Payroll Accounting 2010 Bernard J. Bieg and Judith A. Toland CHAPTER 1 THE NEED FOR PAYROLL & PERSONNEL RECORDS Developed by Lisa Swallow, CPA CMA MS CHAPTER 1 CHAPTER 5 CHAPTER 1

Payroll Profession  Positions within payroll profession  Range from payroll clerk to senior payroll manager  Professional membership – American Payroll Association (APA)  Certified Payroll Professional exam  Code of Ethics sets direction for profession

Many Laws Affect Payroll  Fair Labor Standards Act (FLSA) of 1938  State minimum wage and maximum hour laws  Federal Insurance Contribution Act (FICA)  Income tax withholding laws  Federal, state and local  Unemployment tax acts  Fair employment laws  Other federal and state laws

Fair Labor Standards Act  Federal Wage & Hour Law of 1938  Minimum wage is $7.25/hour  Equal pay for equal work provisions  Sets law for companies involved  In interstate commerce or  In production of goods/services for interstate commerce  Requires payroll records be maintained

Federal Insurance Contributions Act (FICA)  Comprised of two taxes  Both taxes paid by ER (employer) and (EE) employee  OASDI (Old Age, Survivors & Disability Insurance)  6.2% with a cap that changes each year  Both employees and employers pay  HI (Health Insurance Plan - Medicare)  1.45% with no cap  Both employees and employers pay

Income Tax Withholding Laws  Federal income tax  Levied on earnings of employees  Income tax is withheld from paychecks  State and local income tax  Income tax is withheld from paychecks  Different in each state  Not all states have state income tax

Unemployment Tax Acts  FUTA (Federal Unemployment Tax Act)  ER tax – paid on $7,000 per EE per year  Taxes used to pay state and federal administrative expenses, not used to pay unemployment benefits  SUTA (State Unemployment Tax Act)  Mandatory unemployment insurance – each state has different laws  SSA outlines standards that each state’s unemployment compensation law must follow  Used to pay unemployment benefits

Fair Employment Laws  Title VII of the Civil Rights Act of 1964  EEO (Equal Employment Opportunity)  Can’t discriminate in hiring, firing, promoting or compensating based on  color  race  religion  national origin  gender  Gender orientation added in certain states See for more information

Age Discrimination in Employment Act (ADEA)  ADEA states employers cannot use age to discriminate in hiring, firing or promoting  Applies to employers with 20 or more employees  Provides protection to workers over 40  With a few key exceptions

Americans with Disabilities Act (ADA)  Prevents employers with 15 or more employees from discriminating against qualified persons based upon disability  “Reasonable accommodation” must be provided  This is a very vague term and subject to court interpretation.

Personal Responsibility & Work Opportunity Reconciliation Act  Requires employers to report information on all new hires within 20 days to state agency  Includes name, address and social security number  Records coordinated through Office of Child Support Enforcement (OCSE)  Fines up to $25/hire levied for failure to report  A few states now require same from independent contractors

Immigration Reform and Control Act (IRCA)  Law that bars hiring and retaining aliens unauthorized to work in U.S.  Accomplished by employee completing I-9 within three business days of employment  U.S. Citizenship & Immigration Services may audit and levy penalties  Criminal penalties can apply if pattern of discriminatory practices found

Family Medical Leave Act (FMLA)  Covers companies with 50 or more employees within 75 mile radius  Employee guaranteed 12 weeks unpaid leave for  Birth, adoption, critical care  Can use for child, spouse or parent  Leave may be used all at once or at separate times – must be within 12 months of qualifying event  Employer continues health care coverage  Right to return to same job or comparable position  In 2008, expansion of FMLA to include up to 12 weeks when family member is on active duty or up to 26 weeks for line of duty injury/illness

Uniformed Services Employment & Reemployment Rights Act  Military personnel given right to take leaves of absences from civilian jobs  Right to return to prior jobs with seniority intact  Health benefits must be started without a waiting period  Doesn’t apply if dishonorably discharged

Employee Retirement Income Security Act (ERISA)  Trustees must monitor pension plans  Vested 100% in 3-6 years  Example of a vesting plan Years of % Vested in ServicePension Plan 250% 475% 5100%  Provides for PBGC  PBGC (Pension Benefit Guaranty Corporation) is a federal agency which guarantees benefits to employees  Stringent recordkeeping required

State Laws  Workers’ Compensation  Most states require employers to pay employees’ premiums  Can self insure if state approved  Different premiums based upon job class  State Disability Benefit Laws  Five states plus Puerto Rico have established laws requiring employers to provide disability benefits  This applies even if the disability did not arise due to employment!

Human Resource System  FLSA requires stringent personnel record-keeping  Application for Employment  No law prohibiting questions about religion, gender, race, age or national origin - but must tie into ability to perform job (for example, bilingual capabilities )  If application asks age/birth date, should contain ADEA language notifying candidate of anti-discriminatory provisions

Human Resource System (continued)  Reference Inquiry  Due to amount of litigation in this area, respondents should only verify facts and not offer subjective information  Really diminishes credibility of reference inquiries  Prospective employer may require applicant to sign Employment Reference Release  Must notify employee if seeking investigative consumer report  Hiring notice alerts payroll department to new employee  Employee history record contains performance evaluations, compensation adjustments, disciplinary issues, etc. Critical area – employment related litigation is very expensive and often times avoidable

Payroll Accounting System  Payroll Department documentation  Change in payroll rate form notifies proper departments of rate change  Payroll Register compiles data per paycheck  EE Earnings Record outlines earnings per period, quarter-to- date and year-to-date for each employee  Paycheck  Paycheck or direct deposit  Outsourcing Payroll  Many small- to mid-sized businesses hire a payroll company to do their processing  An independent company responsible for compliance