by Stephen Miller from shrm.org

The Bush-era tax cuts are set to expire at the close of 2010. While Congress could pass a partial or full extension before year-end 2010, U.S. employers must adjust their payroll deduction systems for 2011 well before the end of 2010. That could mean setting their payroll systems to anticipate no extension; then if Congress acts, they would need to readjust these systems again in 2011.

Setting payroll systems to reflect the higher tax rates that were in effect a decade ago will mean more money being withheld from workers’ paychecks, according to CCH, a provider of employment and payroll law information and software. And that will present a communications challenge for employers.

Change, and Change Again

“The tax cuts—now known as the ‘Bush tax cuts’—were signed on June 7, 2001,” noted John W. Strzelecki, senior payroll analyst at CCH, which is part of Wolters Kluwer Law & Business. “The IRS then issued new withholding tables, effective July 1, 2001, that incorporated the new tax cuts. In addition, the new tables took into account the fact that too much money was taken from paychecks that were issued in the first half of the year.”

Strzelecki foresees a similar pattern this time, with the Internal Revenue Service (IRS) issuing tax withholding tables for 2011 in November 2010 and subsequently issuing revised tables if Congress extends the Bush-era tax rates. “If the tax cuts are passed and signed, the IRS will revise the withholding tables with an effective date that allows just enough time for the payroll industry to implement the changes, just as in June 2001,” Strzelecki said. “The tables will take into account the fact that too much money was withheld from the paychecks that were issued prior to the tax cuts, also just like in 2001,” he explained.

“What it all boils down to is workers will see less take-home pay beginning in 2011 and more take-home pay later in the year, just as we saw in 2001,” said Strzelecki.

For employers, this highlights the importance of keeping employees informed of why their tax withholding will be higher, at least initially—even if Congress should act before the end of 2010.

More Information at shrm.org article

by BHZ

Payroll legal obligations can put companies and managers at great risk in many ways. If you have anything to do with employee payroll and related matters, be aware of the following 11 mistakes and corresponding penalties.

Mistake #1: Failing to deposit withheld income taxes, Social Security and Medicare contributions, and employer matching amounts on time. The government wants its money by strict deadlines. Penalties accrue quickly if your business or organization misses deposit deadlines.

The penalty for not making deposits on time is:

• 1 to 5 days late, 2 percent of amounts due.
• 6 to 15 days late, 5 percent.
• 16 or more days, 10 percent.
• 15 percent if notice from the IRS is ignored, plus interest on the amount not deposited, plus 100 percent of the uncollected amounts if the failure to deposit is willful.

Note this grave, personal danger: These penalties can be levied personally against all responsible individuals in a business or organization. The corporate veil is no shield in these situations. Any individual with a responsibility for getting the money to the government on time faces possible exposure to penalties and fines.

Mistake #2: Under-withholding and failing to match required amounts.

The employer’s obligation is to withhold income tax, Social Security, and Medicare contributions from employees’ pay, as well as match the Social Security and Medicare contributions. Failure to do so subjects the employer to late deposit penalties of up to 15 percent of the under-withheld and under-deposited amounts. If the IRS deems the under-reporting or under-depositing willful, the penalties can be up to 100 percent of the uncollected amounts.

As with failing to make deposits in a timely manner, under-withholding and failing to match amounts creates a personal risk to individuals with a responsibility for getting the correct sums of money to the government on time.

Mistake #3: Failing to pay — or under-paying — state and federal unemployment taxes. The greatest portion of unemployment insurance (UI) taxes is levied by the state. And state-levied penalties vary. Since state UI funds are being exhausted in this period of high unemployment, states are aggressive in collection efforts.

Mistake #4: Failing to process wage garnishments correctly. Federal and state laws obligate employers to accurately withhold from employee pay, and remit, court-ordered garnishments, levies, and child support.

Violating these laws can result in penalties, depending on state laws. Also, federal law limits the amount of earnings that can be garnished, and protects employees from being terminated from their jobs because of a first-time garnishment. A violation can mean reinstatement of a discharged employee, payment of back wages, and restoration of improperly garnished amounts. Employers who willfully violate the discharge provisions of the law can be prosecuted criminally and fined up to $1,000, imprisoned for not more than one year – or both.

Mistake #5: Making unauthorized deductions from an employee’s pay. Employers can legally deduct from an employee’s pay only amounts authorized or required by law (such as tax withholding), by court order (such as garnishments), and amounts authorized by the employee (such as the employee’s share of health insurance).

What are unauthorized deductions? State laws vary and it can be tricky. In addition, federal wage and hour law requires payment of agreed upon and earned wages (with the allowed deductions listed above.)

Do you ever feel compelled to dock an employee’s pay if he or she breaks or damages company products or equipment? Check first with your attorney to see if this is permitted by your state law — even with the employee’s permission

Mistake #6: Treating some workers as independent contractors when they’re not. Misclassifying employees as independent contractors exposes employers to substantial legal costs and penalties.

In an effort to increase collections, the IRS and state agencies have ramped up investigations of misclassified employees. When a misclassification is discovered, the employer becomes obligated for unreported and undeposited withholding taxes, Social Security and Medicare contributions, penalties, and possible liability for employee benefits. When the IRS deems the misclassification to be negligent, the penalties can be up to 100 percent of the uncollected taxes.

And the payment of unreported taxes and contributions isn’t just for the past year. When the IRS and state agencies discover the misclassification of just one or two employees, this can trigger audits of the employer’s employment for prior years.

Mistake #7: Failing to include the value of awards, bonuses, and fringe benefits (when required) in employees’ taxable incomes. This action then results in the failure to withhold sufficient amounts from the total reportable income and not reporting the total reportable income to the IRS. The risk: The employer is subject to under-reporting penalties of up to 15 percent of the under-withheld and under-deposited taxes. If the failure is willful, the penalties can be up to 100 percent. And the employer could also be subject to information return penalties for incorrect W-2 forms (up to $50 penalty for each incorrect W-2).

Mistake #8: Using bogus or incorrect Social Security numbers for employees on their W-2 Forms and failing to accurately complete I-9 Forms. The risk: The employer can be subject to information return penalties for incorrect W-2 Forms, of up to $50 for each incorrect W-2. This mistake or failure by the employer also creates issues for the employees involved because they aren’t receiving proper earnings credits through the Social Security Administration.

Mistake #9: Failing to pay at least the higher of the federal or state minimum wage to non-exempt employees… as well as overtime in any seven-day workweek in which they work more than 40 hours. The risk: If this error is discovered, the employer is required to compensate the employee for back pay, plus fines and penalties. In addition to the fines and penalties imposed by the Department of Labor, the employer likely will be subject to federal and state wage and hour audits and owe additional amounts

Mistake #10: Not preparing and filing W-2 forms, and failing to send them to employees. The risk: The employer can be subject to information return penalties for incorrect W-2 forms, penalties of up to $100 for each incorrect or unreported W-2. For intentional failure, the penalties can go up to $200 for each incorrect statement.

Mistake #11: Failing to abide by state laws. It’s not just the federal wage and hour rules that employers must comply with. Employers need to be aware of, and comply with, the laws in the states where they have employees.

PEOs can help prevent these mistakes

To help avoid these costly blunders, more companies are turning to a professional employer organization (PEO), like Staff One.  A PEO serves as a human resources department for small and medium-sized businesses.  By entering into a co-employment relationship with a PEO, companies have access to experienced specialists who can help with many time-consuming activities in areas such as Human Resources Management, Payroll Management (including 940 and 941 filings), Employer Liability Management, Risk and Safety Management and Benefits Management.

President Obama on March 18 signed the Hiring Incentives to Restore Employment Act (H.R. 2847), which includes a tax credit for certain new hires retained by employers and a Social Security payroll tax exemption for such new hires. Under the HIRE Act, employers generally can take a tax credit of up to $1,000 for each new hire who begins employment between Feb. 4 and Dec. 31, 2010, and attests to being unemployed for at least 60 days prior to such employment (or having worked less than a total of 40 hours during the 60-day period). These employees must be employed for at least 52 consecutive weeks and earn wages during the last 26 weeks of such period equal to at least 80 percent of wages paid during the first 26 weeks. Employers cannot replace employees with these new hires unless the employees have left employment voluntarily or for cause. In addition, employers can exempt their share of Social Security payroll taxes in 2010 for these new hires.

More information can be found at http://thomas.loc.gov/cgi-bin/bdquery/z?d111:H.R.2847:

Source http://www.dol.gov/esa/whd/flsa/

The federal minimum wage will increase from $6.55 per hour to $7.25 per hour, effective July 24, 2009. Many states also have minimum wage laws. In cases where an employee is subject to both state and federal minimum wage laws, the employee is entitled to the higher minimum wage.

From Workforce Institute
In a recent survey we conducted with Harris Interactive, we asked over 700 hourly paid employees if they had ever cheated in reporting their hours in order to increase their paycheck. Twenty-one percent indicated that they had. Not surprisingly, of the 21% of respondents who admitted to cheating on their time reporting, the highest percentage (35%) of them were using paper based systems. As the means of time reporting became more automated and harder to deceive, the percentage of cheaters declined, with only 5% of those using biometric time clocks reporting themselves as having gamed the system…

To read more click here: http://www.workforceinstitute.org/gaming-the-clock.htm

From IRS
New 2009 withholding tables issued to implement the Making Work Pay tax credit may leave some employees in an underwithheld position by year’s end. Learn how you can help employees prevent this via the IRS’s Withholding Calculator, which has been updated to reflect the impact of the MWP tax credit, and then file a new Form W-4. In particular, the following people may be affected:

• married couples with both spouses earning wages
• individuals working multiple jobs at one time
• anyone who may be claimed as a dependent on another person’s return
• people receiving income from a pension
• individuals receiving economic recovery payments

On February 17, 2009, President Obama signed into law H.R. 1, the American Recovery and Reinvestment Act of 2009 (ARRA). Among many other provisions designed to encourage economic recovery, Title III of ARRA expands the federal Consolidated Omnibus Budget Reconciliation Act (COBRA) Continuation Coverage to provide a federal subsidy toward an eligible worker’s COBRA premium.

• The provisions in ARRA providing this subsidy are effective as of the date of the President’s signing.
• Eligible workers may receive a 65% subsidy toward their COBRA continuation premium for up to 9 months. Previously any individual enrolling in COBRA was responsible for 100% of the cost of the coverage, plus a 2% administrative fee.
• The Treasury Dept. will administer the subsidy, providing employers or health plans, if they administer COBRA benefits, with a credit against payroll taxes for the cost of the subsidy.
• The subsidy terminates the date the individual becomes eligible for any new employer-sponsored health plan or Medicare coverage.
• Individuals involuntarily terminated from employment between September 1, 2008 and December 1, 2009 and who have annual incomes less than $125k (single) or $250k (joint filers) for the taxable year in which the subsidy is received are eligible for the COBRA assistance, along with their families.
• Qualified individuals who initially decline COBRA coverage prior to ARRA will be given an additional 60 days after they receive notice of the special election period to elect to receive the subsidy.
• The special election opportunity is also available to a qualified beneficiary who elected COBRA coverage but who is no longer enrolled on the date of enactment of ARRA, for example, because the beneficiary was unable to continue paying the premium.
• COBRA notices must include information on the availability of the premium assistance and must be provided to all individuals who terminated employment during the applicable time period, not just individuals who were involuntarily terminated.

The Department of Labor has 30 days after the enactment of ARRA to issue model notices for use by employers.

A number of programs were included in the Act, which focus on providing tax relief to both individuals and businesses. Some of the more notable provisions are:

“Making Work Pay” Tax Credit
The Making Work Pay credit, which is available in 2009 and 2010, is worth up to $400 for an individual and $800 for spouses filing jointly. This credit begins to phase out for taxpayers with adjusted gross incomes in excess of $75,000 for individuals and $150,000 for married couples filing jointly. This credit can either be claimed on tax returns or by reducing the amount of taxes that are withheld from paychecks.

“American Opportunity” Education Credit
This credit renames and expands the HOPE education credit. It allows a taxpayer to receive a credit of 100% for the first $2,000 in qualifying tuition and related expenses, and 25% for the second $2,000 of such expenses, for a maximum of $2,500. This credit is subject to a phase-out for individual taxpayers with an adjusted gross income in excess of $80,000 or $160,000 for married couples filing jointly.

Alternative Minimum Tax Patch
The Alternative Minimum Tax exemption is increased to $46,700 for individuals and $70,950 for married couples filing jointly, and allows personal credits against the Alternative Minimum Tax. This patch protects an estimated 26 million taxpayers from becoming subject to the AMT.

Above the Line Deduction for Automobiles
This is a new tax deduction for state and local sales tax paid on the purchase of new cars, from the effective date of the Act, February 17, 2009, through December 31, 2009. This deduction begins to phase out for taxpayers earning $125,000 per year for individuals and $250,000 for joint returns.

Extension of Bonus Depreciation
The bonus depreciation rules, which were set to expire after 2008, are extended for one year. The extended rule allows a 50% bonus depreciation for certain property placed in service by businesses in 2009, allowing businesses to deduct from their taxes 50% of the value of that property in addition to amounts that may otherwise be claimed under depreciation rules, after the item’s value is adjusted to account for the bonus depreciation.

Small Business Capital Gains
The law allows for a 75% exclusion for individuals on the gain from the sale of qualified stock held for more than five years. This applies to stock issued between February 17, 2009 and January 1, 2011. This exclusion is limited to individual investments and not the investments of a corporation.

Five-Year Carryback of Net Operating Losses
Businesses are allowed to “carryback” certain operating losses for up to five years, as opposed to the two year limitation previously allowed. Once a business opts to use the extended period, it becomes irrevocable.

Advanced Energy Investment Credit
A 30% investment tax credit is established for manufacturing advanced energy property, such as facilities that manufacture components for the production of renewable energy, energy conservation and other green technologies.

Non-Business & Residential Energy Property Credit
The tax credit for non-business energy property is increased to 30%. This credit may be claimed against expenses for certain energy-efficient improvements to existing homes, such as new furnaces, energy-efficient windows and doors, or insulation. To qualify, such expenses must occur in 2009.

New Markets Tax Credit
The dollars available for the New Markets Tax Credit increase to $5 billion for 2008 and 2009.

Founded in 1988, Staff One is a leading Human Resources Outsourcing firm with an ESAC accredited and bonded PEO service offering. Staff One operates as a full-service human resources department and delivers a comprehensive range of solutions that provides our clients with a level of support and value previously only available at much larger companies. By aggregating the buying power of hundreds of firms, we provide premium benefits, risk management, compliance management, payroll outsourcing, tax administration and strategic HR services to our customers, so they can focus on growing their core business. For more information, visit www.staffone.com

On January 29, 2009 President Obama signed into law the Lilly Ledbetter Fair Pay Act.  This act overrules the U. S. Supreme Court’s decision in the Ledbetter v. Goodyear Tire & Rubber Company, Inc. opening the door for employees file claims at a much later date than originally ruled.

 This act raises many questions for employers that have yet to be addressed or answered.  Let’s first talk about the areas of this law that we do know about.  First, this law is retroactive to May 28, 2007 meaning that employees that have been, or may have been, discriminated against since this date can file a claim.  Congress believed the previous decision unduly restricted the time period an employee had for filing pay discrimination claims.

 Under Ledbetter an unlawful employment practice occurs when:

• The discriminatory pay decision is made
• An individual becomes subject to the discriminatory pay decision, or
• An individual is affected by the discriminatory compensation decision or other practice.

In short, what this means to employers is that each time an employee receives a wages, benefits or other compensation tainted by the discriminatory pay decision the deadline starts over.

Now, let’s talk about the questions that Ledbetter brings up.  What records should a company examine and retain?  How long should they be retained?  Should they do a self audit?

Since this is a new law there are no court cases or rulings on any of these questions.  However, initial analysis by most law firms says you should retain pertinent records indefinitely.  Outside of the IRS regulations on record retention the only real guidance comes out of federal contracting regulations which require that all records be retained for a period of 2 years for companies with over 150 employees and 1 year for companies fewer than 150 employees.  However, there is no evidence that these regulations will be used in governing Ledbetter.

With this in mind companies may consider conducting a self audit of their records.  There are no provisions under Ledbetter where a company avoids penalties due to accidental, unintentional or uncovered violations.  A violation is a violation.

Self audits would involve an examination of written policies relating to pay decisions in starting pay, promotional pay and merit pay increases.  For companies without a formal pay structure this could particularly dangerous under Ledbetter since managers would have wide discretion in setting pay.