payroll deductions: what - ascentis ©2017 the payroll advisor payroll deductions: what can and...
TRANSCRIPT
©2017 The Payroll Advisor1
Payroll Deductions: What Can and Can’t Deduct From Employee Pay
Presented Wednesday, August 16, 2017
©2016 The Payroll Advisor 2
Housekeeping
©2016 The Payroll Advisor
3
Credit QuestionsToday’s
topicSpeaker
To earn RCH credit you must
©2016 The Payroll Advisor
4
Stay on the webinar, online for the full 60 minutes
Be watching using your unique URL
Certificates delivered by email, to registered email, by September 15th
Our Focus For Today
Taxes
Child Support
Tax levies
Creditor
Garnishments
Voluntary Wage
Assignments
Uniforms
Meals/Lodging
Shortages/Breakage
Overpayments
Advanced Vacation
Pay
Loans to employees
Employee purchases
5
©2017 The Payroll Advisor
©2017 The Payroll Advisor6
About the Speaker
Vicki M. Lambert, CPP, is President and
Academic Director of The Payroll Advisor,
a firm specializing in payroll education
and training. The company’s website
www.thepayrolladvisor.com offers a
subscription payroll news service which
keeps payroll professionals up-to-date on
the latest rules and regulations.
Types of Deductions
©2017 The Payroll Advisor
Voluntary—Employee
asks you to
deduct…health insurance
deduction for example
Involuntary—someone
other than employee
orders you to
deduct…taxes for
example
7
Taxes8
©2017 The Payroll Advisor
Which are
mandatory, which
are a courtesy, and
which ones the
employee controls
Federal Income Tax
©2017 The Payroll Advisor
9
Under what is called “Pay-as-you-go plan
enacted in 1943
16th amendment to the Constitution—1909/1913
Federal Income Tax
Internal Revenue Code or IRC
Required by law to be deducted based on
employee’s Form W-4 or supplemental tax rates
Nonresident aliens may have different rates or
exemptions due to treaties
Federal Insurance Contributions
Act (FICA Taxes)
Established in the 1930’s
Current rate is 6.2%
2017 Wage base is $127,200
Maximum to withhold for 2016 is $7,886.40
Employer matches dollar for dollar at 6.2% for 2017
Must be taken for all subject wages
Established 1960’s
Current rate is 1.45%
No annual wage base
Employer matches dollar for dollar
Must be taken for all subject wages
10
©2017 The Payroll Advisor
Social Security (OASDI) Medicare
Additional Medicare Tax
©2017 The Payroll Advisor
11
Established 2013
Current rate is 0.9%
For wages in excess of
$200,000
No employer matching
Must be taken for all
subject wages
Nonresident Aliens
©2017 The Payroll Advisor
12
Services performed in U.S. that otherwise are
covered employment under FICA are not
excluded because the employee is a nonresident
alien
However, “students” under F, J, M and Q visas
are excepted from the definition of employment
for FICA if in connection with the purpose for
which the student is admitted to this country
State Income Tax
©2017 The Payroll Advisor
13
Most employers are required to withhold state
income tax from employee’s wages—9 states have
no tax
Special forms for employee to claim exempt from
state income tax
Special form for military spouse to use to claim
exempt from state income tax
Forms for nonresidents of the state
Reciprocal agreement forms
For Example
©2017 The Payroll Advisor
14
WI has agreement with IL
Resident of IL works in WI but
does not want WI tax taken
out—completes Form W-220—
NO WI tax is withheld
Employer may but IS NOT
required to withhold for IL
Wisconsin
Illinois
Works
Resides
Local Taxes
©2017 The Payroll Advisor
15
Some are paid by the employee, some the employer and some are levied on both the employee and employer. However, not all are deducted from the employee’s wages but are still owed by the employer. Most are based on the payroll in some way.
May require determination of coverage such as county the employee lives in
Garnishments16
©2017 The Payroll Advisor
Child support: the
limits but not beyond
Tax levies: federal
and state
Creditor
garnishments: how
many can you honor
and how often
Voluntary
wage
assignments
for “payday”
loans: when
are they
required to
be honored
Federal Tax Levies
©2017 The Payroll Advisor
Publication 1494 is used to determine the amount exempt from levy
Changes each year
Use the exemptions and filing status the employee submitted on the Form 668-W
17
What is Meant by Take Home Pay
©2017 The Payroll Advisor
Subtract the following in calculating take home pay:
Taxes
Voluntary and involuntary deductions in effect before the levy is received
Increases in preexisting deductions beyond the employee’s control
Condition of employment deductions that come after the levy is received
Direct deposit is not counted
18
©2017 The Payroll Advisor19
State Tax Levies
©2017 The Payroll Advisor
CCPA limits do not apply to state tax levies under 15 USC 1673(b)(1)(c)
COULD BE 25% of disposable or the amount that exceeds 30 times the federal minimum hourly wage
COULD BE anything they want it to be—Example KY allows employee to keep $125/week Plus $60 for each dependent
COULD come on a tax levy form or COULD be a letter
20
State Tax Levies
©2017 The Payroll Advisor
Disposable income could match federal or may not even give a definition
May have priority over other creditor garnishments or it may not
May be able to collect a fee
Read the garnishment carefully
21
Garnishments and the CCPA
©2017 The Payroll Advisor
Consumer Credit Protection Act (CCPC) limits the
amount that can be deducted from “disposable
pay” for child support and creditor garnishments
Limits apply if more than one garnishment is in
effect
Does not apply to federal or state tax levies
22
Limits on Child Support
©2017 The Payroll Advisor
23
CCPA Limits:
50% of disposable earnings if
employee has second family
60% if does not
Add 5% if in arrears to both
State may be lower
50% is the common amount
Disposable Earnings
©2017 The Payroll Advisor
24
Disposable Income = gross
pay - mandatory deductions.
Disposable income is the
amount of earnings
remaining after subtracting
certain mandatory
deductions from an
employee's gross pay.
Disposable Earnings
©2017 The Payroll Advisor
25
Mandatory deductions include federal, state and
local taxes; unemployment insurance; workers'
compensation insurance; state employee
retirement deductions; other deductions
determined by state law.
Note that disposable income is not necessarily the
same as net pay. An employee may have a
deduction taken from his pay that is not
mandatory, such as union dues or a car loan
payment.
Allowable Disposable Income
©2017 The Payroll Advisor
26
Allowable disposable income is the maximum
available for child support withholding. In most
cases, the amount ordered to be withheld will be
less than the allowable disposable income amount,
and the ordered amount can be withheld without any
problem. Even if the withholding order specifies a
higher payment, the allowable disposable income is
the most that may be withheld.
Creditor Garnishments
©2017 The Payroll Advisor
CCPA limits apply except where state is lower
25% of disposable or the amount that exceeds 30 times the federal minimum hourly wage
Some states have severe restrictions
Federal chart furnished-as of July 2009
27
Creditor Garnishment
Calculation
©2017 The Payroll Advisor
28
Check the chart
30 times federal
minimum wage
MT
WY
ID
WA
OR
NV
UT
CA
AZ
ND
SD
NE
CO
NM
TX
OK
KS
AR
LA
MO
IA
MN
WI
IL IN
KY
TN
MS AL GA
FL
SC
NC
VAWV
OH
MI
NY
PA
MD
DE
NJ
CTRI
MA
ME
VT
NH
AK
HI
States following federal rules
State rules mirror federal
Creditor Garnishment Limits by State
25% disposable or amounts exceeding 50 times state/fed
min wage
25% of disposable or amounts
in excess of 40 times state/fed
min wage
©2017 The Payroll Advisor
29
25% disposable or amounts exceeding 35 times state/fed
min wage
Unique state rules
Follows federal rules with limits for head of household
States With Unique State Rules
AL: 25% of resident’s wages
CA: 25% of disposable or 50% amount exceed 40 times state or localminimum wage
DE: 15% of total wages
IL: 15% of gross wages or amount over 45 times state min wage
MA: 85% or amount of 50 times fed/state min wage is exempt
NC: Follows federal except orders from public hospitals and public assistance are limited
NV: Weekly gross <$770 exempt amount 82% or 50 times fed min wage. >$770 75% is exempt eff.10-1-17
PA: 10% for debts to landlords, taxes to municipalities or HEAAA debt
SC: Garnishments not allowed for consumer debts
SD: lessor of 20% of weekly disposable or amount over $346 less $25 for each depending living with employee
TX: Current wages exempt from garnishment
WI: 20% of disposable unless household income below fed poverty level then exempt
WV: 20% of disposable or amount over 50 times fed min wage
30
©2017 The Payroll Advisor
MT
WY
ID
WA
OR
NV
UT
CA
AZ
ND
SD
NE
CO
NM
TX
OK
KS
AR
LA
MO
IA
MN
WI
IL IN
KY
TN
MS AL GA
FL
SC
NC
VAWV
OH
MI
NY
PA
MD
DE
NJ
CTRI
MA
ME
VT
NH
AK
HI
No provisions for fees
Permit fees
Creditor Garnishment Fees by State
Have unique fees for certain items
©2017 The Payroll Advisor
31
State Fees
©2017 The Payroll Advisor
32
State Fees PermittedArizona $5 each pay period from nonexempt earnings
Arkansas $2.50 per pay period
California $1.00 for each payment
District of Columbia $2.00 for withholding order
Florida $5.00 for 1st deduction, $2.00 each deduction thereafter
Georgia $50 or 10% of amount paid into court (whichever is greater) but not to exceed $100 as reasonable attorney’s fees or expenses
Illinois 2% of amount to be deducted
Indiana Larger of $12 or 3% of total amount to be deducted ½ of fee from employee, ½ of fee from amount due creditor
Kansas $10 per pay period up to $20 per month, payable by creditor if can’t be taken from employee
Louisiana $3 from nonexempt income each payment garnishment is in effect
Maine $1 per check to be taken from amount withheld
Michigan $6 fee paid by plaintiff at the time a writ of garnishment is served. Amount is $35 for writs issued after 9-30-15
Minnesota $15 paid by creditor to employer at time of service of garnishment
Missouri One time fee not to exceed $20 withheld from wages in addition to garnishment
Nevada $5 paid by creditor to employer at time a writ of garnishment is served. Employer entitled to$3 per pay period not to exceed $12 per month
New Jersey 5% for compensation towards expenses and services in processing each payment
North Dakota $10 paid by creditor when employer is served with garnishment summons
Oklahoma $10 from employee’s funds for answering a garnishment summons
Ohio $3 per pay period payable by employee $1 for property garnishment payable by creditor
Oregon $2 processing fee for each week a payment is made unless withholding reduces below minimums. Must collect after last payment is made
Rhode Island $5 paid by employee for each writ of garnishment
South Dakota $15 for garnishee summons being served
Texas Lessor of actual costs or $10 from disposable earnings
Utah $10 for a single garnishment or $25 for continuing garnishment paid by creditor directly to employer
Vermont $10 for district court cases, $50 for superior court cases payable by creditor
Virginia $10 for each garnishment summons served
Washington $10 processing fee for 1st disbursement and $1 for each subsequent disbursement. $20 for first payment; if continuing lien $10 at time of second
payment
Wisconsin $15 garnishee fee from creditor for each garnishment or extension
State Fees
©2017 The Payroll Advisor
May also be a fee to
collect for the state or
court or plaintiff in the
case
Read the garnishment
33
What if there is more than one?
©2017 The Payroll Advisor
34
Handling multiple creditor garnishments is a matter
of state law
Can be first in time—first in line
Usually cannot do more than one creditor
garnishment at a time
Some states will allow the employer to hold onto
garnishments to wait their “turn” while others do not
Garnishment will specify terms in most cases
For Example--Alaska
©2017 The Payroll Advisor
35
If an employer is served with a writ of garnishment
while a continuing lien is in effect, the employer must
answer the writ with a statement that he is holding no
funds and must report when all previous liens are
expected to terminate. The subsequent garnishment
will take effect upon the termination of all prior liens.
(A.S. 09.38.040)
Voluntary Wage Assignment
©2017 The Payroll Advisor
Are not the same thing as a court-ordered
garnishment
Are voluntary so not covered under CCPA limits
Can be revoked at any time by employee so watch
for this
State sets the limit and the rules
State can forbid employer to honor, especially for
“small loans”
36
Uniforms37
©2017 The Payroll Advisor
When the employer pays for
it and when the employee
furnishes it
Deducting for Uniforms
©2017 The Payroll Advisor
FLSA does not give credit against minimum wage
for uniforms
Deductions for the cost of purchasing, renting or
maintaining a required uniform are not allowed if the
effect is to reduce an employee’s wages below the
minimum hour rate for that workweek
States can have minimums as well
38
Deducting for Uniforms—States
©2017 The Payroll Advisor
States that DO NOT permit include: IA, IN, KS, ME, NH, NJ, NV, OR, RI
States that require written authorization include: AK, AZ, CO, CT, DE, HI,
ID, IL, KY, MD, MI, NC, ND, NM, OH, OK, PA, TN, TX, UT, VA, VT, WA,
WV, & WY
AK: may deduct security deposit for uniforms is based on written
agreement, does not exceed actual cost and does not cut into minimum
wage or overtime
CA: If an employer requires that an employee wear a uniform, the
employer must pay the cost of the uniform.
MA: no deposit shall be required for a uniform and employer will pay for
dry cleaning but not wash and wear
MN: up to $50 and must be returned if employee terminates
39
Meals and Lodging40
©2017 The Payroll Advisor
Meals: When they
become part of the
employee’s wages
Lodging: when is it
part of the
employee’s wage
and when is it a perk
Meals and Lodging-Federal
©2017 The Payroll Advisor
Can deduct from wages or credit against minimum wage the reasonable cost of board and lodging furnished to the employee
In order to use the credit:
41
Facility must be primarily for the benefit of the employer
Employee must accept voluntarily
Lodging must be employee’s residence on a permanent basis
Lodging
Value can be excluded if:
Furnished on business
premises
Furnished for the employer’s
convenience
Employee must accept as
condition of employment
Does not apply if employee can
choose additional pay instead
©2017 The Payroll Advisor
42
Business Premises
On your business premises
generally means the
employee’s place of work
©2017 The Payroll Advisor
43
For Employer’s Convenience
Must look at all the facts and circumstances
Must be done for a substantial business reason other than to provide additional pay
Even if contract calls for it
A written statement is not enough to prove fact
©2017 The Payroll Advisor
44
Condition of Employment
Employee needs to live on
the business premises to be
able to properly perform their
duties
Example: employee must be
available at all times and
could not perform required
duties without the lodging
©2017 The Payroll Advisor
45
Example
A hospital gives its employee,
Joan, the choice of living at the
hospital free of charge or living
elsewhere and receiving a cash
allowance in addition to her
regular salary. If Joan chooses to
live at the hospital value cannot
be excluded. She does not need
to live at hospital to perform her
duties
©2017 The Payroll Advisor
46
Executive Housing
©2017 The Payroll Advisor
47
Any type of “lodging”
provided is usually wages
unless for the “convenience
of the employer” discussed
earlier
Includes vacation homes,
corporate “housing”, condos,
boats in vacation places etc.
especially for executives
De Minimis Meals
©2017 The Payroll Advisor
48
Can exclude the value of any
occasional meal or meal money if it
has so little value that accounting for it
would be unreasonable or
administratively impractical
Must take into account how frequently
provided to all employees
De Minimis Meals
©2017 The Payroll Advisor
49
Examples of De Minimis meals
includes:
Coffee, doughnuts, or soft drinks
Occasional meals or meal money
to enable an employee to work
overtime—cannot be based on
hours worked
Occasional parties or picnics for
employees and guests
Meals on Premises
©2017 The Payroll Advisor
50
May exclude the value of meals if:
Employee’s place of work
For employer’s convenience
Depends on facts and circumstances
Substantial business reason other than provide additional pay
Need more than written statement
Meals on Premises
©2017 The Payroll Advisor
51
If more than half of employees are furnished meals for employer convenience may treat all meals as for convenience of employer
MT
WY
ID
WA
OR
NV
UT
CA
AZ
ND
SD
NE
CO
NM
TX
OK
KS
AR
LA
MO
IA
MN
WI
IL IN
KY
TN
MS AL GA
FL
SC
NC
VAWV
OH
MI
NY
PA
MD
DE
NJ
CTRI
MA
ME
VT
NH
AK
HI
Do not permit
No provisions
Meals and Lodging Credits Against Minimum Wage
Sets monetary limit
©2017 The Payroll Advisor
52
No minimum wage
Reasonable cost of meals and lodging
Varies, for certain employees only
©2017 The Payroll Advisor53
State Requirements
AR Up to 30¢ per hour
CA Furnishes exact amounts on minimum wage poster
CO Lodging may not exceed $25 per week; meals must be reasonable costs no profit to employer must be taken before
deduction is made
CT Up to 85¢ for a full meal; 45¢ for a light meal
ID Meals: $3 a meal/$60 a week; Lodging:$4.50 a day/$30 a week; $90 a week for meals and lodging
IL Applies to seasonal camp counselors who reside on premises
MA Meals: B-$1; L-$1.75; D-$1.75 Lodging: $30/week solo; $25/week 2 employees; $20/week 3 or more employees
MN Applies to hotels, motels, lodges and resorts
MT Up to 40% for lodging, not permitted for meals
ND Up to $18 a day
NH Full room/board: $45/week or $6.45/day Meals: $39.45/week or $1.88/meal Lodging: $10.88/week or $1.80/day
NJ Full room/board: $219.40/week; $94 for lodging only/week; $25.10/meals (3 per day) B/L:$7.50; D-$10
NM Agricultural employees: reasonable costs
NV Meals: $1.50/day; B-35¢; L-45¢; D-70¢
NY Based on wage order
OK Cannot exceed 50% of minimum wage
SD Cannot exceed 50% of minimum wage
VT Full room and board: $86.47/week; Full room: $25.03/week; Full board: $71.54/week; Nightly lodging: $4.17; B-$3.03; L-
$3.41; D-$3.78
WI Lodging: $58/week or $8.30/day non-opportunity/agricultural employees Opportunity employees:$47.20/week or $6.75/day
Shortages/Breakage54
©2017 The Payroll Advisor
The employee came up
short so they have to
cover that right?
You broke it so you have
to pay for it, legal or not
Deducting for Breakage or Shortages
©2017 The Payroll Advisor
FLSA requires employees be paid minimum wage
regardless of such items as cash shortages or
breakage—cannot take below applicable minimum
wage to take out of paycheck
States will differ depending on the state—some
follow federal while others are more restrictive
Most states do not address the issue at all
Falls under anti-wage theft laws also
55
MT
WY
ID
WA
OR
NV
UT
CA
AZ
ND
SD
NE
CO
NM
TX
OK
KS
AR
LA
MO
IA
MN
WI
IL IN
KY
TN
MS AL GA
FL
SC
NC
VAWV
OH
MI
NY
PA
MD
DE
NJ
CTRI
MA
ME
VT
NH
AK
HI
NO
YES
Are deductions permitted for breakages?
Yes with employee written authorization required
©2017 The Payroll Advisor
56
Yes if due to willful, dishonest act, theft or court
proceeding
MT
WY
ID
WA
OR
NV
UT
CA
AZ
ND
SD
NE
CO
NM
TX
OK
KS
AR
LA
MO
IA
MN
WI
IL IN
KY
TN
MS AL GA
FL
SC
NC
VAWV
OH
MI
NY
PA
MD
DE
NJ
CTRI
MA
ME
VT
NH
AK
HI
NO
YES
Are deductions permitted for shortages?
Yes with employee written authorization required
©2017 The Payroll Advisor
57
Yes if due to willful, dishonest act, theft or court
proceeding
Yes if employee has sole control over cash drawer
Overpayments58
©2017 The Payroll Advisor
The employee was overpaid
so you can just take the
money back or can you?
Overpayments: FLSA Requirements
©2017 The Payroll Advisor
59
DOL accepts inadvertent overpayments will occur
If the employer and the employee do not agree
that the wages were overpaid or if employee
refuses to repay the amount legal options must be
considered
If both agree the wages were overpaid there are
methods to recoup
May deduct principle even if it cuts into minimum
wage or overtime
FLSA
©2017 The Payroll Advisor
60
Interest, administrative costs or attorney fees may not be deducted if it cuts into minimum wage or overtime
The existence of the loan or advance must be verified to every extent possible
Wage and Hour Division addressed this issue in Opinion Letter No. 1916 in 1998
Recouping loan or advances on wages does not affect status as an exempt employee and does not violate salary basis requirement
Overpayments: The States
©2017 The Payroll Advisor
61
Every state will vary: states with no provisions include: AL, CT, DE, FL, GA, IA, ID, LA, MA, MD, MO, MS, MT, NM, OH, RI, SC, SD, TN, UT, VA, WV &WY
Must research wage and hour law as well as court cases
Most require prior notification as does the FLSA—there may be time limits as well
Most require permission in writing
California & New York don’t even try unless you are really sure
IN—you are a creditor at 25%
KY—no limit but employee must receive min wage for each hour worked
Me—no more than 10% of net unless employee agrees
MI—you follow all other current deductions; only 15% of gross for pay period
NH—no more than 20% of gross pay per pay period
PA—cannot go below minimum wage
WA—only 90 days from initial overpayment to detect and implement plan
Advanced Vacation Pay62
©2017 The Payroll Advisor
The employee knows the
vacation hours were
advanced so we can take
them back when the
employee quits can’t we?
Deducting for Advanced Vacation
©2017 The Payroll Advisor
63
Federal: If an employee is paid vacation before it
is earned it is an advance on wages if the
employee terminations
(Excerpt) In the situation where an employee is granted vacation pay
prior to that individual’s established date of entitlement, with the
understanding that the pay constitutes an advance on pay and the
employee quits or is terminated before that date, employer may recoup
the advanced vacation pay, even where such recoupment cuts into MW
or OT pay as required
The States
©2017 The Payroll Advisor
64
New York Example State: Always verify
vacation rules in addition to overpayment rules for each state
Usually falls under “overpayment rule”
CA & NY don’t even think about it!
Loans and Employee
Purchases65
©2017 The Payroll Advisor
Loans: what terms can
be set while the
employee is still active
and what can be taken
when the employee
terminates
Employee Purchases:
active employees and
terminated employees
Loans to Employees
©2017 The Payroll Advisor
Federal: same as for overpayments and
advance on wages
State: Same as for overpayments and
advance on wages – be careful of terminating
employees
Creditor garnishment rules may come into play
when it comes to balloon payments and
terminating employees
66
California
©2017 The Payroll Advisor
67
Under most circumstances CA law prohibits an
employer from deducting from an employee’s wages
any debt the employee may owe the employer.
Barnhill v. Saunders began with withholding for a
loan upon termination
California State Employees’ Association v. State of
California extended to cover overpayment of
wages
Employee Purchases
©2017 The Payroll Advisor
Federal: same as for overpayments and
advance on wages
State: to recoup costs usually follow same as
overpayments or loans
Be careful of states where they restrict access
to purchases
Employer cannot force employee to buy from
them
68
Are There Any Questions?
©2016 The Payroll Advisor
69
How Can Ascentis Help Me?
70
Ascentis Payroll is a Web-based, Internet
payroll system that allows you to process
payroll in real-time, ensuring 100%
accuracy, flexibility and control. With live
processing and instantaneous auditing,
Ascentis Payroll software can reduce
payroll processing time by as much as
30%.
To earn RCH credit you must
©2016 The Payroll Advisor
71
Stay on the webinar, online for the full 60 minutes
Be watching using your unique URL
Certificates delivered by email, to registered email, by September 15th
On-Demand Webinars
©2016 The Payroll Advisor
72
Watch from anywhere, at anytime, at no cost to you!
Download Slides? Watch again?
©2016 The Payroll Advisor
73
Sharing the Education
©2016 The Payroll Advisor
74