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CHAPTER 1

CHAPTER 1. THE NEED FOR PAYROLL AND PERSONNEL RECORDS Developed by Lisa Swallow, CPA CMA MS. Many Laws Affect Payroll. Federal income tax – 16 th amendment to constitution 1943 – withholding from paychecks started (Current Tax Payment Act) State income tax Different in each state.

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CHAPTER 1

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  1. CHAPTER 1 THE NEED FOR PAYROLL AND PERSONNEL RECORDS Developed by Lisa Swallow, CPA CMA MS

  2. Many Laws Affect Payroll • Federal income tax – 16th amendment to constitution • 1943 – withholding from paychecks started (Current Tax Payment Act) • State income tax • Different in each state

  3. Federal Insurance Contributions Act • FICA administered by SSA (Social Security Administration) • Comprised of two taxes • OASDI (Old Age, Survivors & Disability) • 6.2% of first $84,600 • ER and EE pay • HI (Hospital Insurance known as Medicare) • 1.45% with no ceiling

  4. FUTA • FUTA (Federal Unemployment Tax Act) • Passed in 1935 • Incorporated in Internal Revenue Code (IRC) • ER tax - Paid on $7000 per EE per year • ER gets credit for SUTA paid against FUTA • Taxes used to pay administrative expenses, not used to pay unemployment benefits

  5. SUTA • SUTA (State Unemployment Tax Act) • Mandatory unemployment insurance - each state has different laws • SSA outlines what kinds of standards each state’s unemployment compensation law must follow • Generally an ER tax - in some states, EE also pay

  6. Fair Labor Standards Act • FLSA - 1938 • Federal Wage & Hours Law • Administered by USDL Wage & Hour Division • if audited must provide records within 72 hours of notice • Sets law for companies involved in interstate commerce • Requires payroll records maintained • Minimum wage and overtime provisions • Exempt vs. Nonexempt employees • Professional • Administrative • Executive

  7. Family Medical Leave Act • FMLA of 1993 • Companies with 50+ employees within 75 mile radius • EE guaranteed 12 weeks unpaid leave for: • birth, death, adoption, critical care • can use for child, spouse or parent • Right to return to same/comparable job and continue health coverage in absence • Exempts 10% most highly compensated and those in job under one year

  8. Title VII of the Civil Rights Act of 1964 • Known as EEO (Equal Employment Opportunity) • Can’t discriminate in hiring, firing, promotion or compensating based on • color • race • religion • national origin • gender • Gender orientation added in certain states See http://www.eeoc.gov/ for more information

  9. Other Civil Rights Law • ADEA (Age Discrimination in Employment Act) of 1967 adds age to list of items employers cannot use to discriminate • Applies to employers with 20+ employees • Exception to rule is employees aged 65+ who hold key strategic decision-making positions, they can face mandatory retirement if annual pension => $44,000

  10. Americans with Disabilities Act • Known as ADA • Passed in 1990 • Prevents employers with 15+ employees from discriminating against disabled employees and job candidates based upon disability • Reasonable accommodation must be provided (this is a very vague term and subject to court interpretation) • Many companies needed to rewrite job descriptions to specify physical requirements for jobs

  11. ERISA • Employee Retirement Income Security Act of 1974 • Trustees must monitor pension plans • Vested 100% in 5-7 years Example of a vesting plan • Provides for PBGC • Pension Benefit Guaranty Corporation - a federal agency which guarantees benefits to employees

  12. Pension Plans • IRA (Individual Retirement Account) allows employees to contribute up to $3000/year (subject to certain income limitations) into a retirement account pretax (FIT and SIT) - an employer can offer this option to employees, but it is not subject to ERISA • SIMPLE (Savings Incentive Matching Plan for Employees) allows EE to contribute up to $7000/year into tax deferred account -for companies with less than 100 employees • 401(k) allows EE to contribute pretax (FIT and SIT) compensation to pension plan; ER may chose to match the EE’s contributions (maximum EE deferral allowed is $11,000 for 2002)

  13. IRCA • Immigration Reform and Control Act • Passed in 1986 • INS (Immigration and Naturalization Services) requires proof of citizenship • Accomplished by employee completing I-9 within 3 days of employment • Hefty civil penalties for noncompliance

  14. Personal Responsibility and Work Opportunity Reconciliation Act • Known as “Welfare Reform” • Contains 215 provisions • Requires employers to report all new hires • Records coordinated through Office of Child Support Enforcement (OCSE) • Each state required to have centralized collection/disbursement by 10/98

  15. Health Insurance Portability & Accountability Act • Available to employees covered under high deductible health insurance plans and self-employed • Established MSA (medical savings accounts) • ER contributions excluded from FIT/FICA • EE contributions deductible on tax return • Long term care insurance premiums paid for by ER excludable from EE income (FIT/FICA)

  16. Human Resource System • FLSA requires stringent personnel record- keeping • Application/screening document design and retention also critical • No questions alluding to religion, gender, race or national origin (unless implicates ability to perform job - for example, bilingual capabilities) as may violate EEOC • If application asks age/birthdate, should contain ADEA language notifying candidate of anti-discriminatory provisions

  17. Human Resource System (continued) • Reference Checks • Due to amount of litigation in this area, respondents should only verify facts (not offer subjective information) • Really diminishes credibility of reference inquiries • Or prospective ER may require applicant to sign “Employment Reference Release” form • Interview records should be written/retained • Employment offer • Provides employee with written notice outlining starting wage and written job description* *Critical area – employment related litigation is very expensive and often times avoidable

  18. Human Resource System (continued) • Permanent personnel file contains performance evaluations, compensation adjustments, disciplinary issues, etc. • Payroll Department documentation • Hiring Notice (from hiring department) states rate of pay, W-4 information, etc. • Payroll Register compiles data per paycheck • EE Earnings Record outlines earnings per period, quarter-to-date and year-to-date for each EE

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