Tag: Payroll

Posted on Nov 17, 2016

The 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.

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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.

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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.

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