Core Payroll Concepts

What is the federal overtime rate?

$10.88 per hour

What is the federal minimum wage?

$7.25 per hour

ACA Forms: 1094 B & C

1094 B: Transmittal of health coverage - must be filled with form 1095 B 1094 C: transmittal of employer-provided health insurance - must be filled with 1095 C

ACA Forms: 1095

3 1095 forms; used to furnish information to the IRS regarding health insurance. 1095 A: health insurance market place statement -used by marketplace only 1095 B: health coverage; used for minimal essential coverage only (MEC) 1095 C: employer-provided health insurance offer and coverage

True or False: time spent waiting to be engaged is compensable

False: this is not compensable because the EE is freed from all duties for a definite period of time and has enough time to pursue personal business before returning to work

Common-Law Test Requirements:

1. Behavioral Control - does the company control or have the right to control what the worker does and how the worker does his/her job? 2. Financial Control - are the business aspects of the workers job controlled by the layer? (Ex: how worker is paid, whether expenses are reimbursed, who provides tools/supplies) 3. Type of Relationship - are there written contracts or employee type benefits (vacation, insurance, pension plan) will the relationship continue and is work performed a key aspect of the business)

Statutory Employee Categories

1. Drivers delivering beverages, meat, fruits & veggies, bakery products; picks up/delivers laundry or dry cleaning 2. Full time life insurance agent whose principle business activity is selling life insurance or annuity contracts or both 3. An employee who works at home on materials/goods that you supply & must be returned to you or a person you name, & if you furnish specs for work to be done 4. Full time traveling or city salesperson who works on your behalf and turns in orders to you from wholesalers, retailers, contractors; operators of hotels, restaurants, or similar establishments

3 federal income tax withholding methods

1. Percentage method 2. Wage brackets 3. Manual calculations

What criteria is used to determine if someone is a common-law employee?

1. Work for a single employer 2. Use tools and resources provided by the employer 3. Receive instructions from the employer 4. Receives a W2 5. Eligible for overtime based on their classification

Defined Workweek

7 consecutive 24-hour periods. It may differ from the pay period and can vary between employees

Positive Pay

A fraud prevention cash management program offered by banks in an attempt to protect customers and the bank

Quarterly Forms: 941X

Adjusted ER's Quarterly Federal Tax Return or Claim for Refund; used to amend amounts of previously reported on form 941 including any request for refunds.

What are the 5 FLSA worker exemptions?

Administrative, executive, professional, computer, & outside sales

Annual Forms - 1096

Annual Summary and Transmittal of U.S. Information Returns; used to summarize each type of information return that is to be transmitted to the IRS in paper form, used with forms 1097, 1098, 1099, 3921, 3922, 5498, and W-2G.

Annual Forms: 945

Annual return of withheld federal income tax; for payers to report the amount of federal income tax withheld from specific types of payments Eligible payment types: pensions, military retirement, indian gaming profits, back-up withholding

Global Forms: 1042T

Annual summary and transmittal of US information returns; used to summarize the income and taxes withheld amounts from all corresponding forms 1042S. IF more than 250 form 1042S are to be filed, the filing must be electronic

Global Forms - 1042

Annual withholding tax return for US source income of foreign persons; used for employers to report the amount of income tax withheld on certain income paid to nonresidential aliens, foreign partnerships, foreign corporations, foreign estates and trusts. Any amounts paid subject to 2% excise tax

Manual Calculation

Annualized Wages - compute EE's annual pay rate & figure the annual withholding Average Estimated Wages - withhold tax for payroll period based on average wages w/ necessary adjustments for any quarter Cumulative Wages - EE can ask in writing to withhold tax on cumulative wages. Part-year employment - attest to last day of employment, statement that EE uses calendar year account period & EE reasonably anticipates that he/she will be employed by all ER's for a total no more than 245 days of continuous employment

Employee

Anyone who performs services for you is generally your employee if you control what work is accomplished and how it is accomplished

Form SS-4

Application for Employer Identification Number (EIN) for a sole proprietor, corporation, partnership, estate, trust, etc.

Form SS-5

Application for a Social Security Card, a replacement card, or to make changes to your information on an existing card

ACH Process

Automated clearing house (ACH): employer initiates the electronic file containing the payment information, originating financial institution receives the file from the ER and initiates processing through the ACH network, ACH network settles the transactions between financial institutions, receiving financial institutions designated by the EE posts to EE's acct, EE designates the receiving financial institution and accesses funds

Acceptable Time Rounding under FLSA

Between 1-7 minutes of an hour may be rounded down, but 8-14 minutes must be rounded upward It can be used to address issues of discrepancies on time word compared to time paid

Allowed Pay Vehicles

Cash, check, direct deposit, and pay card

Form 843

Claim for Refund and Request for Abatement (for example, a refund of Social Security or Medicare taxes withheld in excess or in error, or for penalties levied by the IRS in error.)

ACA (Affordable Care Act)

Comprehensive health insurance reforms & includes tax provisions that affect: individuals, families, insurers, tax-exempt organizations & government entities. An ER's size is determined by the number of full-time EE's, including full-time equivalents.

Employee Forms: W-4

EE's withholding allowance certificate; this form is used to indicate to the ER the correct federal income tax withholding

Independent Contractor

Controls how the work will be done

Annual Forms: W-2C

Corrected W2; used to correct errors on previously issues W2s filled with the SSA. Does NOT need to be filled to correct an EE's address.

ACH Process and Components

DD and pay card processes are regulated by the federal reserve board, NACHA - the electronic payments association's ACH operating rules, and state laws. ACH rules require retention of the DD authorization for 2 YEARS from the date of the termination or revocation of the EE's authorization.

Illegal deductions (FLSA)

Deductions that reduces the EE's earnings below the required minimum wage (Ex: Tools, damages to property, cash register shortages)

Co-Employment

Defined by NAPEO - contractual allocation and sharing of certain employee responsibility between the PEO & client. Employees are owned by two different entities. PEO is the company of record

Statutory Non-Employee Categories

Direct sellers, licensed real estate agents, and certain companion sitters

Annual Forms: 943

ER's Annual Federal Tax Return for Agricultural EE's; withholding is required on all cash wages paid to agricultural workers if: EE is paid no less than $150 in a year or total wages paid to all EE's is no less than $2,500

Annual Forms: 940

ER's Annual Federal Unemployment Tax (FUTA); ER is subject to Form 940 if: total wages of at least $1,500 were paid to all EE's during any calendar quarter OR one of more EE's worked at least art of any day in the last 20 weeks of either the current of previous year including FT, PT or temporary EE's. Do NOT includes the partners if business is a partnership

Quarterly Forms: 941

ER's Quarterly Federal Tax Return; used to report wages paid, income tax withheld, & social security and medicare taxes due.

Annual Forms: 944

ER's annual federal tax return; for small ER's to report wages paid, federal income tax withheld, and ER& EE FICA. Filed once annually, and used in lieu of quarterly 941.

Grossing-Up Taxable Benefits

EX: Moving expenses

Employee Forms: I-9

Employment eligibility verification; used to verify that a prospective EE is authorized to work in the US.

Who is covered under FLSA?

Enterprise coverage & individual coverage

FLSA (Fair Labor Standards Act)

Establishes minimum wage, overtime pay, record keeping & youth employment standards affecting EE's in the private sector and inFederal, State, and Local governments

Global Forms: 8233

Exemption from withholding on compensation for independent personal services of a nonresident alien individual; used to claim and exempt (based on tax treaty) from withholding requirements for independent personal services; including amounts received for scholarship or fellowship income that is not classified as compensatory.

FICA Student Exemption

FICA taxes don't apply to services performed by students employed by a school, college or university where the student is pursuing a course of study. It is up the ER to determine if employment/education is predominant in the relationship

Form SS-8

Firms/workers file this to request a determination of the status of a worker under common law rules for purpose of federal employment taxes and income tax withholding. May be requested only in order to resolve federal tax matters

Global Forms: 1042S

Foreign person's US source income subject to withholding; used to report all income subject to withholding for foreign persons such as nonresident aliens, foreign partnerships, foreign corporations, foreign estates & trusts.

Percentage Method

Generally used with payroll systems; determine EE's adjusted wage amount for the pay period, determine tentative withholding amount using percentage method tables, & account for tax credits on the EE's W4. This is a step by step process and is best done using the worksheet in publication 15-T

What is the Common-Law Test?

Guide used by the IRS to determine if a worker should be classified as an employee or independent contractor

Backup Withholding Requirements (BWH)

If you receive certain types of income payments, the IRS requires the payer to report them on an information return. The person/business withhold taxes and it's assumed you will report and pay taxes on this income when filing your federal tax return BWH May be required if: 1. You provided the wrong taxpayer identification number (Ex: social security number, employer identification number (EIN), or individual taxpayer identification number); or 2. You failed to report or underreported interest & dividend income you received on your federal income fax return, or you failed to certify that you're not subject to BWH for under reporting of interest & dividends

Identifying Data/Confidentiality Breaches

In payroll, access to date must be limited on a "need-to-know" basis. Audit trails must provide information on who has accessed data, when they accessed the data, and the changes made to the data. Encouraging EE's to speak up if they discover breaches in confidentiality or data.

What is the Reasonable Basis Test?

It is used to gain relief from imposed employee taxes if you have misclassified an employee as an independent contractor

Compensable Time Activities under FLSA

Meal Periods - 30 minutes uninterrupted (not required by FLSA) Rest Periods - help promote efficiency (not required by FLSA) On Call Time - restrictions on response time, geography, calls, and personal activities are likely to be compensated for on-call time Sleep time- EE's working 24-hour shift or longer get an 8 hours excluded for sleep. If sleeping is interrupted for work then it's compensable time. If EE can't get at least 5 hours of uninterrupted sleep the entire sleep period is considered working time Waiting time- engaged to be waiting, ER required EE to wait to begin work. Short, spent on ER premises (Ex: waiting on minor repairs so a machine is operable, waiting for assignments, waiting for a customer to arrive) Meeting & Training Time- attendance at lectures, meetings, seminars, & training sessions is working unless all of the following are met: event is outside working hours, attendance is voluntary, event is not directly related to EE's job, EE doesn't perform any productive work for the ER while attending Travel time- time spent traveling as part of an employees daily work activity is compensable. Travel from one job site to another. Non-exempt EE's May be paid at a lower rate when traveling from one job site to the next De minimis time- time worked by an EE before or after regular working hours that is so insignificant it cannot be measured. Lasts no longer than a few seconds or minutes

FLSA Wage Requirements

Minimum wage employees may be paid by the hour, by the month, by piecework, by salary, or any other way as long as it meets the minimum wage of $7.25 per hour Compensation includes: Wage Commissions Certain bonuses Tips received by eligible EE's up to $5.12/hr Reasonable cost of room, board, other "facilities provided by ER for the EE's benefit

Annual Forms: 1099-MISC

Miscellaneous Income; used to report each recipient and the IRS certain amounts paid to and federal income taxes withheld for each recipient. personal payments are not included, federal backup withholding is also reported.

Tipped Employees

Must pay these employees at least $2.13 an hour. If their wage plus tips does not equal at least minimum wage then the employer has to pay the difference.

Highly Compensated Employees

Performing office or non-manual work & are paid a total annual compensation of $107,432 or more (at least $684 per week) are exempt from FLSA If they customarily & regularly perform 1 of the duties of the executive, administrative, or professional exemptions

Employee Leasing

Practice of supplying workers/contractors to a client - typically has a start and end date. Leased employees are usually acquired through a temporary help service.

Individual Coverage (FLSA)

Protections offered to employees if their work regularly involves them in interstate commerce and domestic service workers, such as housekeepers, babysitters, and cooks.

Enterprise Coverage (FLSA)

Protections offered to employees under the FLSA who work for certain businesses or organizations that have at least two employees and do at least $500,000 a year in business OR involved in industries such as hospitals, nursing homes, schools and preschools, and government agencies

Qualified and Non-Qualified Plans

Qualified plans have tax-deferred contributions from the EE, & the ER may deduct amounts they contribute to the plan. IRA & 401K plans fall under a set of laws that come from ERISA (Employee Retirement Income Security Act). Other qualified plans are often referred to as section 125 cafeteria plans. Non-qualified plans use after-tax dollars to fund the plan & typically the ER cannot claim their contribution as a tax deduction. These plans do NOT have to be available to all EE's.

Pay Frequency and Method of Pay

Regulation is up to each state. Alabama, Florida, and Montana are silent.

Employee Forms: W-4S

Request for Federal Income Tax Withheld from Sick Pay; used to document to a third-party payer (as opposed to the ER) the amount of funds to be withheld for federal income tax.

Employee Forms: W-9

Request for TIN (Taxpayer identification number) & certification. Used for the following: income paid to you, real estate transactions, mortgage interest you paid, acquisition or abandonment of secured property, cancellation of debt, contributions you made to an IRA.

Knowledge of Resources: Regulatory Changes

SSA, FMLA, ADA, civil rights act, immigration and control act, age and discrimination in employment act

Tests Used to determine if a worker is exempt

Salary basis test, salary level test, and a duties test

Wage Bracket Method

Same as the percentage method; determine EE's adjusted gross wages, tentative withholding using wage bracket table, and account for tax credits listed on EE's W4.

Temporary Help Services & Personnel

Services offered: payroll, bookkeeping, tax deductions, workers comp, & fringe benefits. Temp services allow for quick infusion of workers that can start same day

FLSA Administrative Exemption

The following criteria must be met: 1. EE must be compensated on a salary or fee basis at a rate no less than $684 per week; 2. EE's primary duty must be office or non-manual work directly related to the management or general business operations of the ER or the EE's customers; and 3. EE's primary duty includes the exercise of discretion and independent judgement with the respect to matters of significance (Ex: handling taxes, finance, accounting, budgeting, auditing, insurance, quality control, purchasing, marketing, HR, benefits, public relations, safety & health, etc)

Addressing a Breach of Data/Confidentiality

Speak with EE involved. Make sure they understand the effects of the breach, look over all facts objectively and investigate the matter; check your options and decide on your next step s of action which can include termination or disciplinary action. Take preventative measures to keep this from happening again.

Imputed Fringe Benefits

Taxable compensation to the EE. Not included in net pay because EE already received the benefit in some other form. Subject to social security and Medicare tax but NOT typically federal tax. EX: HSA contributions, Adoption Assistant surpassing the non-taxable amount, group term life insurance in excess of $50,000

Duties Test

Test is used to determine if an employees primary duties are exempt under 1 of the 5 exemption categories

Salary Level Test

Test used to ensure that the employees pay meets minimum weekly pay requirements

Salary Basis Test

Test used to make sure an employee is regularly paid a predetermined and fixed salary that is not subject to reduction due to variations in the quality or quantity of work

Multi-State Taxation Rules

The default rule is to withhold income tax for the state in which services are performed

Common-Law Employee

The employer controls what work will be done and how it will be accomplished.

FLSA Computer Exemption

The following must be met: 1. EE must be compensated either on a salary or fee basis at a rate no less than $684 per week, OR if compensated at a hourly basis, at a rate no less than $27.63/hr 2. EE must be employed as a computer systems analyst, computer programmer, software engineer, or other similar skilled worker in the computer field performing the duties described below; Primary duties: A. Application of systems analyst techniques & procedures, including consulting with users, to detain a hardware, software or system functional specifications; B. Design, documentation, testing, creation, or modification of computer programs related to machine pirating systems; or C. Combination of the duties, performance which requires the same level of skills (Ex: engineers, drafters, & others skilled in computer-aided design software)

FLSA Executive Exemption

The following must be met: 1. EE must be compensated on a salary basis at a rate no less than $684 per week; 2. EE must customarily and regularly direct the work of at least 2 or more other full time EE's or their equivalent; and 3. EE must have the authority to hire or fire other EE's, or the EE's suggestions and recommendations as to the hiring, firing, advancement, promotion, or any other change of status of other EE's must be given particular weight

FLSA Professional Learned Exemption

The following must be met: 1. EE must be compensated on a salary or fee basis at a rate no less than $684 per week; 2. EE's primary duty must be the performance of a work requiring advance knowledge, defined as work which is predominantly intellectual in character & includes work requiring a consistent exercise of discretion and judgement; 3. Advance knowledge must be in a field of science or leaning; and 4. Advance knowledge must be customarily acquired by a prolonged course of specialized intellectual instruction (Ex: law, medicine, theology, accounting, engineering, architecture, teaching, chemical & biological sciences, pharmacy, etc)

FLSA Professional Creative Exemption

The following must be met: 1. EE must be compensated on a salary or fee basis at a rate no less than $684 per week; and 2. EE's primary duty must be the performance of work requiring invention, imagination, originality, or talent in a recognized field of artistic or creative endeavor (Ex: actors, musicians, composers, certain painters, writers, cartoonists, essayist, novelist, etc)

FLSA Outside Sales Exemption

The following must be met: 1. EE's primary duty must be making sales or obtaining orders/contracts for the services or the use of facilities for which a consideration will be paid by the client or customer; and 2. EE must be customarily and regularly engaged away from the ER's place(s) of business *no minimum rate

Constructive Receipt

The point at which a taxpayer has unrestricted access to and control of income, even if the income item is not in the taxpayer's actual possession.

Annual Forms: W-3C

Transmittal of Corrected wage and tax statements; used in conjunction with W-2C for the transmittal for reissued and corrected paper forms W2 copy A to the SSA.

8/80 Rule for Hospitals & Nursing Homes

These 3 conditions must be met to apply: 1. Must be an agreement or understanding between ER and EE's. Must be record of the agreement 2. If the agreement or understand is not in writing, the ER must keep special record of it 3. ER must pay EE's covered by the agreement or understanding at least 1.5 times their regular rate of pay for all hours worked over 8 hours in a day or 80 hours in the 14 day period - whichever results in a higher pay

Annual Forms: W-3

Transmittal of Wage and Tax statements; only to be used with form W2, never to be filled without the corresponding W2. If W2 is filed electronically, form W3 is not required

Employee Forms: W-4P

Withholding certificate for Pension or Annuity Payments; used to document to the payer the amount of funds to be withheld for federal income tax purposes.

Who administers and enforces the FLSA?

WHD (Wage and hour division) of the DOL (department of labor)

Annual Forms: W2

Wage and Tax statement; used to report to each EE who earned income in the tax year, info regarding the amount of earnings and amount of income, social security and medicare taxes withheld for that year. Every ER engaged in a trade or business must report for, and to, all EE's and also report the same information to the SSA and city, state or local tax agency. There are 6 copies of the W2

Multi State Taxation Rules: Resident Defined

Withholding rule 1; most states have a two pronged definition of residency 1. being domiciled in the state (having a true fixed permanent home 2. Spending more than a certain number of days in the state

Multi State Taxation Rules: Reciprocity

Withholding rule 2; if an EE performs services in a state other than the state or residence, then you must find out if the two states have a reciprocal agreement. The agreement allows you to withhold only for the state of residence. EE must submit a certificate of non-residence before you can honor the agreement. The agreement relieves the EE & ER from withholding and filing multiple state income taxes and forms

Multi State Taxation Rules: Resident/Non-Resident

Withholding rule 3; if an EE is a resident of one state but performs services in another & there isn't a reciprocal agreement; then the law for both states must be considered. Ex: if a CA resident works in AZ, AZ withholding is required if the EE is physically present in the state for 60 days or more -The Military Spouses Residency Relief Act states that the spouse of a service member may retain residency if they move to another state to be with the service member. Income earned in the work state by the spouse is no subject to taxation by the work state

Child Labor Regulations

Work must be safe & does not jeopardize their health, well-being, or educational opportunities -Minors under 18: can't work a job that is declared hazardous by WHD. (Ex: mining, logging, woodworking, meat packing, and construction) -Minors 14 and 15: no hazardous jobs in retail, food service, gasoline service establishments. Can work 3 hrs on a school day but not during school, 18 hours a week when school is in session. -Minors under 14: can only work for a parent but job can't be hazardous or in mining or manufacturing

How to Meet the Reasonable Basis Test?

You relied on a prior IRS audit, a court case or ruling to support your position, long standing practice in your industry, or demonstrating any other reasonable basis for treating the worker as an independent contractor

Stop Payment

an instruction to the bank not to honor a check that has been issued or lost. wait no more than 5 business days after the check has been issued before beginning the stop payment process, review cleated checks to ensure the check has not been chased, notify the bank to place a stop payment on the check, have EE execute a surety bind of affidavit protecting the ER, reissue the check to the EE.

Holder in Due Course

anyone who accepts a check as a form of payment. on the face of the check there cannot be an evidence of fraud, nor can the person accepting the check have knowledge of any underlying fraud related to the check

Annual Forms: 1099-R

distributions from pensions, annuities, retirement or profit sharing plans, IRA's. insurance contracts, etc. used to report to a recipient & the IRS amounts paid to & federal income tax withheld from a recipient related to various distributions no less than $10