Payroll Accounting 2011 Bernard J. Bieg and Judith A. Toland

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Payroll Accounting 2011Bernard J. Bieg and
Judith A. Toland
CHAPTER 5 CHAPTER 1
THE NEED FOR PAYROLL PERSONNEL RECORDS
Developed by Lisa Swallow, CPA CMA MS
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Learning Objectives

• Identify various laws that affect employers in
  their payroll operations
• Examine the recordkeeping requirements of these
  laws
• Describe employment procedures generally followed
  in a Human Resources Department
• Recognize the various personnel records used by
  businesses and know the type of information shown
  on each form
• Identify the payroll register and the employees
  earnings record

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Payroll Profession

• Positions within payroll profession range from
  payroll clerk to senior payroll manager
• Job responsibilities increasing average
  entry-level salary is 33,409
• Need to keep current
• Professional membership American Payroll
  Association (APA)
• Code of Ethics sets direction for profession

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

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Fair Labor Standards Act (FLSA)

• 0

• 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
• Covered in greater detail in Chapter 2

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Federal Insurance Contributions Act (FICA)
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• 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 is cost-of-living indexed
• HI (Health Insurance Plan - Medicare)
• 1.45 with no cap
• Covered in greater detail in Chapter 3

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Income Tax Withholding Laws
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• 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
• Covered in greater detail in Chapter 4

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Unemployment Tax Acts
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• 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 is
  different
• SSA outlines standards that each states
  unemployment compensation law must follow
• Used to pay unemployment benefits
• Covered in greater detail in Chapter 5

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Fair Employment Laws
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• Title VII of the Civil Rights Act of 1964
• EEO (Equal Employment Opportunity)
• Cant discriminate in hiring, firing, promoting
  or compensating based on
• Color, race, religion, national origin or gender
• Applies to all ERs who engage in an industry
  affecting commerce and employ 15 or more workers
  in each of 20 or more weeks
• See http//www.eeoc.gov/ for more information

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Age Discrimination in Employment Act (ADEA)
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• 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

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Americans with Disabilities Act (ADA)
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• 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

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Federal Personal Responsibility Work
Opportunity Reconciliation Act
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• Requires employers to report information on all
  new hires within 20 days to state agency
• Includes name, address and social security number
  (submitting copy of W-4 suffices in many states)
• 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

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Immigration Reform and Control Act (IRCA)
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• Law that bars hiring and retaining aliens
  unauthorized to work in U.S.
• Accomplished by employee completing I-9
  (Employment Eligibility Verification) 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
• E-Verify is a system that allows ERs to check
  employment eligibility of new hires

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

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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
• Doesnt apply if dishonorably discharged

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Employee Retirement Income Security Act (ERISA)
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• Trustees must monitor pension plans
• Vested 100 in 3-6 years
• Example of a vesting plan

Years of Vested in Service Pension Plan 2
50 4 75 5 100

• Provides for Pension Benefit Guaranty
  Corporation
• A federal agency which guarantees benefits to EE
• Stringent recordkeeping required

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Current Legislation

• Hiring Incentives to Restore Employment Act
  (HIRE) 3/18/10
• Gives ER tax credits if pay wages to previously
  unemployed new hire
• Health Care and Education Reconciliation Act
  (HCERA) 3/30/10
• Most provisions effective 2014
• Immediately ER must include cost of ER-provided
  health coverage on EEs Form W-2
• Patient Protection Affordable Care Act
  3/23/10
• Offers tax credit to small ERs who offer health
  insurance to EEs

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State Laws
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• 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!

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Human Resource System
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• FLSA requires stringent personnel recordkeeping
  embodied in the Human Resource (HR) System
• Requisition for Personnel notifies HR of need for
  new employees
• Application for Employment completed by person
  seeking 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

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Human Resource System
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• Reference Inquiry conducted before employment
• 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 EE
• Employee History Record contains performance
  evaluations, compensation adjustments,
  disciplinary issues, etc.
• Critical area employment related litigation is
  very expensive
• and often times avoidable

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Payroll Accounting System
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• All procedures and methods related to
  disbursement of pay to EEs documentation may
  include
• Payroll Register compiles data per paycheck
• EE Earnings Record outlines earnings per period,
  quarter-to-date and year-to-date for each
  employee
• Paycheck written or direct deposit made
• Outsourcing Payroll
• Many small- to mid-sized businesses hire a
  payroll company to do their processing
• An independent company responsible for compliance