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Paying The EmployeeCPP Review Course
February 21, 2015
Presented by:Heather Williams FPC, CPP
Chapter 5-- Objectives• Pay Frequency• Payment on Termination• Payment Methods
Cash or Check
Direct Deposit (EFT)
Electronic Paycards– Branded vs. Non-branded
• Pay Statements for Employees• Unclaimed Paychecks (Escheatment)• Wages owed to Deceased Employees• Extra Paydays (53rd pay period)
KEY NOTE: CPP Certification Test is based on Federal Laws ONLY
Chapter Five is a great resource for State Requirements and Rules regarding Employee Payment.
• State Pay Frequency Requirements 5.2 - 5.5• State Payment Requirements upon Termination 5.6 - 5.8• State Rules on Direct Deposit 5.14 - 5.16• State Paycard Compliance Issues 5.18 - 5.23• State Pay Stub Information 5.26 - 5.28• State Rules on Unclaimed Wages (Escheatment) 5.29 - 5.30• State Requirements governing wages to deceased
employees 5.31 – 5.34
Payroll Frequency & Payment on Termination
Chapter 5- Paying the Employee
Testing Your Knowledge
• What law governs how often and how soon employers must pay their employees after service is performed ?
• What does the FLSA regulate?
Payment MethodsChapter 5- Paying the Employee
Payment Methods
• Cash• Check• Direct Deposit ( Electronic Funds Transfer)• PayCards
My Money!Cash or Check
• All 50 states and the District of Columbia allow payment by cash or check and don’t have laws that regulate either payment option
Although states differ in regulation, they require that employees are able to cash their pay check or negotiable instrument:
1. For face value
2. Without additional fees enforced for cashing
3. Most states require that financial institution be in the state where employees work or conveniently located for employees
Direct Deposit (EFT)Chapter 5 – Paying the Employee
Direct Deposit (EFT)Most popular way of paying employees – 74%
Safe and Secure
First on the scene – distribution of Social Security Benefits
Eliminates many problems concerning:
• Lost or stolen checks• Unclaimed or uncashed checks (Escheatment)• Storage of documents(cashed checks, etc.)• Check Cashing Procedures
Direct Deposit (EFT)
Federal and state governments share regulatory responsibility
• NACHA– National Automated Clearing House Association• ACH– Automated Clearing House• State Law Regulations
The Electronic Payments Association (NACHA) issued International ACH Transaction (IAT) operating rules and formats that became effective on September 18, 2009. They comply with the Office of Foreign Assets Control (OFAC)
Direct Deposit ProcessDirect Deposit: automatic deposit of an employees pay into his/her desired checking and/or savings account
Employer prepares file and send to Originating Depository Financial Institution - (ODFI)
The ODFI verifies the file and processes it through the Automated Clearing House - (ACH)
ACH Operators delivers files to the Receiving Depository Financial Institution - (RDFI)
The Direct Deposit ProcessEmployer ODFI ACH RDFI
Special Note: Under ACH Operating Rules, employee authorization for Direct Deposit does not have to be in writing. However, many states require written authorization.
Information needed for Direct Deposit Authorization
1. Name and Routing Number of EE’s desired financial institution
2. Type of account (checking and/or savings)
3. Account Number
Direct Deposit Reversal/Pre-notification
Single Entry Reversal
• Amount of reversal must match the exact amount of credit
• Must be reversed within 5 days of the original entry
• Employee authorization not necessary
Pre-notification• Optional , but is used must be sent atleast 6 days
before the actual direct deposit is sent.
Direct Deposit FYI
There’s no specific time stated in the 2014 Payroll Source. Banks make funds available at various times.
Funds usually posted by 9:00 am on pay date. If not posted by 12 Noon;• Verify both routing and account numbers• Check RDFI posting schedule
Regardless of reason for delay – employer must make sure employee is compensated at employer’s expense …sooner rather than later via voucher verification.
Direct Deposit Employee Advantages / Disadvantages
Advantages• Immediate availability of
funds on payday• No bank interaction • No delay in constructive
receipt of pay
Disadvantages• No Bank account
establishment• Comfort level in payment
Direct Deposit Employer Advantages / Disadvantages
Advantages• No lost or stolen checks• Reduction in paper flow• Cost effective• Ease for reconciliation• Reduction in
escheatment
Disadvantages • Not truly “Green”• Loss of float• Additional processing
fees• Challenges for stopping
and reversals
Pay CardsChapter 5- Paying the Employee
Paycards
• Paycards are similar to debit cards
• Prefunded, host based cards providing employees access to their net pay via a bank, ATM (Automatic Teller Machine) or POS (Point of Sale) purchase.
• Employer funds the same way as direct deposit
• Process subject to the same NACHA rules
Paycard Program
• Program offered by many different vendors. Variables to be aware of:
1. Features
2. Benefits
3. Costs
• Understand the difference between branded vs. non- branded
Branded vs. Non-Branded
Branded• VISA/ MC/ Discover
Logo• Employee signature only• ATM – 4 digit PIN
required• Personalized • Parental approval for
employees under age 18
Non-Branded• More secure to use than
Branded • ATM or POS Logo (Star,
Pulse, NYCE)• PIN required for ALL
transactions• Host computer
authorizes funds transactions. Prevents negative authorizations.
Employee & Employer Benefits
Employee• Reduced costs – no check
cashing fees• Increased independence• Improved credit status• Financial safety• Ease of use • Protected from loss• ATM access always –no
limitations(time or place)
Employer• Reduced costs • Enhanced efficiency• All employees eligible• Increases employee
productivity time• Escheatment reduction
Pay Stub/Pay Statement
Determined by State
Must include, but not limited to:
1. Earnings Information
2. Hours Worked Information
3. Tax Withholding Information
4. Other Deductions Information
EscheatmentEscheatment – State Law governing unclaimed, abandoned wages (property)
• State Regulated• Unclaimed wages usually become abandoned after
one year • Employer does its best to contact ex-employee to avoid
abandonment • Non-successful contact = abandoned to the state
• Better Business Practice - suggest direct deposit and/or paycards as options
Wages Owed To Deceased Employees
State Law regulates wages - Who, How, What
• Who – Who the wages may be paid to• How – How much may be paid before it’s paid • What – What conditions must be met before payment
is made
Federal Law regulates wages taxes
Year of death = W2 and perhaps 1099M
Year after death = 1099M
AP Check Payment = Gross minus FICA
The 53rd Pay PeriodOne day of the week will occur 53 times in a year
2014 = Wednesday
• Pay Reductions may cause problems
Hourly employees must be paid all wages
Salaried employees can be adjusted
Verify contracts if need be
• Planning is Key
Heather Williams FPC, [email protected]
Thank You!