Category: Payroll

Posted on Sep 14, 2016

ACA word on tablet screen with medical equipment on background

When it comes to Affordable Care Act compliance reporting of eligible employee health coverage for the 2016 tax year, the difference between a small employer and an applicable large employer (ALE) isn’t so clear-cut.

ALEs are defined as organizations with 50 or more employees in the previous year, including full-time equivalent employees. However, the IRS considers subsidiaries or related entities with fewer than 50 employees to be part of the parent company when defining an ALE. Bottom line: the parent and its related entities are all subject to ACA reporting.

WP Download - ACA ReportingThen there are self-insured employers, which are basically regarded as insurance companies by the IRS. These employers are required to submit Form 1095 regardless of the number of people they employ or provide with health care insurance.

In addition to proper reporting, self-insured employers are subject to two fees as part of the ACA that are adjusted annually and have different deadlines for payment. The Transitional Reinsurance fee is paid into a federal fund that could provide reimbursements for insurance carriers that experience financial losses when participating in federal- or state-sponsored health care exchanges. The Patient-Centered Outcomes Research Institute Fee (PCORI) goes toward research of care outcomes and practices at various health care organizations; the goal is to create a central federal database to help patients make the best choices for health care. Although the Transitional Reinsurance fee is expected to go away after 2016, the PCORI fee will continue in 2016 with an expected sunset for plan or policy years ending on or after October 1, 2019.

Plan ahead to avoid penalties later.

Especially for small entities of large employers, Form 1095 can be confusing when listing the proper legal entity that employs each eligible employee. Listing the parent company or the name most people recognize as the company name can trigger a filing rejection. The same goes for the choice of address and a corresponding employer identification number (EIN), a number assigned by the IRS to identify employer tax accounts. Entities that don’t have an EIN have to request one from the IRS in order to complete Form 1095 properly.

In addition, revised Department of Labor overtime rules that go into effect December 1, 2016, could hinder proper reporting as the number of employees eligible for health care coverage shifts. Employers that choose to bump up salaries for key employees may end up increasing the number of eligible employees.  Alternatively, maintaining a larger number of part-time or non-exempt employees could lead to higher levels of overtime pay.

Employers that choose payroll outsourcing and knowledgeable benefit brokers can get support to plan ahead for ACA reporting. They can confirm whether or not the employer (or any affiliated entities) is subject to ACA reporting. Then, their advisors can help improve payroll administration and coordinate a schedule for collecting and reporting data by the January 31, 2017, filing deadline. Employers can face penalties for noncompliance with ACA requirements as well as for missing tax forms — risks that can be mitigated when benefits brokers, CPAs and payroll administration cooperate early in the year.

What if you don’t have to comply with ACA for 2016?

Small employers that are not yet required to either provide affordable health care coverage or report on coverage under ACA can eventually fall under requirements if employment hits 50 employees (or fte) or if they merge or are acquired. Working closely with an ACA compliant payroll provider, benefits broker and your CPA can help your company prepare to respond to those changes in the future.

Cornwell Jackson’s payroll team can help. Partnering with Brinson Benefits, we manage ACA-compliant payroll administration. We can guide employers to the right resources and answer questions about reporting deadlines and other payroll and tax compliance issues. For example, we advise on hourly and salaried employee compliance and new overtime rules, which tie into employee eligibility for benefits and any required ACA reporting. Read our whitepaper on outsourced payroll. Send us your questions and we’ll point you to the experts.

 

SB HeadshotScott Bates, CPA, is a partner in the audit practice and leads Cornwell Jackson’s Business Services Department, which includes a dedicated team for outsourced accounting, bookkeeping and payroll services. He provides consulting to clients in healthcare, real estate, auto, transportation, technology, service, retail and manufacturing and distribution. Contact Scott at scott.bates@cornwelljackson.comor 972-202-8000.

 

Sharon Alt headshotSharon Alt is Director of Compliance with Brinson Benefits in the Dallas/Fort Worth area. With a focus on Affordable Care Act regulations, she is responsible for ensuring that Brinson and their employee benefit clients meet all regulatory compliance standards in regards to healthcare benefits administration, particularly with regard to healthcare reform and the Affordable Care Act. She regularly guides clients through the ACA 6055/6056 reporting requirements. 

Related Posts

Posted on Sep 12, 2016

employee-performance

Replacing nonperforming employees is costly and traumatic, both for employers and employees. But allowing a bad situation to fester is worse; it can cause the problem to spread by undermining morale or by creating the impression that management doesn’t care. Performance improvement plans (PIPs), when executed properly, can help you avoid all that.

The American National Standards Institute (ANSI), which oversees the creation, promulgation and use of thousands of norms and guidelines that directly impact businesses in nearly every sector, has guidelines for creating these plans within its broader performance management standard. The ANSI standard describes a performance improvement plan as “a process used to resolve persistent performance problems in accordance with a documented procedure.” It also states that a PIP “provides a vehicle for open dialog and consistent feedback,” and features both conversation and documentation.

Questioning Assumptions

Assumptions you may have made about the sources of nonperformance can be put to the test through the PIP process. For example, a problem you assume is due to a simple lack of effort on the employee’s part might in fact be due to inadequate training, poorly communicated expectations, or health or personal problems that require accommodation.

The PIP process involves a series of formal steps that will help you uncover the source of the problem and then effectively address it.

You will need to create (or borrow and customize) a document that lays out the whole process. According to the ANSI standard, the first step is to document the performance issues. That document should include the following elements:

  • Employee information,
  • Relevant dates,
  • Description of the performance discrepancy or gap,
  • Description of expected performance,
  • Description of actual performance,
  • Description of consequences,
  • Plan of action,
  • Signatures of the manager and the employee, and an
  • Evaluation of the plan of action and overall performance plan.

Suppose the issue is spotty attendance and tardiness. The documentation would include details of when these infractions occurred, a summary of the attendance policy, the employee’s paid time off allotment, and any formal warnings the employee has already received.

Action Plan

Before sitting down with the employee to present the documentation, you need to have developed a provisional plan of action to address the problem. The plan is provisional because you might learn something in the course of the meeting that would suggest an alternative path.

Your goal in the meeting isn’t simply to point out the problem, but to seek understanding and to encourage the employee to own the issue, according to a primer put out by the Society for Human Resource Management (SHRM).

The action plan should also feature specific measurable goals to turn the situation around. For a straightforward issue like attendance, the goal could be as simple as having a perfect attendance record until a scheduled follow-up meeting, perhaps three months in the future. (This assumes there’s no underlying health or similar issue that needs to be taken into account.)

When setting goals for more complicated performance issues, such as problems with the quality of the employee’s work, you’ll need to determine whether the employee needs additional resources in order to improve. You’ll also need to be clear about the specific quality issues so that improvement can be measured.

Finally, the plan should spell out specific consequences for a failure to meet the goals. For example, says SHRM, if termination may result from certain actions, this should be clearly communicated in writing.

For quality control purposes, it’s good to share the performance plan with a colleague who might spot problems or have ideas on how to improve it. If you have an internal HR team, of course, you should work closely with them.

When the plan is ready, it’s time to meet with the employee. Remember, the goal is two-way communication; employees need to understand it’s their responsibility as much as it’s yours to make this a dialog. The ANSI standard states that “effective feedback should be timely, constructive, specific and balanced, and should include both positive and development information based on what the employee did or did not do.”

Focus on Behaviors

The ANSI standard also stresses the importance of not critiquing “personal characteristics,” but focusing instead on behaviors and how those behaviors “are linked to effective versus ineffective performance.” (The same advice is applicable to any time you’re providing employee feedback, of course.)

As noted, you might learn from your conversation with the employee subject to the PIP that you didn’t fully understand the issues at hand, and therefore need to fine-tune the performance plan. When you have presented the final version, both you and the employee should sign it.

The plan should lay out the schedule for follow-up meetings at which employee progress — or lack thereof — toward achieving enumerated goals is discussed. Ideally, goals will have been achieved, or at least significant movement in that direction, will have occurred. That provides an opportunity for positive, motivational feedback.

In the other scenario — no or limited progress — you will be guided by the action plan that you established at the outset. The outcome might be to give the employee a final chance (with a date set for the next meeting) to achieve goals. Alternatively, you might conclude that the employee is better suited to another job within your organization or that termination is the best course of action.

Whatever happens, by using the PIP process, you may be able to:

  • Ensure that employees with performance issues are treated consistently,
  • Construct a straightforward roadmap of how to handle the situation,
  • Maximize the possibility of retaining an employee who might otherwise have been terminated, and
  • Prevent an employee who ultimately does have to be terminated from feeling like the victim of a capricious or discriminatory act, therefore minimizing the likelihood of litigation.

Of course a PIP isn’t always the appropriate course of action. But when it’s used successfully, you may salvage an otherwise good employee who simply needs redirection. In the end, improving your existing resources is likely to be far more cost effective than starting over with a new employee.

Members of SHRM.org can find a great deal of information there about how to flesh out a performance improvement plan.

Related Posts

Posted on Aug 30, 2016

ACA word on tablet screen with medical equipment on backgroundUnder the Affordable Care Act, individuals without health care coverage will pay tax penalties for their lack of coverage. However, if they are eligible to receive ACA-compliant affordable health insurance coverage through an employer, they must choose to take that coverage or actively waive that coverage. The employers must document when employees were informed of eligibility in accordance with health care plan guidelines. They must also document if and when an employee waived coverage. If the employee accepts coverage, an employer must document the start and end dates of coverage (including data on dependents and their coverage dates for self-insured plans), within the given tax year.

If the employer meets the definition of an ALE or if it is self-insured, this health care coverage information must be reported to the IRS on Form 1095 for purposes of comparing employer data with employee tax data.

WP Download - ACA ReportingNow here is the wrinkle for eligible employees who waive eligible employer coverage. Let’s say one of these employees decides to get health insurance coverage through a state- or federal-sponsored health care exchange, even though the employer offered “affordable” coverage. And let’s say that same employee receives a federal government subsidy to pay for health coverage through the exchange. If the IRS determines that the employee had affordable health coverage through the employer, the employee could be required to pay back the subsidy — and faces additional penalties which could be hundreds or thousands of dollars over a year. This is a primary reason for such scrutiny of ACA compliance — rooting out misuse or abuse of federal health care insurance subsidies among taxpayers who could receive compliant coverage through an employer.

For the purposes of this article, we won’t delve into the question of what is really affordable health care insurance through employers, particularly for family coverage. The fact remains that the IRS requires accurate reporting of the status of all eligible employee health care coverage, and is far less likely to make exceptions for employer good faith efforts in 2016.

Improve administration and payroll systems for ACA reporting

One of the biggest challenges when complying with Affordable Care Act tax reporting for 2015 was that payroll and administration systems weren’t compatible with the data requested.

Employers struggled with missing data or hard-to-interpret data. For example, coverage start dates were difficult to interpret because many were listed as generic “termination” dates. An employer would list the previous plan as terminated on a certain date, then reenact the plan the next day when adding an eligible spouse or dependent.

Employers that tried to handle ACA reporting in-house were challenged not only with reporting requirements, but also the hassle of form rejections. Payroll outsourcing companies and benefits specialists spent countless hours organizing, untangling and resubmitting forms. The best specialists have been preparing since the last tax season filing to improve their processes and collect data earlier.

Continue Reading: ACA and the Small Employer vs. Large Employer Challenge


Cornwell Jackson’s payroll team can help. Partnering with Brinson Benefits, we manage ACA-compliant payroll administration. We can guide employers to the right resources and answer questions about reporting deadlines and other payroll and tax compliance issues. For example, we advise on hourly and salaried employee compliance and new overtime rules, which tie into employee eligibility for benefits and any required ACA reporting. Read our whitepaper on outsourced payroll. Send us your questions and we’ll point you to the experts.

 

SB HeadshotScott Bates, CPA, is a partner in the audit practice and leads Cornwell Jackson’s Business Services Department, which includes a dedicated team for outsourced accounting, bookkeeping and payroll services. He provides consulting to clients in healthcare, real estate, auto, transportation, technology, service, retail and manufacturing and distribution. Contact Scott at scott.bates@cornwelljackson.com or 972-202-8000.

 

Sharon Alt headshotSharon Alt is Director of Compliance with Brinson Benefits in the Dallas/Fort Worth area. With a focus on Affordable Care Act regulations, she is responsible for ensuring that Brinson and their employee benefit clients meet all regulatory compliance standards in regards to healthcare benefits administration, particularly with regard to healthcare reform and the Affordable Care Act. She regularly guides clients through the ACA 6055/6056 reporting requirements. 

Related Posts

Posted on Aug 22, 2016

The intent to discriminate might not have been a factor. But an East Coast chemical manufacturer will still have to pay $175,000 in back pay and interest to 660 African-American job applicants, who were rejected for entry-level jobs at one of their locations over a one-year period.

The problem was a failure to satisfy the federal Uniform Guidelines on Employee Selection Procedures. In particular, the company’s pre-employment test was deemed to disproportionately screen out a protected group based on criteria that weren’t sufficiently linked to the skills required for the jobs the company was filling.

The original guidelines (updated over the years) were issued by the Equal Employment Opportunity Commission (EEOC) back in 1978, six years after the enactment of the Equal Employment Opportunity Act. While the basic rules aren’t new, they’re subject to constant interpretation in each employment scenario, and in the case of the chemical manufacturer, the employer’s interpretation didn’t hold up. The rules seek to eliminate aspects of hiring systems that could be discriminatory by race, gender, religion or national origin.

“All Selection Procedures”

The EEOC guidance doesn’t apply to pre-employment tests, but “all selection procedures used to make employment decisions, including interviews, review of experience or education from application forms, work samples, physical requirements, and evaluations of performance,” according to the EEOC.

A key principle is the importance of using “validated” testing systems (more on that below). Technically, you’re not required to use tests that have been prevalidated as nondiscriminatory. However, if you’re accused of discriminating and can’t prove the validity of your testing methods at that time, you’ll generally lose the case.

Hiring results that raise red flags are those that lead to a “substantially different rate of selection.” The same applies to the processes of promotion, retention or any other positive employment action. The EEOC defines that as when the selection rate for any race, sex or ethnic group is less than 80% of that for the group with the highest selection rate.

So, for example, if 50% of men pass a pre-employment test and are hired, but only 30% of women pass the test and are hired, the alarm bells sound. In this case, the hiring rate for women was only 30% divided by 50%, which equals 60% of the hiring rate for men. The women’s pass rate would have to be at least 40% to be within the range acceptable to the EEOC.

Note: You don’t need to analyze testing results for every protected group. An exception is made for groups that represent less than 2% of the local work force. That low threshold might be applicable to the “national origin” category, if a relatively obscure country is involved.

Failing the “substantially different rate of selection” test isn’t, on its own, proof of illegal discrimination, however. The EEOC describes it as “a numerical basis for drawing an initial inference and for requiring additional information.” This is where test validation comes in — basically showing that the test gives an accurate measurement of a job candidate’s ability to be successful in the position sought.

Validating Hiring Tests

The Uniform Guidelines draw upon the American Psychological Association’s list of “validity strategies:”

    • Criterion-related validity: A statistical demonstration of a relationship between scores on a selection procedure, and job performance of a sample of workers,
    • Content validity: A demonstration that the content of a selection procedure is representative of important aspects of the job, and
  • Construct validity: A demonstration that a selection procedure measures a human trait (for example, creativity), and that the trait is essential for successful job performance.

If you’re accused of discriminatory hiring practices and the EEOC decides to investigate, these are the two steps the investigator typically will take to assess the situation. The examiner will:

  1. Measure the extent to which each element of your selection process has an adverse impact on members of protected groups, and
  2. Ask you for evidence of the validity of any selection mechanism that has been shown to have an adverse impact.

Unfortunately, you can’t give a trial run to validate evidence to the EEOC in advance to gain assurance whether it will pass muster if you face an accusation of discrimination. During an examination, “validity evidence will not be reviewed without evidence of how the selection procedure is used and what impact its use has on various race, sex and ethnic groups,” according to the EEOC.

“Rational” Doesn’t Suffice

Also, it’s not enough to demonstrate a “rational relationship between a selection procedure and the job sufficient to meet the validation requirements of the guidelines,” the EEOC warns. Nor can you present written or oral assertions of validity from any expert. It all comes down to a validity study that the EEOC will “judge on its own merits.”

One of the pre-employment tests used by the chemical manufacturer measured reading, math, listening, the ability to locate information and teamwork. In spite of assertions by the employer that the test accurately predicts a job applicant’s future performance for the job at hand, the EEOC wasn’t convinced.

The bottom line: Before choosing, let alone trying to validate an employment test, determine what knowledge, skills and abilities are essential for the job, to avoid inappropriately screening out applicants. Also, be sure you maintain records of the demographic features of your job applicants to make it possible for you (and perhaps the EEOC) to determine whether your hiring practices are having a disproportionate negative impact on protected groups.

Industrial psychologists and other job experts specialize in these issues, and can help you to avoid falling into any employment discrimination traps.

Related Posts

Posted on Aug 19, 2016

ACA word on tablet screen with medical equipment on backgroundThe challenges of Affordable Care Act reporting for the 2015 tax year will likely follow companies and organizations into 2016 — and the honeymoon period with the IRS is over. It will take more than careful administration to ensure proper reporting and avoid kicked back forms or penalties for missing or inaccurate data. Benefits brokers that specialize in ACA reporting recommend a combination of careful administration along with support from payroll outsourcing companies. This planning includes a CPA team that can advise on tax and payroll administration.

The IRS late “Christmas miracle” last tax season gave employers extra time to report compliance with ACA affordable health insurance coverage mandates and the status of employee health care coverage. It is not expected to be repeated for 2016.

WP Download - ACA ReportingIn fact, company administrators and their CPA or payroll advisors should be gathering data now to be ready to fill out and file relevant parts of Form 1095 by January 31, 2017.

Applicable large employers (ALEs), those that have 50 or more employees (or full time equivalent), must show compliance with the ACA employer mandate to provide affordable health care coverage to eligible employees. Both ALEs and employers that are self-insured are required to report which employees were eligible for coverage and when. They also have to report which employees waived coverage and which were in fact covered in any month during 2016.

Starting and ending dates of coverage as well as starting and ending dates of dependent coverage (including birth dates and SSNs) are crucial for accurate reporting. Even eligible employees who left the employer sometime during the year must be accounted for.

Experiences from last year illustrate the complexity and financial costs at stake for employers navigating ACA reporting. Well-intentioned employers can get hung up at various stages of employee and payroll administration, data gathering and IRS reporting. They may also not understand if they fall under the definition of ALE if they are a subsidiary with fewer than 50 employees. However, the IRS views all subsidiaries or entities of large companies as falling under the same employer for the ACA reporting obligation.

Penalties can involve hundreds of dollars for each missing form with no limit on the total penalty per employer.

Last year, approximately 9 percent of all Form 1095 forms were rejected.

Some of the most common errors involved the following:

  • Improper use of EIN numbers
  • Employee and dependent names and SSNs that didn’t match tax forms (e.g. name changes due to marriage were kicked back)
  • Discrepancies with employee and dependent start dates and termination dates

When processing through the new Affordable Care Act Information Return System (AIR), some forms were rejected due to the use of apostrophes in last names or an extra space prior to an employer’s name. The IRS is working to improve AIR for 2016 filing, but employers and their advisors should be aware of IRS tips to avoid common errors and expedite processing.

Continue Reading: Why is the IRS Cracking Down on ACA Reporting?


Cornwell Jackson’s payroll team can help. Partnering with Brinson Benefits, we manage ACA-compliant payroll administration. We can guide employers to the right resources and answer questions about reporting deadlines and other payroll and tax compliance issues. For example, we advise on hourly and salaried employee compliance and new overtime rules, which tie into employee eligibility for benefits and any required ACA reporting. Read our whitepaper on outsourced payroll. Send us your questions and we’ll point you to the experts.

 

SB HeadshotScott Bates, CPA, is a partner in the audit practice and leads Cornwell Jackson’s Business Services Department, which includes a dedicated team for outsourced accounting, bookkeeping and payroll services. He provides consulting to clients in healthcare, real estate, auto, transportation, technology, service, retail and manufacturing and distribution. Contact Scott at scott.bates@cornwelljackson.com or 972-202-8000.

 

Sharon Alt headshotSharon Alt is Director of Compliance with Brinson Benefits in the Dallas/Fort Worth area. With a focus on Affordable Care Act regulations, she is responsible for ensuring that Brinson and their employee benefit clients meet all regulatory compliance standards in regards to healthcare benefits administration, particularly with regard to healthcare reform and the Affordable Care Act. She regularly guides clients through the ACA 6055/6056 reporting requirements. 

Related Posts

Posted on Jul 4, 2016

Punch Clock

Businesses are still buzzing about the government’s long-awaited revised overtime rules.

The Department of Labor (DOL) had provided a sneak peek in the form of proposed regulations issued in 2015, putting many employers on high alert about the main changes. Recently, the department provided additional guidance on two exemptions that often fly under the radar.

Background

Under the Fair Labor Standards Act (FLSA), employees must be paid time-and-a-half their regular pay rate for overtime above 40 hours a week unless they fall under an exemption. Employers who don’t adhere to the rules could be liable for payroll taxes on top of the payment due for overtime.

DOL regulations have generally required each of the following three tests to be met for employees to be exempt from overtime pay:

  1. Salary basis. The employee must be paid a predetermined and fixed salary that isn’t subject to reduction because of variations in the quality or quantity of work performed.
  2. Salary level. The amount of salary paid must meet a minimum specified amount.
  3. Duties. The employee’s job duties must primarily involve executive, administrative or professional duties as defined by the DOL regulations.

Before the recent revised rules, the DOL last updated these regulations in 2004. At that time it set the weekly salary level at $455 ($23,660 annually) and introduced an exemption for “highly-compensated employees.”

The new regulations more than double the wage threshold to $913 a week ($47,476 a year). This limit will be adjusted every three years, beginning January 1, 2020. Employees earning less than that amount are entitled to overtime pay regardless of their job responsibilities.

A Threshold Reset

The goal of these changes is to reset the income threshold to the point it would have reached, with inflation adjustments, had it not been frozen more than a decade ago. With the higher wage threshold, millions of “white-collar” employees — including those in executive, administrative and professional capacities — will qualify for overtime pay.

In a related change, the annual pay threshold for highly-compensated employees was boosted, from $100,000 to $134,004. Employees earning more than this may be treated as exempt regardless whether the duties test would classify jobs as non-exempt.

Bottom line: Beginning December 1, 2016, employees who earn between $47,476 and $134,004 may earn overtime pay. Their status will be determined by the same duties test that has been in place for years. For this purpose, an employee’s pay includes nondiscretionary bonuses, incentive pay and commissions, as long as those payments occur at least quarterly and don’t exceed 10% of compensation.

The guidance from the DOL focuses on two types of employers, educational institutions and state and local governments.

Educational Institutions

Because of special regulations, many white-collar employees at higher education institutions aren’t subject to the salary level test or are subject to a different test. The new salary level won’t affect them.

For instance, the salary level and salary basis requirements for the white-collar exemption don’t apply to bona fide teachers. Academic administrative personnel that help run higher education institutions and interact with students outside the classroom are governed by a special alternative salary level. These employees include department heads, and academic counselors and advisors. They are exempt from the FLSA overtime requirements if they earn at least the entrance salary for teachers at their institution.

However, workers whose duties aren’t unique to the education setting, such as managers in food service or the institution’s bookstore are covered by the same salary level as their counterparts at other kinds of institutions and businesses.

State and Local Governments

Neither the FLSA nor the DOL regulations provide a blanket exemption from overtime for state and local governments. However, the FLSA contains several provisions unique to state and local governments, including compensatory time (comp time).

State or local government agencies may arrange for their employees to earn comp time instead of cash for overtime hours. Any comp time arrangement must be established under the terms of:

    • A collective bargaining agreement,
    • A memorandum of understanding,
    • An agreement between the public agency and representatives of overtime-protected employees, or
    • An agreement or understanding between the employer and employees before the work is performed.

The comp time must be provided at a rate of 1.5 hours for each hour of overtime. The comp time is paid at the regular rate of pay.

Comp Time Ceilings

Most state and local government employees may accrue up to 240 hours of comp time. Law enforcement, fire protection and emergency response personnel, as well as seasonal workers (such as those processing state tax returns), may accrue up to 480 hours of comp time in one pay period.

The FLSA also provides an exemption for fire protection or law enforcement employees working for an agency with fewer than five employees. This exemption is based on a “work period” rather than a “work week.”

A work period may be from seven to 28 consecutive days. Overtime compensation is required when an employee’s hours worked exceed the maximum hours in the regulations. An employee must be permitted to use comp time on the date requested unless that would “unduly disrupt” the operations of the agency.

The final overtime rule takes effect on December 1, 2016. That should give employers ample time to comply with the changes and to develop plans for the future.

Potential H.R. Changes

Employers of all stripes have their work cut out for them between now and December 1. This may trigger other H.R. and payroll changes in light of the new overtime requirements. Keep in mind that there’s no “wrong” or “right” way to do things. Your payroll advisers can lend a helping hand.

Related Posts

Posted on May 25, 2016

Retaining Payroll Records

As if payroll record retention and recordkeeping wasn’t already difficult enough, another layer of complexity has been added by the Affordable Care Act (ACA).

Now that the ACA rules are firmly in place, here’s a brief rundown of several areas of concern for record retention. This list is based on information provided by the IRS, the Social Security Administration (SSA) and the Department of Labor (DOL).

ACA Requirements

The IRS administers health insurance coverage requirements under the ACA. The law currently requires employers with 50 or more full-time employees or full-time equivalents to provide at least minimum essential coverage. For the IRS, employers must file these informational forms:

  • 1094-B, Transmittal of Health Coverage Information Returns,
  • 1099-B, Health Coverage,
  • 1094-C, Transmittal of Employer-Provided Health Insurance Offer and Coverage Information Returns, and
  • 1095-C, Employer-Provided Health Insurance Offer and Coverage.

Employers should retain copies for at least three years or be able to reconstruct the data for that time period.

Federal Income Tax and FICA Requirements

Wages are subject to both federal withholding and Federal Insurance Contributions Act (FICA) taxes. The Social Security tax portion of FICA is equal to 6.2% of the first $118,500 of wages in 2016. The Medicare tax portion is equal to 1.45% on all wages.

Generally, employers must retain income tax and FICA tax records for at least four years from the date of the employee’s tax return due date. They must also keep information regarding wage continuation payments that the employer or a third party makes under an accident or health plan. This information should include the start and end dates of the time off from work and the amount and weekly rate of each payment.

Copies of documents filed on paper or electronically must be kept for at least four years after the tax return due date or, if later, the date the tax is paid. This includes the entire Forms 941 series and any W-2 forms sent but returned as undeliverable. It is permissible to destroy original W-2 forms if they can be electronically reproduced.

Employers filing claims for refunds, credits or abatements on income and FICA taxes, must hold on to related documents for at least four years. Companies with health insurance, cafeteria, educational assistance, adoption assistance or a dependent care assistance plan providing tax-free benefits must keep records establishing that the plans meet statutory requirements.

Finally, employers in businesses that require tip reporting must keep records substantiating any information returns or employer statements on tip allocations for at least three years after the return or statement is due.

FUTA Requirements

Under the Federal Unemployment Tax Act (FUTA), employers must withhold amounts for unemployment payments. The FUTA rate is 6% on the first $7,000 of wages, but can be reduced by as much as 5.4% for credits on contributions to state unemployment programs.

Employers must retain records for four years from the later of either the date they file Form 940, Employer’s Annual Federal Unemployment (FUTA) Tax Return or the date they pay the tax. The records should include:

  • Compensation paid to employees during the year,
  • Compensation subject to FUTA tax,
  • State unemployment payments (separating out any employee contributions),
  • All information on Form 940, and
  • Any difference between total compensation and the taxable amount.

Note: Currently, only Alaska, New Jersey and Pennsylvania require employee contributions.

FLSA Requirements

The Fair Labor Standards Act (FLSA) governs minimum wage and overtime pay rules. Employees must be paid at least the minimum wage and one and one-half times their regular rates of pay for overtime unless they are exempt.

Every covered employer must keep certain records for each non-exempt worker. Generally, these records should include the employee’s full name, Social Security number, address, birth date if younger than 19, sex and occupation, as well as:

  • Time and day workweek begins,
  • Hours worked each day,
  • Hours worked each week,
  • Basis on which wages are paid,
  • Regular hourly pay rate,
  • Total daily or weekly straight-time earnings,
  • Total overtime earnings for the week,
  • Additions to or deductions from wages,
  • Total wages paid each pay period, and
  • Date of payment and pay period covered

Records on which wage computations are based, such as time cards and piecework tickets, wage rate tables, work and time schedules and records of additions to or deductions from wages need to be kept for only two years. The remaining records should be held for at least three years.

Your CJ Payroll adviser can help ensure that you follow all the rules for retaining payroll records.

The Annual Payroll Tax Forum

The American Payroll Association (APA) is touting its mid-year Payroll Tax Forum.

This is a one-day course the not-for-profit group is offering in 18 cities from June 13 to June 24. The forum will focus on the latest payroll-related changes from Congress and various federal agencies.

Scheduled topics include:

  • Health insurance data reporting required by the Affordable Care Act (ACA),
  • Taxation and reporting of executive employee compensation,
  • Preparation for a proposed increase to the white collar exemption minimum salary requirement, and
  • Planning for the accelerated W-2 and 1099 filing dates.

The program will also include reviews of recent legislative and regulatory changes, the annually adjusted wage bases and benefit limits, as well as a discussion of revisions to IRS forms and publications. The forum is open to anyone involved in an organization’s payroll. More information is available at the APA website.

Related Posts

Posted on Mar 17, 2016

2016 ushers in a few changes to the tax laws that govern benefits, as the IRS recently laid out in its annual “Tax Guide to Fringe Benefits.” The document features important clarifications, not just identifying which benefits are and aren’t tax-exempt to employees, but also the fine points of tests that tax-exempt employee benefits must satisfy to maintain that status.

Here are some of the changes and reminders for 2016 from the Tax Guide to Employee Benefits.

Mileage. The deduction for the business use of a personal vehicle dipped from 57.5 cents per mile last year, to 54 cents per mile currently. When employers reimburse workers for using their own cars for business (such as for traveling to a required out-of-town seminar or delivering documents for the boss), mileage pay might be considered a benefit to the extent it exceeds the actual cost to the employee of operating the vehicle. In spite of the roughly 6% decrease in the 2016 mileage rate and in light of the slide in gas prices during the past year, this benefit could add up nicely for employees.

Public transit. At the end of 2015, the dollar limit on monthly excludable public transit benefits nearly doubled, from $130 previously to $250 for all of 2015 (retroactive to January 1, 2015). The purpose of the retroactive increase was to have the limit match the benefit available in 2015 for employees who carpooled in a “commuter highway vehicle.” (The IRS is issuing guidance on how employers can address the impact of the retroactive 2015 increase on payroll taxes already withheld.)

For 2016, the public transit benefit rose again, to $255, the same as the 2016 limits for employees that carpool in commuter highway vehicles and for qualified parking. Qualified parking includes parking near your place of work as well as using parking lots next to mass transit stops.

Taxable or Not

In its overall guidance on employee benefits, the IRS reminds employers that its default position is that the value of benefits is taxable to the employee — unless the benefit is one specifically identified as excludable. In other words, you can be as creative as you want in providing benefits, but you need to inform your employees that they might be taxed on the value of anything which isn’t on the IRS approved list.

An exception is made for “de minimis” benefits. Such a benefit, according to the IRS, is “any property or service you provide to an employee that has so little value (taking into account how frequently you provide similar benefits to your employees) that accounting for it would be unreasonable or administratively impracticable.”

Examples include the personal use of a cell phone provided for business use, “low market value” holiday gifts, parties, and meals or cash to pay for them “provided to enable an employee to work overtime,” and life insurance worth no more than $2,000.

Excludable Employee Benefits

Here’s a list of other excludable benefits beyond the most familiar categories, like health and retirement plans, subject to clearly defined limits:

Achievement awards. The exclusion doesn’t apply to cash and cash-equivalent (for example, vacations, lodging) awards.

Adoption assistance. The plan must be clearly documented. Limits apply to highly compensated employees.

Athletic facilities. The exclusion applies only to on-premises facilities (or other locations that your company owns) if “substantially all” of the use is by employees, their spouses and dependents. Company-owned resort locations are excluded.

Dependent care assistance. The rules governing these programs are essentially the same as those which employees must satisfy to take a dependent care tax credit. Generally, an employee can exclude from gross income up to $5,000 of benefits received under a dependent care assistance program. IRS Publication 503 provides more details.

Educational assistance. These benefits, which can’t cover graduate education, must have “a reasonable relationship to your business,” and be part of a degree program.

Employee discounts. Among other limits, the discount can’t be more than 20% or the percentage of profit built into the price you charge regular customers.

Group term-life insurance. A variety of rules limit this benefit, including a $50,000 ceiling on the death benefit.

Health savings accounts. Employer contributions cannot be used to fund medical expenses that will be “reimbursable by insurance or other sources … and won’t give rise to medical expense reductions” on employee tax returns.

Lodging on your business premises. The basic requirements are that the lodging is furnished for the employer’s convenience and that the employee must accept it as a condition of employment.

Moving expense reimbursements. If you reimburse an employee for moving expenses, those expenses must be such that the employee could deduct them if he or she had paid or incurred them without reimbursement.

Stock options. Many rules apply here for all three categories: incentive stock options, employee stock purchase plan options, and nonqualified stock options.

No-additional-cost services. An example is an airline giving an employee a free seat on a flight if the flight had empty seats.

Working condition benefits. This applies to property and services provided to an employee, such as a company car, “to the extent the employee could deduct the cost of the property or services as a business expense or depreciation expense if he or she had paid for it.”

Some things that didn’t change.

Finally, the annual limit on untaxed employee salary reduction contributions to flexible spending accounts remains capped at $2,550. Also, the 0.9% Medicare payroll surtax still kicks in when an employee’s cumulative salary for the year exceeds $200,000.

This simplified overview might provide a catalyst to review your entire menu of tax-favored employee benefits. While the availability of a tax exclusion can deliver higher value benefits for employees than straight compensation, the benefits must still make sense in light of your employees’ needs and your own human resource strategies.

Related Posts

Posted on Feb 18, 2016

Snowfalls across the country have shattered long-time records this year, paralyzing transit systems and roads, and preventing hundreds of thousands of people from making it to their jobs.

This raises the question: What are the payroll consequences of situations like this?

What Happens When Workers Are on Call?

Due to the nature of your business, you may have some workers who are typically required to be on call.

If the office is closed due to a winter storm and on-call employees cannot effectively use the time for their own purposes, the FLSA says the employer must pay the employee for the on-call time. But employers don’t have to pay on-call workers who are at home and are free to use the time for their own purposes.

Note that this is the general rule under the FLSA. State laws may impose different or tougher requirements.

Background

Although state law may control outcomes, the relevant statute on the federal level, as well as in many states, is the Fair Labor Standards Act (FLSA). The FLSA, initially enacted in 1938 and modified numerous times since, establishes rules for overtime, minimum wages, record-keeping and other employment matters in both the public and private sectors.

The application of those rules often depends on the characterization of an employee as exempt or nonexempt. For instance, nonexempt employees arentitled to overtime pay, while exempt employees are not. Most employees covered under the FLSA are treated as nonexempt employees although there are numerous special rules and exemptions contained within the law.

Certain jobs are defined as being exempt, such as outside sales employees (inside sales employees are nonexempt). However, the classification generally depends on three FLSA tests: the salary level test, the salary basis test and the duties tests.

1. Salary level test: Employees who earn less than $23,600 a year ($455 a week) are nonexempt. Virtually any employee earning more than $100,000 a year is exempt.

2. Salary basis test: Generally, employees are paid on a salary basis if they have a guaranteed minimum amount of money to count for any workweek. This amount doesn’t have to be total compensation — in fact, it often is not — but it must be a finite amount. Some rules of thumb indicating that employees are salaried are:

  • If they are paid by an annual salary divided by the number of paydays in a year; or
  • When the actual pay is lower for work periods in which the employee logs fewer hours.

In any event, however, whether or not this test is met depends on the particular facts and circumstances.

3. Duties test: Employees who meet the salary level and salary basis tests are treated as exempt only if they also perform exempt job duties. These FLSA exemptions are limited to employees who perform relatively high-level work. Whether the duties rise to the level of an exempt employee depends on exactly what they are.

Mere job titles or position descriptions are of limited value. For example, a secretary doesn’t become exempt by being called an administrative assistant, nor do CEOs become nonexempt if they are referred to as clerks.

There are three categories of exempt job duties: executive, professional and administrative. Significantly, job duties are exempt executive duties if the employees:

  • Regularly supervise two or more individuals;
  • Have management as the primary duty of their positions; and
  • Have some genuine input into the job status of other employees, such as hiring, firing, promotions or assignments.

You can find more detailed information on the differences between exempt and nonexempt employees here.

Winter Weather

If employees are forced to miss work due to inclement weather, the FLSA applies the following standards:

Exempt employees: If the business shuts down due to the weather, exempt employees must be paid their regular salary for any closing lasting less than a week. Under the FLSA, an employer cannot reduce exempt employees’ pay based on the quantity of the work if they are ready, willing and able to work, but work is not available.

Consequently, deducting pay when closing the office for less than a week could affect the employees’ exempt status. However, a private employer may deduct the absence from the exempt employees’ paid vacation or time off as long as they receive their full weekly salary.

If the business remains open, but the employees simply cannot get to work because of weather conditions, an employer may deduct an exempt employee’s salary for a full day’s absence. Under the FLSA, a deduction of a full day’s pay is allowed when an exempt employee is absent for personal reasons without jeopardizing the employee’s exempt status, but not for an absence of less than a full day.

Nonexempt Employees: Under the FLSA, employers generally are not required to pay nonexempt employees for any days they do not actually work. Thus, employers aren’t required to pay employees for days when the office is closed due to the weather.

But this doesn’t apply to nonexempt employees who are paid on a fluctuating workweek basis. These employees must be paid their full weekly salary for any week in which work is performed — even if they miss workdays due to a storm.

Related Posts

Posted on Feb 18, 2016

1423362775_02de552159_b-301812-edited

There are many types of fraud committed against businesses — from workers’ compensation scams to complex corporate swindles — but one of the most common types is simply employee theft.

This can occur when employees take money from a cash register, forge names or change amounts on company checks, engage in creative bookkeeping a number of other schemes.

No matter how profitable your company is, you can be vulnerable unless you thwart these attempts. While there’s no single deterrent to internal fraud, you can take some relatively simple steps to help detect and prevent it:

THE FRAUD TRIANGLE

Certain situations drive some people to steal. It’s sometimes called the “Fraud Triangle” and it generally contains three elements:

  1. This is often financial stress with the individual unable to share the problem and seeing no effective, legal way out. It may be combined with job dissatisfaction, drug or alcohol abuse, or failure to meet company requirements.
  2. If employees perceive there is a chance to steal and they are under pressure, they may try it, particularly if they think they can get away with it.
  3. These employees believe stealing isn’t really wrong. Excuses range from: “It’s a loan.” to “I’m not taking anything that will be missed,” or “everybody else does it.”

A FEW WARNING SIGNS

Lifestyle changes. Suddenly, an employee has a new, big home or an expensive car.

Unusual behavior. Nice people may become belligerent and vice versa.

Reluctance to delegate. Employees who are stealing often work extra hours rather than delegate responsibility out of fear of discovery.

10 SMART INTERNAL CONTROLS

  1. Enforce mandatory vacations. If employees don’t take time off that is due to them, a red flag should be raised. Someone may not want to go on vacation because he or she can more easily cover their tracks while on the job.
  2. Consider having payroll checks be signed personally. This can take some time and is impractical for large companies, but it allows management a chance to give payroll a quick review.
  3. Use a dedicated payroll bank account and deposit the correct amount for every pay period. This can help your company immediately recognize any changed amounts. However, this also requires close attention to details like overtime and withholding so that the account doesn’t fall below the bank’s minimum balances due to legitimate changes in payroll.
  4. Use a “for deposit only” stamp on all incoming checks, which can prevent employees from cashing them personally. Don’t rely solely on this, however. A bank teller still might allow the check to be cashed. Consider accepting electronic payments to prevent employees from cashing incoming checks.
  5. Monitor receivables and payables. Investigate discrepancies.
  6. Do not let the same person who handles revenue or opens the mail also handle disbursements.
  7. Reconcile your company’s accounts at least monthly, examine anything that doesn’t balance or otherwise looks wrong.
  8. Compare checks to the company cash disbursements journal. Make certain that payees on checks match payees shown in the journal. Confirm that the names and amounts on checks are consistent and believable with your company’s practice.
  9. Secure your offices whenever you leave. Periodically change the locks on doors and file cabinets. Change computer passwords regularly, especially after someone leaves the company on bad terms.
  10. When feasible, rotate the duties of those who handle money, record sales or disbursements, and otherwise have opportunities to steal from the company. Be cautious of people working in teams that could potentially defraud the business.

The bottom line is to protect your bottom line. These are just some of the steps your company can take to safeguard its assets. Talk to one of our team members today to discover how Go and Grow can help protect your company against employee fraud and theft.

Related Posts