Fundamental Payroll Certification 2009 Payroll Fundamentals Chapter 1
Jan 18, 2016
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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