Involuntary Deductions Employer and employee have no control over the deduction Employer is required by law to deduct amounts from the employee’s check and remit those funds to satisfy the employee’s debt.
Priority of Multiple Orders Bankruptcy Order (except Child Support Order) Child Support Order prior to Federal Levy Federal Tax Levy Child Support Administrative Wage Assignment (AWG) including government ordered student loans of 15% State Tax Levy Student Loan (state ordered 10%) Creditor Garnishment Voluntary Deduction
Tax Levy Used to collect unpaid taxes after all other means have been exhausted by a state or federal agency. Take precedence over all other garnishments except for child support orders already in effect and bankruptcy. If more than one tax levy, then first come first served.
Form 668-W Notice of Levy on Wages, Salary, and Other Income Has 6 parts Part 1 is the employer’s copy Parts 2-5 send to the employee (Parts 3-4 should be returned to Employer in 3 days) Part 6 is for the IRS If forms are not returned then the employee should be treated as married filing separately with one exemption.
Figuring the amount to deduct and remit for levy Wages exempt from levy Unemployment compensation benefits* Worker’s compensation benefits* Annuity and pension payments under the Railroad Retirement Tax Act * Certain armed service-connected disability payments Certain public assistance payments * Amounts ordered withheld under a previously issued court order for child support Note: * can now be attached for 15%
Levy Take Home Pay Gross Earnings less: 1.Taxes 2.Deductions (voluntary or involuntary) in place before levy is received 3.Increases in deductions beyond the employees control (medical premiums) 4.Deductions added after a levy is received that are a condition of employment (union dues)
When to make payments /Stop Withholding 668-W says pay same day Penalties – full amount to be withheld plus interest, and penalty of 50% of the amount recoverable by the IRS Form 668-D – Release of Levy / Release of property from Levy Notify IRS when EE terms
Child Support Wage withholdings become automatic if non- custodial parent is late one month in paying support Joint Federal/State responsibility for enforcement Withholding laws are based on the Consumer Credit Protection Act (CCPA) Take precedence over all other garnishments except for levies that are already in effect and bankruptcy court orders that include child support obligations. (p. 9-11)
Order/Notice to Withhold Income for Child Support Standard form (see 9-16 & 9-17) Some information varies by state One centralized disbursement unit per state Employer allowed to withhold an administrative fee in most work states Must withhold for employee and independent contractors
CCPA Limits 50% if employee is not in arrears and is supporting another family 55% if employee is in arrears by 12 weeks and is supporting another family 60% if the employee is not in arrears and is not supporting another family 65% if the employee is in arrears by 12 weeks and is not supporting another family
Uniform Interstate Family Support Act (UIFSA) (p. 9-15) Must honor orders from other states that are “regular on its face” Duration and amount of periodic payments Person or agency who will receive payments Medical support (40 business days to state if employee has a plan) Amount of payment fees and costs for the enforcement agency Amount of arrears payments and interest
Multiple Orders Follow the laws in the state where the employee works Most states require child support to be fulfilled before medical insurance premiums are paid. 1.Pro-rate 2.Equal funds 3.1st come 1st served (Montana only)
Child Support Continued… Employee attempt to avoid withholding Handling child support for employees serving in the military Employers must withhold from independent contractors. Medical child support orders (9-28 – 9-29)
Creditor Garnishments CCPA limits Garnishments cannot exceed the lesser of: –25% of disposable earnings; or –Amount that the employees disposable earnings for the week exceed 30 times the federal minimum wage. Prohibited from terminating an employee because the employee’s “earnings have been subject to garnishment for any one indebtedness” One creditor garnishment at a time
Bankruptcy Orders Employer must stop withholding on any other garnishments against the employee (if included in the bankruptcy) Chapter XIII bankruptcy orders take priority over levies 2005 Act and child support
Student Loans To repay a loan granted under the Federal Family Education Loan Program Max amounts –The lesser of 15% disposable earnings –Or the excess of the employee’s disposable earnings over 30 times the federal hourly minimum wage – –Multiple student loans the max increased to CCPA limit of 25% of disposable earnings. If terminated and rehired within 12 months, student loan withholding can start 12 months after rehire date.
Federal Agency Debt Collection aka Administrative Wage Garnishments (AWG) For payment of government, non-tax debts (FHA, VHA, HUD) If employee involuntarily terminates and is re-employed, deduction can start after 12 months of re-employment Max amounts –The lesser of 15% disposable earnings –Or the excess of the employee’s disposable earnings over 30 times the federal hourly minimum wage –
Voluntary Deductions Wage Assignments –Voluntary agreement to a deduction –Not covered under the CCPA –Employer can decide to honor or not Union Dues –In addition to mandatory dues –Need a written signed authorization –Can not be revoked for 1 year
More About Deductions Charitable Contributions $250 threshold for substantiation (single check) Substantiate contributions by providing the following: –Pay stub, W2, a pledge card from the charity FLSA Can my net pay fall below minimum wage?
Resources Payroll Source Family Support Registry National Web Site Actual Support Orders State Tax Levy
Recordkeeping and Retention FLSA IRC Title VII IRCA FMLA State
FLSA…….Required by DOL 2 years from last date of entry Basic employment and earnings records 2 years from last effective date wage rate tables and piece rate schedules, work time schedules establishing hours and days of employment
FLSA…….Required by DOL 3 years from last date of entry –SS Card Name – home address – date of birth < 19 – gender and occupation – workweek begin – regular rate of pay for each week – hours worked – earnings (regular & OT) – additions to and deductions from pay – total wages paid – date of payment & pay period covered. 3 years from last effective date –collective bargaining agreements – certificates – records showing total sales volume and goods purchased
FLSA…….Required by DOL White Collar/Exempt Employees Hospital Employees Tipped Employees
IRC – TAX 4 years after the due date of the tax, or 4 years after the date the tax is actually paid if later Maintenance of Records Penalties for non-compliance Penalties for Faulty Recordkeeping IRS Goal: make it easy for IRS to calculate the correct tax liability
Title VII of the Civil Rights Act ADEA – Age Discrimination in Employment 3 years for employee records 1 year for applicant records IRCA – Immigration Reform and Control Act I9 – Know this one! 72 hours: time available to produce records for inspection by DOL or EEOC
FMLA Records in addition to Master Control Items Exception for Exempt Employees Medical Records – CONFIDENTIAL Record format is flexible
State Taxes, Orders and Escheat Wage & Hour: MI 3 yrs, Federal 4 yrs Child Support/Wage Attachments: Preserve for 3 yrs after last withholding from employees wages IRS Levies: 4 yrs from last withholding or until any related legal action is concluded Escheat: MI 10 yrs
Retention and Storage Obtainable Readable Easy to calculate liability No law dictating form of retention and storage Retrieval and Destruction Have a clear, written policy and implement it
MISC Important Information Direct Deposits: no retention requirements after Direct Deposit is discontinued Master File – Table 10.4 (pg 10-17) Records needed from new employees: I9 and W4
Cheat Sheet Data ADA = 1 year (1 st letter in the alphabet) Time Sheets = 2 years (2 letters) HR = 3 years (2 letters + 1) TAX = 4 years (3 letters +1) OSHA = 5 years (4 letters + 1)