Fundamental Payroll Certification 2009

Payroll Fundamentals Chapter 1

Payroll Fundamentals

Payroll –the process used by an organization to pay its employees accurately and on time.

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Payroll Tasks

Pay employees Verify data

integrity Collect/Input data New hire info Recordkeeping Reporting PR data Distributing PR Create ACH files

Deposit/Report taxes

Communicate to employees

Balance input Reconcile Paydata Process deductions Research Fed/State

regulations

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Payroll ChallengesC-C-T-A

Complexity Monitor and implement federal,

state and local tax laws that regulate the way employees can and must be paid.

FPC Testing is based on federal law.

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Payroll ChallengesC- C- T-A

Communication Paychecks, Paycards, Vouchers–

must be accurate, timely and easily understood.

Benefits the employee and the payroll department– if clear and concise

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Payroll Challenges C-C-T-A

Technology Software, equipment and web-

based applications enhance the process of PR

Products can Automate time keeping Record storage Record retrieval

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Payroll Challenges C-C-T-A

Accuracy Success of payroll and an

organization is required. Tax filing Management reports Paychecks Deductions (i.e. Garnishments)

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The Payroll Process

Employee New Hire data W4 W5 Birth Date Worker status Maintain changes

Payroll Inputs data Verifies data Processes data Distributes Reconciles

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The Payroll Process

Government Tax deposits Monthly and quarterly reports Annual Returns

Compliance is a main focus for payroll!Federal, state and local tax laws must be

followed

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ConceptsWorker Status

Workers can be : Employee—SSN number

Exempt- salary, no overtime Nonexempt-subject to FLSA standards Taxes are withheld and paid by employer

Independent contractors- TIN Number Pays all own taxes Not regulated by FLSA

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Employee vs. Independent Contractors

Common Law Test Employee independence Control over the employee

The main distinction is the employers ability and right to control the worker.

Study the chart on page 1-4

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Employee vs. Independent Contractors

Reasonable Basis Test Treatment is consistent-filed

appropriately Recognized practice in the industry Precedent has been established Published rulings by IRS Private Letter Ruling issued to company IRS past audit acceptable

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Temporary vs. Leased Employees

Temporary and leased workers: Agency bears the employer burden of:

Paying, withholding, reporting, benefits

The company has a contractual agreement with the agency. Workers are thus employees to the agency, but follow the policy of the company at which they are performing the job functions.

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Worker Status Classification

When in doubt– pay it out If status is unclear—

Seek Public ruling information Request Private ruling from IRS

Withhold taxes to avoid non-compliance and penalties should the ruling state the worker has employee status

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Employment Eligibility (New) Immigration Reform and Control Act of 1986

-- verify employee is eligible to work in the US Key Provisions of Act:

Sanctions – Fines and Criminal Penalties Ensures employers do not discriminate - National origin

or citizenship Verification of eligibility – Form I-9 Employment

Eligibility Verification 1) identity; 2) right to work Process

On Date of Hire – New Hire completes Section 1 Within 3 days of hire ER must review documents & complete

Section 2 Retain for the longer - 3 yrs or 1 yr after termination

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Social Security Numbers

Name and number must match

Mismatches carry penalties

Verify W4 accuracy Employees

Provide if requested Do not carry to avoid

ID theft

If discrepancy: ER shows request at

hiring-proof of document

If IRS notifies: Must request &

correct within year notice was given

Homeland Security has proposal pending for new procedures with mismatches 16

Social Security Administration (SSA)

Social Security Number Verification System- SSNVS

Employers request via: Internet, Phone, Paper list, Mag Tape, Diskette

Employer provides verification of company and validity of verification request by supplying:

FEIN-Federal Employer ID Number EE last name, first name EE Social Security Number Date of birth Sex

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SSN Compliance Tips to Stay Compliant Request & Record

new hire SSN Keep accurate

records Remind ees to

report life changes

Validate by means of SSNVS

Remind ees to verify data

Numbers that start with “9” are ITIN

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Fair Labor Standards Actof 1938 FLSA

FLSA guarantees: Minimum wage Overtime premium Minor work limits Equal Pay Protection

Administer by Wage & Hour Division of US Dept of Labor (DOL)

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Exempt Employees

Based on responsibilities not titles White collar exemptions

Executives Administrative Employees Professionals Outside salespeople

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Exempt EmployeesExecutives

Direct work of at least two full time workers

Hiring/Firing authority Discretionary powers Minimum weekly salary of $455.00

I.E. Managers/ Supervisors

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Exempt EmployeesAdministrative

Primary duty: Work related to management School system

Must: Exercise independent judgment Weekly minimum salary of $455

I.E. Executive secretary, admin with little supervision

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Exempt EmployeesProfessionals

Learned or Creative Work must be distinctive not standard Earn minimum of $455 weekly salary

I.E. Teachers, engineers, attorneys, *Computer professionals

*Computer Professionals must earn $27.63 hourly

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Exempt EmployeesOutside Salespeople

Engaged in the selling of the company’s product/service

Work off premises

State wage laws may supercede the federal rate—stay informed.

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Exempt EmployeesSpecial Exemption Status

Below status may be exempt by FLSA

Nonexempt status must be paid minimum wage and overtime

Categories Transportation Workers Agricultural workers Healthcare facility workers Public Sector

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FLSAFederal Minimum Wage

Federal minimum wage 1/01/2009 – 7/23/2009 $6.55 per hour 7/24/2009 – 12/31/2009 $7.25 per hour

Employees under age of 20 -$4.25 For the first 90 days of employment

State minimum wage must be paid if higher than the federal law- whatever benefits the employee!

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FLSA Tip Credit

Employers may pay less than Minimum wage.

Wage is $2.13+Tip credit $5.12= $7.25

EE must have tips of $30 monthly State laws must permit use of

Federal Tip Credit

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FLSAAdditional Earnings

Tips Subject to taxation if

=/> $20 monthly Supplemental

wage –can be taxed at 25%

Shift Premiums Also known as shift

differentials Additional

compensation for schedules

Must be considered in calculation of Regular Rate of Pay

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FLSAAdditional Earnings

Paid Time Off ER’s need not pay sick,

holiday or vacation Time need not be part

of calculation for regular pay

If worked need not pay a premium

Companies have policies for Paid time off

Bonuses Incentive payments

to increase productivity

Supplemental wages 25%

Commission, bonus May be considered in

regular rate of pay calculation

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FLSAOvertime Defined

FLSA requires nonexempt ees to be paid 1 ½ times regular rate of pay for hours worked over 40 in a workweek.

Worked hours: Required work hours Permitted work hours Waiting to work hours- On call Traveling hours

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Overtime pay Special note

Overtime pay is for hours “worked” that exceed 40 in a workweek

Calculation is 50% of hourly wage = premium overtime rate

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Test Your Knowledge

A biweekly employee works the following hours. What hours must be paid as OT under FLSA?

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Sun Mon Tue Wed Thu Fri Sat

0 8 8 10 8 8 4

0 8-Sick

8-Sick

8 10 10 10

ANSWER:Week 1: 40 Regular and 6 OT = 46Week 2: 54 Regular and 0 OT = 54Only hours subject to OT under FLSA are the 6 hours in Week 1

Overtime Defined

Workweek- fixed recurring 168 consecutive hours – (7 X 24)

Companies may have multiple workweek frequencies.. But all are based on a “workweek” and are considered as such for OT.

Paid on the next payroll processed

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Overtime definedWorkweek Exception

Fluctuating workweek Varied schedule that cannot be anticipated

Hospital-Healthcare- 8/80 Rule 14 Consecutive 24 Hours Periods OT Calculated on 14 Day Period not 7 Day

Period Public safety employees

Firefighters -212 hrs/ 28 days Law enforcement 171 hrs/ 28 days See chart for reference

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Overlapping WorkweekChanging Workweeks Steps to be taken when changing

workweeks and calculating overtime (Example Page 1-25) Add overlapping days to old week & calculate

OT hours & pay for both the old and new workweek

Add overlapping day to the new week & calculate OT hours & pay for both old and new workweek

Pay the employee the greater amount from step 1 or Step 2

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Calculating Overtime Payments

Regular rate of pay:

Pay for all hrs worked less exceptions divided by all hrs worked

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Regular Rate Includes Base pay for hrs

worked Nondiscretionary

bonuses FMV of noncash

items Shift premiums

Production bonuses

Cost of living adjustments

Retroactive pay All payments not

excluded by law

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Regular rate excludes Reimbursed

expenses Overtime in

excess of FLSA requirement

Employer benefit plan contributions

Vacation, Holiday, Sick pay for un-worked hours

Special Occasion gifts

Discretionary bonuses

Stock options

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Bonuses

Nondiscretionary- contractual agreement for pay based on established performance goal Allocated for allotted period accordingly

Discretionary- incentive, not contractual Not considered in reg rate calculation -

supplemental income.

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Regular rateExcess of requirement

Company policy for weekends, holidays, special work incentives

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Regular Rate of Pay

Noncash Payments Fair market value of an item or service

Benefit Contributions Payment by ER to retirement/insurance

Retroactive pay Prorated and included in calculation of new

regular rate of pay

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Calculating OvertimeNeed to Know !!!

Nonexempt hourly1. Total pay for workweek – exclusions= regular

pay2. Regular pay/hrs worked=regular rate of pay3. Regular rate of pay x .5 = Overtime premium

rate4. Overtime premium rate X hrs of overtime=

premium pay for OT5. Total pay for workweek + premium pay for

overtime= total weekly compensation

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Test Your Knowledge A biweekly employee who is paid $10/hr works the following

hours in a pay period. What must the employee be paid under FLSA?

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Sun Mon Tue Wed Thu Fri Sat

0 8 8 10 8 8 4

0 8-Sick

8-Sick

8 10 10 10

ANSWER:Week 1: 40 Regular and 6 OT = 46 x 10.00 = 460.00Week 2: 54 Regular and 0 OT = 54 x 10.00 = 540.00 100 $1,0001.$1,000 - $160 = $840 = Regular Pay2.$840 / 84 hours = $10 = Regular Rate of Pay3.$10 x .5 = $5.00 = Overtime Premium4.$5.00 x 6 hours = $305.$1,000 + $30 = $1,030 must be paid under FLSA

Calculating OvertimeNeed to Know !!!

Pieceworkers1. Rate per piece x amount= regular pay2. Regular pay / hours= regular rate 3. Regular rate x .50 = OT premium rate4. OT premium rate x hrs over 40 = premium

OT5. Regular pay + premium OT = compensation

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Test Your Knowledge A weekly garment employee is paid various rates for the number of

garment pieces they create in a day. Over 500 pieces in a week they are paid a production bonus. What must the employee be paid under FLSA?

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Day Hours Pieces Rate Total Pay

Mon 10 152 .65 98.80

Tue 8 112 .98 109.76

Wed 4 68 .65 44.20

Thu 12 123 .82 100.86

Fri 8 103 .98 100.94

Sat 4 75 1.15 86.25

Prod Bonus 0 125.00 125.00

Wkly Totals

46 633 665.81

Test Your Knowledge

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ANSWER:

1.$540.81 + $125 = $665.81 = Regular Pay2.$665.81 / 46 hours = $14.47 = Regular Rate of Pay3.$14.47 x .5 = $7.24 = Overtime Premium4.$7.24 x 6 hours = $43.445.$665.81 + $43.44= $709.25 must be paid under FLSA

Calculating OvertimeNeed to Know !!!

Salaried Nonexempt Employees- Fixed Workweek

1. Salary x frequency= annual /52 weeks= regular pay

2. Regular pay/ 40 hrs = regular rate of pay3. Regular rate x 1.5 = OT premium rate4. OT premium rate x hrs over 40= premium

OT pay5. Regular pay + Premium OT pay =

compensation 47

Pay frequency

Weekly = 52 Biweekly= 26 Semimonthly =24 Monthly = 12

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Test Your Knowledge A non-exempt accounting clerk is paid $2,816.67 a month.

Calculate the employee’s weekly compensation under FLSA. They worked 50 hours last week. The clerk’s boss gave the clerk an extra $100 for volunteering to help a co-worker meet a project deadline.

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Sun Mon Tue Wed Thu Fri Sat

0 8 10 10 10 8 4

ANSWER:1. $2,816.67 x 12 months = $33,800 / 52 weeks = $650/week2. $650/40 hours = $16.25 Regular Rate of Pay3. $16.25 x 1.5 = $24.38 = Overtime Premium Rate4. $24.38 x 10 hours = $243.805. $650 + $243.80 + $100 = $993.80 Total Weekly Compensation

Defining Time Worked

Portal to Portal Act of 1947 —beginning and ending are based on when the principle activities cease.

Call back and show–up pay —case by case basis – if additional work after end of day—show up and no work. ..

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Defining Time Worked Cont…

Waiting to work- no personal activity- engaged to work –includable hours

On call – not on premises- not includable in hour calculation

Preparing to work- individual desk arrangement, sign on. . . Not included

State laws may vary--51

Defining Time Worked Cont…

Travel time Home to work– not compensable Home to work in different locale-

compensable-(may exclude usual travel time)

Travel as part of daily duty- compensable Travel away – must be overnight

paid if during work hours not paid if passenger and not during work

hours

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Defining Time Worked Cont…

Seminars/ Meetings Employer not obligated to

compensate employee if all four conditions apply:

1. Attendance outside normal work hours2. Attendance is voluntary3. Not directly job related4. No productive work performed

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Remedial Education

Company may employ a worker for an additional 10 hours for reading and GED skills. . That will not affect the overtime premium rate.

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Record Keeping & Systems

Major Payroll Tasks Compliance- Federal, State & Local

regulations Timely & accurate paychecks Periodic reporting Record retention Control & Security

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Masterfile

Employee data Name Address Sex Birth Date Social Security Number Occupation State where services are rendered

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Masterfile

Employment Data

Hire date Termination date Payment date Basis/ Hourly rate if

pay Additions/deductions Frequency of

payment

Hrs. worked/day Hrs. worked/week Workweek Straight time hrs/pay OT hrs/ pay Shift bonus

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Masterfile

Tax & Payroll Data Allowances claimed Marital Status

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Masterfile

Data for period and calendar year Total wages subject to FIT,SIT & local tax Total wages subject to SS & Medicare

tax Total FIT withheld Total SS withheld Total Medicare withheld Tax paid by ER but not deducted from

wages59

Masterfile Maintained in many formats

Legible, retrievable Microfiche, microfilm, hard copy, CD, diskette

Update and balance frequently Ensures good audits

Internal & External from DOL

Combined Database- HR/ Payroll –deferrals, affirmative action

plans

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Record Retention 4 years = 3 Types

Tax Records IRS/ SSA/ FUT 3 years = 3 Types

FLSA/IRCA /FMLA 5 years = Think work

OSHA 2 years = Think additional

Supplemental records

Review and learn chart; Also pages 1-44 to 1-45!

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Safeguard- Retention

Protection against lawsuits and audits

Maintain consistency Abide by Federal and State

requirements Develop concise policy

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The “W” Forms

W4- Federal Employee Withholding Allowance Certificate When hired, life changes Default is Single and 0 exemptions Notification by December 1-DOL poster Invalid-alterations, flat dollar, percentage Exempt status-filed annually, dependent,

earns less than tax exemption (chart) No IRS notification unless requested Retain for 4 yrs from last 1040 filing or 1 yr

from termination63

The “W” Forms

W4P- Withholding Certificate for Pension or Annuity Payments

Default is Married w/ 3 exemptions Additional amount allowed

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The “W” Forms

W4S- Request for Federal Income Tax Withholding from Sick Pay 3rd Party wage payment for illness or

injury that is non-job related Minimum withholding $20 per week Must be adjusted to net $10

Many states require tax withholding

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The “W” Forms

W5- Advance Earned Income Credit Reduction in taxes paid per pay period

Filled out annually –Expires 12-31-XX Wage Limits:

Single/HOH- $35,463 Married/Jointly- $38,583 Maximum reduction $1,826

Must notify employees in writing of AEIC Easiest- back of W2 form Own statement with wording from Notice

79766

Child Labor

Age guidelines for Minors Under 14 - only on family farm Minors 14 & 15 –

While school is in session 3 hrs a day or 18 hrs a week Between 7a.m. and 7 p.m.

School not in session Maximum 8 hrs a day / 40 hrs a week Between 7 a.m. and 7 p.m.

May not be in hazardous job as defined by DOL Retail, Food Service, Gasoline Service

Establishments Entertainment and newspaper carries exempt

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Child Labor

Minors 16 & 17 Only limited by hazardous job

stature Child Labor Laws violations fined

up to $11,000 per violation $50,000 for violations resulting in

injury or death of a minor

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Family and Medical Leave Act (FMLA) Guarantees employees up to 12 weeks of

unpaid leave within a 12 month period Newborn, newly adopted, or foster child Child, Spouse or Parent serious medical

conditions of family members Employee with a serious medical

condition Military member or active or pending duty Eligible employees up to total 26 weeks in

single 12 month period

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Family and Medical Leave Act (FMLA)

Eligibility Applies to all public and private companies with

50 or more employees Must be employed by the employer for at least

12 months (does not have to be consecutive months)

Worked at least 1,250 hours within the previous 12 months Exempt employees deemed to have met

hours criteria unless can be proven otherwise

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Practice – Practice- Practice

Chapter 1 holds the foundation to success. . .Calculations!

Learn the formulas and practice over and over.

Remember Autographs ??2 Good2 Be----------4 gotten

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