Payroll Accounting 2010Bernard J. Bieg and Judith A. Toland

CHAPTER 1

THE NEED FOR THE NEED FOR

PAYROLL & PERSONNEL RECORDSPAYROLL & PERSONNEL RECORDS

Developed by Lisa Swallow, CPA CMA MSDeveloped by Lisa Swallow, CPA CMA MS

CHAPTER 5 CHAPTER 1CHAPTER 1

Payroll Profession

Positions within payroll professionRange from payroll clerk to senior payroll

managerProfessional membership – American

Payroll Association (APA)Certified Payroll Professional examCode of Ethics sets direction for profession

Many Laws Affect Payroll

Fair Labor Standards Act (FLSA) of 1938State minimum wage and maximum hour

laws Federal Insurance Contribution Act (FICA)Income tax withholding laws

Federal, state and localUnemployment tax actsFair employment lawsOther federal and state laws

Fair Labor Standards Act

Federal Wage & Hour Law of 1938Minimum wage is $7.25/hourEqual pay for equal work provisions Sets law for companies involved

In interstate commerce or In production of goods/services for

interstate commerceRequires 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 paychecksDifferent 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 statesSee http://www.eeoc.gov/ 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

employeesProvides 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

numberRecords 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 employmentU.S. Citizenship & Immigration Services

may audit and levy penaltiesCriminal 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

intactHealth benefits must be started without a

waiting periodDoesn’t apply if dishonorably discharged

Employee Retirement Income Security Act (ERISA)Trustees must monitor pension plansVested 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 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 LawsFive 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