Payroll 101CPE Seminar

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Agenda

The Payroll Equation Earnings Deductions Taxes Tax Depositing and Filing ***What’s New***

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Objectives & Agenda

At the end of the session, participants should be able to: Present the payroll equation Identify types of payroll earnings and how they are taxed Distinguish between a voluntary and involuntary

deduction List employee vs. employer taxes as well as

corresponding tax forms and filing frequencies Determine when a company needs to make payroll tax

deposits

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What is the Payroll Equation? How Do You Arrive at Net Pay?

  

 

ExamplesGross Pay - Taxes - Other Deductions = Net Pay

Regular FIT 401k Check

Overtime SS Medical 125 Direct Deposit

Taxable Fringe Med Voluntary Cash

Non-Taxable Fringe State Involuntary Payroll Cards

Gross Pay minus Taxes minus Deductions equals Net Pay

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What are Examples of Gross Earnings?

Regular Earnings: Salary or Hourly

Overtime

Vacation/Sick/Personal/Holiday

Commission

Shift Pay

Taxable Fringe Benefits

Bonus

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There may be times when there are conflicts between federal law, state law, and local law

How do you know which one to use?

Example: FLSA Minimum Wage = $7.25 California Minimum Wage = $8.00 San Francisco Minimum Wage= $7.50

Example: FLSA Minimum Wage = $7.25 California Minimum Wage = $8.00 San Francisco Minimum Wage= $7.50

Very simple --- Whichever law benefits the employee

Employer must pay an employee at least the greater of federal law or state law

What is the current federal minimum wage?

Which should

you use?

Minimum Wage

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Who is Eligible for Overtime?

FLSA states that a non-exempt employee must receive overtime of at least one and one-half times their regular rate of pay for hours worked in excess of 40 within a workweek

What makes an employee non-exempt vs. exempt?

Non-exempt• Salary is less than $455/week• Job duties do not pass white collar test• Paid hourly

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What is the White Collar Test?

Three Parts of Test:1) Salary-level: (amount

the employee is paid) At least $455 per week

2) Salary-basis: (how the employee is paid)

Guaranteed salary for any week in which any work is performed

3) Duties: (the work that is performed)

Primary duty must meet specific criteria outlined within exemption

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Primary Job Duties for White Collar Exemptions

Executive A manager, someone who directs work of two or more workers, and/or has the

ability to hire/fire Administrative

Works in an office conducting non-manual work and exercises both discretion and independent judgment

Professional Has primary duty work in advanced knowledge in the field of science/learning, and

learned through specialized intellectual instruction OR performs Work requiring invention, imagination, originality, or talent in recognized field of artistic or creative endeavor

Computer Professional Performs application of systems analysis techniques; design, development, testing

or modification of computer; design, documentation, testing, or modification of computer programs related to machine operating systems; or a combination of the above and paid in accordance with the salary test or $27.63/hr or more

Outside Sales Representative The salary test does not apply to this exemption. Duties include making sales; or

obtaining orders or contracts for services or for the use of facilities. Must be customarily and regularly engaged away from the employer's place of business.

Employee vs. Independent Contractor

Employee vs. Independent Contractor

IRS Amnesty Program: The Voluntary Classification Settlement Program

In 2011, the IRS launched the Voluntary Classification Settlement Program (“VCSP”), which encourages employers to voluntarily reclassify independent contractors as employees for federal employment tax purposes. The VCSP provides partial tax relief to eligible employers that have consistently treated workers as independent contractors and agree to treat the workers as employees going forward.

The new Voluntary Classification Settlement Program is part of the IRS’s larger “Fresh Start” initiative to get more businesses and individual taxpayers into tax compliance and help close the tax gap.

Here are the eligibility requirements:

To be eligible, an applicant must consistently have treated the workers in the past as nonemployees, have filed all of the required Forms 1099 for its workers for the previous three years, and not currently be under audit by the IRS, the Department of Labor, or a state agency concerning the classification of workers.

Employers can apply for the new program by filing Form 8952, Application for Voluntary Classification Settlement Program, at least 60 days before they want to begin treating the workers as employees.

The potential relief afforded to employers includes: employers pay 10% of tax liability resulting from misclassification; not liable for penalties or interest for covered workers; not subject to an audit on payroll taxes for prior years. Note: The VCSP applies to federal employment taxes only; it does not relieve employer from obligations of FLSA, workers’ comp, and related laws.

IRS Amnesty Program: The Voluntary Classification Settlement Program

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Vacation & Sick Time

Fixed Amount

Examples:

Allowed 40 hrs sick time as of Jan 1st

Allowed 80 hrs vacation as of Jan 1st

What are some pros and cons of this method?

Accrued (Earned)

Examples:

Earn .77 hrs/pay period (.77x 52 = 40.00hrs/yr)

Can only take what they earned

What are some pros and cons of this method?

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What Are Some Deductions From Pay?

Voluntary Deductions or Assignments

Pre & Post Tax Deductions

Section 125 Benefit Deductions

Deferred Comp. Plans (e.g.401k, 403b, etc.)

Involuntary Deductions or Attachments

Tax Levies

Bankruptcy

Garnishments

Child Support

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Examples of Pre-Tax Deductions

Cafeteria Plans - Internal Revenue Code (IRC) Section 125

Deferred Compensation Plans

IRC Sections - 401k, 403b (non-profits)

Qualified Pension Plan Contribution Limits

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FIT SS/Med FUTA401k, 403b Y N NSection 125 Medical Y Y Y

Does pre-tax exemption apply?

Which Taxes Are Affected?

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How Do the Deductions Affect Wages?

FIT SS Medicare StateTaxable Taxable Taxable Taxable

Gross Pay $1,000 $1,000 $1,000 $1,000

Section 125 (Health Ins.) $100 $100 $100 $0

401k Deduction $50 $0 $0 $0

Taxable Pay $850 $900 $900 $1,000

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How Do the Deductions Affect Wages?

FIT SS Medicare StateTaxable Taxable Taxable Taxable

Gross Pay $1,000 $1,000 $1,000 $1,000

Section 125 (Health Ins.) $100 $100 $100 $0

401k Deduction $50 $0 $0 $0

Taxable Pay $850 $900 $900 $1,000

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How Do the Deductions Affect Wages?

FIT SS Medicare StateTaxable Taxable Taxable Taxable

Gross Pay $1,000 $1,000 $1,000 $1,000

Section 125 (Health Ins.) $100 $100 $100 $0

401k Deduction $50 $0 $0 $0

Taxable Pay $850 $900 $900 $1,000

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How Do the Deductions Affect Wages?

FIT SS Medicare StateTaxable Taxable Taxable Taxable

Gross Pay $1,000 $1,000 $1,000 $1,000

Section 125 (Health Ins.) $100 $100 $100 $0

401k Deduction $50 $0 $0 $0

Taxable Pay $850 $900 $900 $1,000

Decrease in taxable wages equal

Increase in employees’ net pay & a

Decrease in an employer’s tax liability.

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How is Federal Income Tax Calculated?

Methods of calculation:

Wage Bracket

Percentage

Who issues these tax tables and where do

you get them?

(insert a 2012 picture or take out)

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Social Security & Medicare (FICA)

What are the current tax rates for 2012?

What are the taxable wage limits?

Social Security-EE 4.2%

Social Security-ER 6.2%

Medicare 1.45%

Social Security $110,100

Medicare No Limit

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What Are the State Payroll Taxes?

State Income Tax (SIT)

State Unemployment Tax (SUI)

State Disability Tax (SDI)

***Know the taxes that apply to your specific state(s)

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Where can you find out info about specific states www.accountant.adp.com

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Agencies Affecting Payroll

Internal Revenue Service (IRS)

The IRS is the United States national tax collection agency

Audits your clients on payroll and taxes

U.S Department of Labor

Provides employment information, statistics and data

Maintains and enforces US labor laws and regulations, as well as compliance information

Examples: Labor law posters and time and attendance

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State Agencies

State Agencies

Department of Revenue: collects State Income Taxes

Unemployment Division: manages and collects unemployment taxes and benefits

Disability Division: oversees administration of disability benefits, where applicable (NY, NJ, CA, HI, RI, and Puerto Rico) State

Agencies collect funds

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Employee versus Employer Taxes

Refer to Tax Matrix Job Aid

FIT

Who Pays?

What is Tax Based On?

Any Limits?

Employee Only

Marital Status # of Exemptions

Gross Pay Pay Frequency

N/A

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Employee versus Employer Taxes

Refer to Tax Matrix Job Aid

SS

Who Pays?

What is Tax Based On?

Any Limits?

Employee & Employer

EE 4.2%

ER 6.2%

$110,100

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Employee versus Employer Taxes

Refer to Tax Matrix Job Aid

Medicare

Who Pays?

What is Tax Based On?

Any Limits?

Employee & Employer

1.45%

No Limit

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Employee versus Employer Taxes

Refer to Tax Matrix Job Aid

FUTA

Who Pays?

What is Tax Based On?

Any Limits?

Employer Only

6.2% (receive 5.4% credit if pay SUI correctly) = .8%

$7,000

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Employee versus Employer Taxes

Refer to Tax Matrix Job Aid

State Disability Insurance

Who Pays?

What is Tax Based On?

*EEs only in CA, HI, NY, RI

*Both EE & ER in NJ and Puerto Rico

Varies by State

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Employee versus Employer Taxes

Refer to Tax Matrix Job Aid

SUI

Who Pays?

What is Tax Based On?

Any Limits?

*Employer Only

*Employees pay too in NJ, PA, AK

Experience Rate:

1. # of claims filed2. Years of experience

Varies by State

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Employee versus Employer Taxes

Refer to Tax Matrix Job Aid

SIT

Who Pays?

What is Tax Based On?

Any Limits?

Employee Only

Varies by State

Varies by State

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Employee versus Employer Taxes

Refer to Tax Matrix Job Aid

CIT

Who Pays?

What is Tax Based On?

Any Limits?

Employee Only

Varies by State

Varies by State

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Tax Deposits

How are the federal tax funds deposited?

Form 8109 Coupon – Eliminated as of 1/1/2011

EFTPS – Electronic Federal Tax Payment System

All employers are required to deposit their taxes via EFTPS

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EFTPS

Electronic Federal Tax Payment System

Threshold is dropped from $200,000 to $.00 in 2011

Required to deposit electronically

– Banks will no longer accept Form 8109

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What is the Look Back Period? (needs to be updated)

Helps determine a company’s deposit frequency and due dates.

Based on federal deposit tax liability within a specified time frame

Look back period = July 1 - June 30 of previous year

July 1

Sept 30

Oct 1

Dec 31

Jan 1

Mar 31

Apr 1

Jun 30

CalendarYear

Jan - Dec

2009 2010 2011

Look Back Period for Calendar Year 2010

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Lookback Period Deposit Frequencies

If the total taxes for the lookback period are...

If the total taxes for the lookback period are...

The employer is covered under the...

The employer is covered under the...

And must make their deposits by...

And must make their deposits by...

$50,000 or less Monthly Depositor Rule

The 15th day of the following month

More than $50,000 Semi-weekly Depositor Rule

Wednesday or Friday, depending on what day of the week the employees are paid

Note: For new employers, the total taxes for the look back period are considered to be zero; therefore, new employers are considered under the Monthly Depositor Rule for their first year in business* Employer is still considered either Monthly or Semi-Weekly

Not applicable Next banking day*$100,000 or More

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Federal Payroll Filings

Federal payroll taxes are filed on which forms?

940 and 941

What must an employer file at the end of the year based on employee’s gross to net wages?

W-2 and W-3

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Reporting / Forms

Form Type of Tax FiledReturn

Due DateDeposit

Frequency

Form 940Federal

Unemployment Annual 1/31 Quarterly

Form 941FIT, SS,

Medicare, AEIC Quarterly4/30, 7/31, 10/31, 1/31

Monthly; Semi-Weekly

Form W-2FIT, SS,

Medicare, AEIC AnnualEE - 1/31

SSA - 2/28 N/AForm W-3 Transmittal

FIT, SS, Medicare, AEIC Annual SSA - 2/28 N/A

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Reporting / Forms

Form Type of Tax FiledReturn

Due DateDeposit

Frequency

Form 940Federal

Unemployment Annual 1/31 Quarterly

Form 941FIT, SS,

Medicare, AEIC Quarterly4/30, 7/31, 10/31, 1/31

Monthly; Semi-Weekly

Form W-2FIT, SS,

Medicare, AEIC AnnualEE - 1/31

SSA - 2/28 N/AForm W-3 Transmittal

FIT, SS, Medicare, AEIC Annual SSA - 2/28 N/A

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Reporting / Forms

Form Type of Tax FiledReturn

Due DateDeposit

Frequency

Form 940Federal

Unemployment Annual 1/31 Quarterly

Form 941FIT, SS,

Medicare, AEIC Quarterly4/30, 7/31, 10/31, 1/31

Monthly; Semi-Weekly

Form W-2FIT, SS,

Medicare, AEIC AnnualEE - 1/31

SSA - 2/29/12 N/AForm W-3 Transmittal

FIT, SS, Medicare, AEIC Annual SSA - 2/29/12 N/A

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Reporting / Forms

Type of Tax FiledReturn

Due DateDeposit

FrequencyTo what Agency

Federal Unemployment

Annual 940 1/31 Quarterly IRS

FIT, SS, Medicare, AEIC

Quarterly 941

4/30, 7/31, 10/31, 1/31

Monthly; Semi-Weekly IRS

FIT, SS, Medicare, AEIC

Annual W-2

EE - 1/31 SSA - 2/29/12 N/A SSA

FIT, SS, Medicare, AEIC

Annual W-3 SSA - 2/29/12 N/A SSA

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Closing

Calculating payroll can be complicated

Calculating payroll taxes as well as depositing & filing payroll taxes can be even more complicated.

Payroll can vary by state, city, locality

Payroll tax laws/limits seem to change yearly

Difficult to keep up with ever changing laws

Reference the Fast Wage & Tax Facts on www.accountant.adp.com to keep you current

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Questions?

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