICA $38.25 State W/H $20.00 Medical Ins $ (k) $50.00 Disposable Pay: Gross $ Taxes (133.25) Medical Ins ( 55.00) Disp. Pay $ Limit 50% $ Limit 60% $187.05

66 Pro-ration Formula Employee Owes: 1 st - $ =28.5% 2 nd - $ =28.5% 3 rd - $ = 43% Total $ Limit = $ % = $ % = % = Total $155.88

67 Pro-ration Formula with arrearage Employee Owes: 1 st - $ =28.5% 2 nd - $ =28.5% 3 rd - $ = 43% Total $ Limit = $ % = $ % = % = Total $171.46

68 Seminar Disclaimer This seminar is from an auditor s point of view. It is possible your company attorney may disagree with our interpretation. That is okay. It does not mean we are right or that we have given you wrong information. You may have an exception to the rule that your attorney knows about. IRS CIRCULAR 230 Any tax advice included in this written or electronic communication was not intended or written to be used, and it cannot be used by the taxpayer, for the purpose of avoiding any penalties that may be imposed on the taxpayer by any governmental taxing authority or agency.