PAYROLL ISSUES FRINGE BENEFITS KEVIN PETERS, CPA

Transcription

1 PAYROLL ISSUES FRINGE BENEFITS KEVIN PETERS, CPA

2 OBJECTIVES Awareness of payroll hot topic areas Learn unique IRS guidance related to fringe benefits and areas of compliance Greater awareness of latest DOL OT rules and related changes Learn of resources available for assistance regarding payroll issues.

3 PAYROLL ISSUES

4 PAYROLL PROBLEMS In a recent survey 22% of the respondents said they had less than $100 in savings to cover an emergency CNN/CashNetUSA About 40% of small businesses incur an average of $845 per year in IRS penalties. Paychex Payroll errors each year average nearly 1.2% of total payroll costs. Intuit The IRS has a history of performing payroll audits focusing on highrisk issues they have identified.

5 #10 FAILING TO MAINTAIN PROPER RECORDS More than 10 Agencies have requirements for payroll records retention. Time Cards 7 years Cancelled payroll checks 4 years Payroll Registers and W4s 6 years Failure to produce records could cause significant fines. Employers should adopt a records retention policy. Visit IRS.gov, SSA.gov for more information

6 #9 MISSING DEADLINES Know Important Due Dates for Payroll and Tax-related Filings and Payments: W-2 Distribution Payroll Tax Deposits 941 Filings State Unemployment Filings/Deposits 990 Filings 5500 Filings Failure can result in significant penalties

7 #8 IMPROPER OVERTIME PAYMENTS Employees are either entitled to overtime pay or exempt from overtime pay depending on their classification under FLSA

8 #7 GIVING EMPLOYEES MONEY TO BUY HEALTH INSURANCE Organizations and businesses that don t provide health insurance Some had been paying employees additional amounts tax free to buy health insurance or for health-related expenses If your organization makes these types of payments, consult an ACA attorney.

9 #6 NOT UPDATING YEARLY INFO IN THE PAYROLL SYSTEM Neglecting to change variables in your payroll system can cause employee checks and other filings to be incorrect. Changes in Federal/State Withholding Rates FICA Changes Changes in Employee W-4 Exemptions SUTA Rates 401(k) / Retirement-Related changes Insurance Premiums Make sure to have a good system in place to ensure that employee election changes are updated in the payroll system on a timely basis.

10 #5 NOT RECORDING PAPER CHECKS Bonuses Payday Advances Corrections of Payroll Errors

11 #4 TAXABLE VALUE OF FRINGE BENEFITS

12 #3 INCLUDING EXPENSE REIMBURSEMENTS IN WAGES Expenses incurred in the performance of an employee s job are generally tax deductible. Can be reimbursed by the employer. Can be taken as an itemized deduction if not reimbursed by the employer. Eligible expense reimbursements should not be included in an employee s gross wages on their W-2. Mileage reimbursements Meal reimbursements Per Diems

13 #3 INCLUDING EXPENSE REIMBURSEMENTS IN WAGES Employer reimbursement arrangements must include the following: Employee must have incurred and paid the expense while performing services as an employee. The employee must adequately account for these expenses within a reasonable time period. The employee must return any excess reimbursements within a reasonable time period. If the arrangement does not meet all of these requirements, the plan does not qualify as an accountable plan, the expenses are not tax deductible and should be included on the W-2.

14 #3 INCLUDING EXPENSE REIMBURSEMENTS IN WAGES Eligible travel expenses are based on: Where you live Your tax home Length of time you will be working away from your tax home

15 #2 GIFT CARDS, PRIZES, AWARDS These items given to the employees by the employer should be subject to income tax, and included on the employees W-2.

16 #1 W-2 V EMPLOYEES Proper classification of those providing services is critical. There is no definitive test to determine whether someone is an employee or independent contractor. 3 categories influence the classification of relationship. Behavioral Financial Type of Relationship

17 #1 W-2 V EMPLOYEES Behavioral Does the company control or have the right to control what the worker does and how the job is done? Financial Are the business aspects of the worker s job controlled by the payer? Type of Relationship Are there written contracts or employee type benefits? Will the relationship continue and is the work performed a key aspect of the business?

18 #1 W-2 V EMPLOYEES Factors to consider: Regularity of employment Who sets the schedule Level of detailed supervision Decision Making Power Responsibility for costs of work Timing and Method of Payment How much risk of loss does the employee bear Duration of employment Role of the employee in relation to the business as a whole

19 #1 W-2 V EMPLOYEES Employers who misclassify employee may be liable for employment for each worker in question.

20 FRAUD CONSIDERATIONS Check Washing Hijacking

21 FRINGE BENEFITS

22 FRINGE BENEFITS Form of pay (including property, services, cash or cash equivalent) in addition to stated pay, for the performance of services.

23 FRINGE BENEFITS Fringe Benefits are often overlooked Can be hard to identify Difficult to place a value on the benefit Taxable or not? Does HR and/or Payroll department know of the benefit? Consistency of Benefits

24 TAXABLE? All benefits are taxable unless a specific exclusion is allowed. IRC Section 132(a) Fair market value of the benefit is subject to withholding and reported as income on form W-2

25 EXAMPLES Auto allowances Awards/prizes Bonuses Club Memberships Educational Reimbursements Holiday Gifts Parking Scholarships Transportation Uniform Allowances Use of Vacation Home

26 DE MINIMIS FRINGE BENEFITS Includes any property or service provided by an employer for an employee, the value of which is so small in relation to the frequency with which it is provided that accounting for it is unreasonable or administratively impracticable. The law does NOT specify a value threshold for benefits to qualify as De Minimis.

27 DE MINIMIS FRINGE BENEFITS IRS Auditor s Fringe Benefit Guide states $100 is NOT de minimis

28 DE MINIMIS FRINGE BENEFITS All of the following may be excludable if they are occasional or infrequent, not routine: Personal use of photocopier Group meals, employee picnics Theater or sporting event tickets Occasional coffee, doughnuts or soft drinks Flowers or fruit for special circumstances Traditional birthday or holiday gifts (not cash) with a low FMV

29 DE MINIMIS FRINGE BENEFITS Benefits that do NOT qualify as De Minimis Cash Cash Equivalent (gift certificate and gift cards) Certain transportation passes or costs Use of employer s apartment, vacation home, boat Membership in a country club or activity facility

30 DE MINIMIS FRINGE BENEFITS De Minimis Exclusion for Occasional Meal Requirements Occasional meal money can meet an exception and be excludable if the following 3 conditions are met: Occasional Basis Provided for OT work Enables OT work

31 MEAL MONEY An employer has a policy of reimbursing employees for breakfast or dinner when they are required to work an extra hour before or after their normal work schedule. The reimbursements are taxable because the employer has a policy which indicates the benefit is provided routinely.

32 EMPLOYER PROVIDED VEHICLES Use of an employer provided vehicle by an employee while on business is excludable working condition fringe benefit Personal use is taxable Business use must be documented Special rules for qualified non-personal use vehicle (police car, fire vehicles etc.).

33 EMPLOYER PROVIDED VEHICLES Use of a qualified nonpersonal use vehicle is excludable to the employee as a working condition fringe benefit if specific requirements for the type of vehicle are met.

34 QUALIFIED NONPERSONAL USE VEHICLE Vehicle that the employee is not likely to use more than minimally for personal purposes because of its design Clearly marked police, fire or public safety officer vehicles Unmarked vehicles used by law enforcement officers if the use is officially authorized Qualified specialized utility repair truck Vehicle designed to carry cargo with a loaded gross vehicle weight over 14,000 pounds Delivery trucks with seating for the driver only Construction designed work vehicles (bucket trucks, dump trucks, forklifts) School buses Tractors, combines

35 QUALIFIED SPECIALIZED UTILITY REPAIR TRUCK Truck is designed to carry tools/equipment Truck has permanent interior construction (shelves/racks) Employer must require the employee to commute for emergency callouts to restore or maintain utility services Pickup trucks must be equipped with at least one of the following: Permanent side boards or panels that materially raise the level of the sides of the truck bed Hydraulic lift gate Permanent tanks or drums

36 EMPLOYER MONITORING Employer must have some way to prove the vehicles are being used in accordance with the rules. Example: employer may use internal controls such as motor pools to sign vehicles out Signed statements by the employees agreeing to no personal use

37 WORK CLOTHES Clothing or uniforms are excluded from wages if: Specifically required as a condition of employment Not worn or adaptable to general use as ordinary clothing

38 SAFETY EQUIPMENT Excluded if the equipment is provided to help the employee to perform job in a safer environment.

39 SPOUSAL TRAVEL Employer provided spouse travel is generally taxable Expense will qualify as working condition fringe if: Employer can demonstrate spouse s travel has a business purpose and Employee substantiates the travel and The spouse is also an employee

40 AWARDS AND PRIZES Prizes or awards to employees are taxable except for the following 3 exceptions: Certain employee achievement awards Certain prizes or awards transferred to charity De Minimis awards and prizes

41 AWARDS AND PRIZES The following are ALWAYS taxable as wages: Cash or cash equivalent such as gift certificates/gift cards Recognition awards for job performance unless they are qualifying de Minimis Non cash prizes won by employees from random drawings at sponsored events Awards for performance (outstanding customer service, employee of the month) Awards for length of service or safety achievement

42 AWARDS AND PRIZES Cash awards to employees are always taxable

43 EMPLOYEE ACHIEVEMENT AWARDS Item of tangible personal property (not cash) for length of service or safety. The following must be met to be excludable: Length of service or safety Awarded as part of a meaningful presentation and Cannot be disguised as wages

44 LENGTH OF SERVICE AWARDS Does not qualify if: Employee received the award during first 5 years of employment Employee received another length of service award during the same year or in any of the prior 4 years.

45 DE MINIMIS PRIZES & AWARDS A prize or award that is NOT cash or cash equivalent, of nominal value and provided infrequently is excludable. Prizes/awards given frequently do not qualify even if each award is small in value. Examples: Nominal gifts for birthdays/holidays Holiday turkey/ham Flowers, plaques, coffee mugs Gold watch on retirement

46 DE MINIMIS Nominal means small in value, relative to the value of total compensation. There is no set dollar amount in the law.

47 PROFESSIONAL LICENSES AND DUES Employer reimbursements to employees for cost of professional licenses and professional organizations may be excludable if they are directly related to the employee s job.

48 ENTERTAINMENT AND RECREATIONAL DUES Club dues and memberships are not allowed as business deductions. If an employer provides these benefits they are taxable to the employee

49 IRS IRS Field Agent Audit Guide on Fringe Benefits Longest Audit Guide Corporate executives often receive extraordinary fringe benefits that are not provided to other corporate employees.

50 IRS Three Step Guide: 1. Identify the particular fringe benefit and start with the assumption that its value will be taxable as compensation to the employee. 2. Check if there are any statutory provisions that exclude the fringe benefit from gross income. 3. Value any portion of the benefit that is not excludable.

51 OTHER HOT TOPICS IT Security Hackers are targeting payroll data they are checking company LinkedIn sites to see who is in charge of payroll and CEOs. Hackers are sending s from CEOs to payroll requesting a list of employees with SS & W-2 info to review.

52 HOT TOPICS: IT SECURITY 6 ways to prevent being hacked Don t send payroll information through Don t rush to reply to the Always check that an came from inside the organization Watch out for subtle hints such as typos to make the look real Compare current to previous s from CEO If in doubt, call the CEO, or go to their office to verify the request

53 NEW OVERTIME RULES

54 FAIR LABOR STANDARDS ACT (FLSA) Requires most employees be paid at least the federal minimum wage for all hours worked and OT at time and one-half for all hours worked over 40 hours Exemption from both minimum wage and OT for: Executive Administrative Professional Outside Sales Employees

55 FLSA - OT To Qualify for Exemption, Employees generally must meet certain tests: Job Duties Salary basis at NOT less than $455 per week ($23,660 annual)

56 REGULATIONS DOL last updated FLSA in 2004 President Obama: Simplifying the FLSA regulations in light of income inequality July 2015: Obama announced the proposed rules aim to raise the pay of millions of the middle class

57 REGULATIONS New regulations will impact: Way you hire How you pay Manage employees/manage time

58 CHANGES TO OT DOL Comment Period Ended November 2015: OMB posts regulatory agenda showing final OT rule being published July 2016 Announcement: May 17, 2016

59 WHAT CHANGED? Exemption depends on 3 things: How employees are paid (salary) How much What type of work is performed (job duties)

60 NEW REGULATIONS First time, law provides for automatic increases to the salary level using a Bureau of Labor Statistics salary survey Sets salary level at a percentage of median salary of all full-time salaried workers that work 35+ hours a week

61 WHAT CHANGED? Salary Threshold is $47,476 ($913 per week) Original proposal was $50,440.

62 SALARY LEVEL Salary = 40% of the median salary for full-time salaried workers in the lowest US Census Region

63 OT WHAT TO DO Effective ---- December 1, 2016 Employers Can: Pay time and a half for OT work Raise workers salaries above the new threshold Limit workers hours to 40 per week Some combination of the above

64 WHAT TO DO? Inventory and identify employees Currently Exempt from OT BUT earn less than $47,476 per year

65 SALARY LEVEL WHAT TO DO Budget for salary increases for exempt to the new salary level Pay OT Move employees currently exempt into hourly classification When to budget/when to modify salaries?

66 WHAT TO DO? Study/Document hours worked for exempt employees that will become reclassified to hourly Can you cap hours worked? Changes to work flow? Changes to work schedule? Hire more full and/or part time staff?

67 WHAT TO DO? How many hours do exempt workers work? Always working Smart Phone, ipad etc.,

68 TIMEKEEPING Employer s Requirement that non-exempt employees accurately record and track time Training newly classified non-exempt employees Timekeeping Meals/breaks Working outside normal hours Update polices/procedures Who will monitor?

69 OT Off the clock work: Non-exempt must be paid OT for all hours worked over 40 in a work week Laptops, smart phones etc. Increased the likelihood of off the clock work

70 OT Off-the-clock work Implement a policy with outlines time recording Sign weekly time reports Electronic devices have nonexempt employees sign acknowledgment of proper time keeping procedures Audit of pay and time sheets Remote access, curfews

71 HOURLY CONVERSION Morale issues for newly reclassified non exempt? Demotion Choose a 40 hour schedule with no OT better work / life option?

72 RESOURCES Department of Labor The DOL will also release three technical guidance documents designed to help private employers, non-profit employers and institutions of higher education

73 FYI DOL s Fiscal Year 2017 budget proposes $50 million more on Wage and Hour Division Enforcement Consult with an attorney that specializes in HR/Labor Law (Wage and Hour Division) includes links and fact sheets