Paying The Employee CPP Review Course February 21, 2015 Presented by: Heather Williams FPC, CPP.

Paying The EmployeeCPP Review Course

February 21, 2015

Presented by:Heather Williams FPC, CPP

Chapter 5-- Objectives• Pay Frequency• Payment on Termination• Payment Methods

Cash or Check

Direct Deposit (EFT)

Electronic Paycards– Branded vs. Non-branded

• Pay Statements for Employees• Unclaimed Paychecks (Escheatment)• Wages owed to Deceased Employees• Extra Paydays (53rd pay period)

KEY NOTE: CPP Certification Test is based on Federal Laws ONLY

Chapter Five is a great resource for State Requirements and Rules regarding Employee Payment.

• State Pay Frequency Requirements 5.2 - 5.5• State Payment Requirements upon Termination 5.6 - 5.8• State Rules on Direct Deposit 5.14 - 5.16• State Paycard Compliance Issues 5.18 - 5.23• State Pay Stub Information 5.26 - 5.28• State Rules on Unclaimed Wages (Escheatment) 5.29 - 5.30• State Requirements governing wages to deceased

employees 5.31 – 5.34

Payroll Frequency & Payment on Termination

Chapter 5- Paying the Employee

Testing Your Knowledge

• What law governs how often and how soon employers must pay their employees after service is performed ?

• What does the FLSA regulate?

Payment MethodsChapter 5- Paying the Employee

Payment Methods

• Cash• Check• Direct Deposit ( Electronic Funds Transfer)• PayCards

My Money!Cash or Check

• All 50 states and the District of Columbia allow payment by cash or check and don’t have laws that regulate either payment option

Although states differ in regulation, they require that employees are able to cash their pay check or negotiable instrument:

1. For face value

2. Without additional fees enforced for cashing

3. Most states require that financial institution be in the state where employees work or conveniently located for employees

Direct Deposit (EFT)Chapter 5 – Paying the Employee

Direct Deposit (EFT)Most popular way of paying employees – 74%

Safe and Secure

First on the scene – distribution of Social Security Benefits

Eliminates many problems concerning:

• Lost or stolen checks• Unclaimed or uncashed checks (Escheatment)• Storage of documents(cashed checks, etc.)• Check Cashing Procedures

Direct Deposit (EFT)

Federal and state governments share regulatory responsibility

• NACHA– National Automated Clearing House Association• ACH– Automated Clearing House• State Law Regulations

The Electronic Payments Association (NACHA) issued International ACH Transaction (IAT) operating rules and formats that became effective on September 18, 2009. They comply with the Office of Foreign Assets Control (OFAC)

Direct Deposit ProcessDirect Deposit: automatic deposit of an employees pay into his/her desired checking and/or savings account

Employer prepares file and send to Originating Depository Financial Institution - (ODFI)

The ODFI verifies the file and processes it through the Automated Clearing House - (ACH)

ACH Operators delivers files to the Receiving Depository Financial Institution - (RDFI)

The Direct Deposit ProcessEmployer ODFI ACH RDFI

Special Note: Under ACH Operating Rules, employee authorization for Direct Deposit does not have to be in writing. However, many states require written authorization.

Information needed for Direct Deposit Authorization

1. Name and Routing Number of EE’s desired financial institution

2. Type of account (checking and/or savings)

3. Account Number

Direct Deposit Reversal/Pre-notification

Single Entry Reversal

• Amount of reversal must match the exact amount of credit

• Must be reversed within 5 days of the original entry

• Employee authorization not necessary

Pre-notification• Optional , but is used must be sent atleast 6 days

before the actual direct deposit is sent.

Direct Deposit FYI

There’s no specific time stated in the 2014 Payroll Source. Banks make funds available at various times.

Funds usually posted by 9:00 am on pay date. If not posted by 12 Noon;• Verify both routing and account numbers• Check RDFI posting schedule

Regardless of reason for delay – employer must make sure employee is compensated at employer’s expense …sooner rather than later via voucher verification.

Direct Deposit Employee Advantages / Disadvantages

Advantages• Immediate availability of

funds on payday• No bank interaction • No delay in constructive

receipt of pay

Disadvantages• No Bank account

establishment• Comfort level in payment

Direct Deposit Employer Advantages / Disadvantages

Advantages• No lost or stolen checks• Reduction in paper flow• Cost effective• Ease for reconciliation• Reduction in

escheatment

Disadvantages • Not truly “Green”• Loss of float• Additional processing

fees• Challenges for stopping

and reversals

Pay CardsChapter 5- Paying the Employee

Paycards

• Paycards are similar to debit cards

• Prefunded, host based cards providing employees access to their net pay via a bank, ATM (Automatic Teller Machine) or POS (Point of Sale) purchase.

• Employer funds the same way as direct deposit

• Process subject to the same NACHA rules

Paycard Program

• Program offered by many different vendors. Variables to be aware of:

1. Features

2. Benefits

3. Costs

• Understand the difference between branded vs. non- branded

Branded vs. Non-Branded

Branded• VISA/ MC/ Discover

Logo• Employee signature only• ATM – 4 digit PIN

required• Personalized • Parental approval for

employees under age 18

Non-Branded• More secure to use than

Branded • ATM or POS Logo (Star,

Pulse, NYCE)• PIN required for ALL

transactions• Host computer

authorizes funds transactions. Prevents negative authorizations.

Employee & Employer Benefits

Employee• Reduced costs – no check

cashing fees• Increased independence• Improved credit status• Financial safety• Ease of use • Protected from loss• ATM access always –no

limitations(time or place)

Employer• Reduced costs • Enhanced efficiency• All employees eligible• Increases employee

productivity time• Escheatment reduction

Pay Stub/Pay Statement

Determined by State

Must include, but not limited to:

1. Earnings Information

2. Hours Worked Information

3. Tax Withholding Information

4. Other Deductions Information

EscheatmentEscheatment – State Law governing unclaimed, abandoned wages (property)

• State Regulated• Unclaimed wages usually become abandoned after

one year • Employer does its best to contact ex-employee to avoid

abandonment • Non-successful contact = abandoned to the state

• Better Business Practice - suggest direct deposit and/or paycards as options

Wages Owed To Deceased Employees

State Law regulates wages - Who, How, What

• Who – Who the wages may be paid to• How – How much may be paid before it’s paid • What – What conditions must be met before payment

is made

Federal Law regulates wages taxes

Year of death = W2 and perhaps 1099M

Year after death = 1099M

AP Check Payment = Gross minus FICA

The 53rd Pay PeriodOne day of the week will occur 53 times in a year

2014 = Wednesday

• Pay Reductions may cause problems

Hourly employees must be paid all wages

Salaried employees can be adjusted

Verify contracts if need be

• Planning is Key

Heather Williams FPC, [email protected]

Thank You!