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Welcome to Unit 2 Payroll Accounting

Welcome to Unit 2 Payroll Accounting. AC122-01. Payroll Profession. Positions within payroll profession Range from payroll clerk to senior payroll manager Average entry-level salary is $33,409 Professional membership – American Payroll Association (APA) Certified Payroll Professional exam

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Welcome to Unit 2 Payroll Accounting

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  1. Welcome to Unit 2 Payroll Accounting AC122-01

  2. Payroll Profession • Positions within payroll profession • Range from payroll clerk to senior payroll manager • Average entry-level salary is $33,409 • Professional membership – American Payroll Association (APA) • Certified Payroll Professional exam • Code of Ethics sets direction for profession

  3. Many Laws Affect Payroll • Fair Labor Standards Act (FLSA) of 1938 • State minimum wage and maximum hour laws • Federal Insurance Contribution Act (FICA) • Income tax withholding laws • Federal, state and local • Unemployment tax acts • Fair employment laws • Other federal and state laws

  4. FairLabor Standards Act • Federal Wage & Hour Law of 1938 • Minimum wage is $7.25/hour • Equal pay for equal work provisions • Sets law for companies involved • In interstate commerce or • In production of goods/services for interstate commerce • Requires payroll records be maintained

  5. 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

  6. 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 paychecks • Different in each state • Not all states have state income tax

  7. UnemploymentTax 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

  8. 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 states See http://www.eeoc.gov/ for more information Applies to all ERs who engage in an industry affecting commerce and employ 15 or more workers in each of 20 or more weeks

  9. 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 employees • Provides protection to workers over 40 • With a few key exceptions

  10. 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.

  11. 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 number • Records 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

  12. ImmigrationReform and Control Act (IRCA) • Law that bars hiring and retaining aliens unauthorized to work in U.S. • Accomplished by employee completing FormI-9within three business days of employment • U.S. Citizenship & Immigration Services may audit and levy penalties • Criminal penalties can apply if pattern of discriminatory practices found • E-Verify is a system that allows ERs to check employment eligibility of new hires

  13. FamilyMedical 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

  14. 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 intact • Health benefits must be started without a waiting period • Doesn’t apply if dishonorably discharged

  15. EmployeeRetirement Income Security Act (ERISA) • Trustees must monitor pension plans • Vested 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

  16. 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 Laws • Five 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!

  17. Human Resource System • FLSA requires stringent personnel record-keeping • Application for Employment (Application form) • 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

  18. 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 recordcontains performance evaluations, compensation adjustments, disciplinary issues, etc. Critical area – employment related litigation is very expensive and often times avoidable

  19. 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

  20. Record Keeping Requirements: • Employee Data: • Name, Address, Gender, DOB, FLSA FICA, FIT and FUTA • Employment Data: • Wages, hours worked per day/per week, overtime hours and rate, exempt pay, pay periods and dates of payment. • Tax Data: • Employee wages that are subject to taxes for a pay period and calendar year. • General Data: • Record keeping data

  21. HUMAN RESOURCES HIRING PROCESS: • Receive request for new employee • Examine Application form • Interview Applicants • Administer Tests • Check References • Select and Notify Successful Applicants • Send Information to Payroll Department • Prepare Personnel file

  22. Payroll Register • List of all employees for each pay period showing their gross pay, deductions and net pay. • Generally used for compliance with FLSA

  23. Employee Earnings • Employee’s earnings record is a separate record for each employee showing the same information as the payroll register along with accumulated earnings. • Used to prepare: • W-2s • Wage and Tax Statements

  24. Current Legislation • Hiring Incentives to Restore Employment Act (HIRE) – 3/18/10 • Gives ER tax credits if pay wages to previously unemployed new hire • Health Care and Education Reconciliation Act (HCERA) – 3/30/10 • Most provisions effective 2014 • Immediately ER must include cost of ER-provided health coverage on EE’s Form W-2 • Patient Protection & Affordable Care Act – 3/23/10 • Offers tax credit to small ERs who offer health insurance to EEs

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