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CHAPTER 1

0. Payroll Accounting 2006 Bernard J. Bieg. CHAPTER 1. THE NEED FOR PAYROLL AND PERSONNEL RECORDS. Developed by Lisa Swallow, CPA CMA MS. 0. Many Laws Affect Payroll. Fair Labor Standards Act of 1938 State Minimum Wage and Maximum Hour Laws Federal Insurance Contribution Act (FICA)

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CHAPTER 1

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  1. 0 Payroll Accounting 2006 Bernard J. Bieg CHAPTER 1 THE NEED FOR PAYROLL AND PERSONNEL RECORDS Developed by Lisa Swallow, CPA CMA MS

  2. 0 Many Laws Affect Payroll • Fair Labor Standards Act of 1938 • State Minimum Wage and Maximum Hour Laws • Federal Insurance Contribution Act (FICA) • Income Tax Withholding Laws • Unemployment Tax Acts • Fair Employment Laws • Other Federal and State Laws

  3. 0 Fair Labor Standards Act • Federal Wage & Hour Lawof 1938 • Administered by US Department of Labor Wage & Hour Division • if audited must provide records within 72 hours of notice • Sets law for companies involved: • in interstate commerce • in production of goods/services for interstate commerce • Requires payroll records be maintained • Minimum wage and overtime provisions • Equal pay for equal work provisions

  4. 0 State Minimum Wage & Maximum Hours Laws • Established minimum wage rates for specific industries • Employees covered by both federal and state laws receive the higher hourly rates • State minimum rates and regulations vary (www.dol.gov/dol/esa/public/minwage/america.htm) to see minimum wage by state

  5. 0 Federal Insurance Contribution Act (FICA) • FICA administered by SSA (Social Security Administration) • Comprised of two taxes paid by employers (ER) and employees (EE) • OASDI (Old Age, Survivors & Disability) • 6.2% of first $93,000 • ER and EE pay • HI (Hospital Insurance, part of Medicare*) • 1.45% with no ceiling • ER and EE pay *Medicare consists of HI and optional supplemental medical paid by individual – matched by federal government

  6. 0 Income Tax Withholding Laws • Federal income tax • 16th amendment in 1913 authorized income tax • Current Tax Payment Act in 1943 authorized withholding from wages • State and local income tax • Withholding from paychecks • Different in each state

  7. 0 Unemployment Tax Acts • FUTA (Federal Unemployment Tax Act) • Passed in 1935 • Incorporated in Internal Revenue Code (IRC) • ER tax – Tax paid on $7,000 per EE per year • ER gets credit for SUTA paid against FUTA • Taxes used to pay state and federal administrative expenses, not used to pay unemployment benefits

  8. 0 Unemployment Tax Acts (continued) • 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 • Used to pay unemployment benefits

  9. 0 Fair Employment Laws • Title VII of the Civil Rights Act of 1964 • 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

  10. 0 Fair Employment LawsAge Discrimination Employment Act (ADEA) • ADEA states employers cannot use age to discriminate against hiring/firing/promoting • Applies to employers with 20+ employees • Exception to rule is • employees aged 65 or over • who hold key strategic decision-making positions • can face mandatory retirement if annual pension from ER will be at least $44,000

  11. 0 Fair Employment Laws Americans with Disabilities Act • Known as ADA • Prevents employers with 15 or more 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

  12. 0 Other Federal LawsPersonal Responsibility & Work Opportunity Reconciliation Act • Requires employers to report all new hires • Records coordinated through Office of Child Support Enforcement (OCSE) • A few states now require same from independent contractors

  13. 0 Other Federal Laws Family Medical Leave Act • EE guaranteed 12 weeks unpaid leave for: • birth, death, adoption, critical care • can use for child, spouse or parent • ER continues health care coverage • 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 • Covers companies with 50+ employees within 75 mile radius

  14. 0 Other Federal LawsEmployee Retirement Income Security Act • Known as ERISA • Trustees must monitor pension plans • Vested 100% in 5-7 years Example of a vesting plan Years of % Vested in Service Pension Plan 2 50% 4 75% 5 100% • Provides for PBGC • Pension Benefit Guaranty Corporation - a federal agency which guarantees benefits to employees

  15. 0 Other Federal LawsImmigration Reform and Control Act • Known as IRCA • Bars hiring and retaining aliens unauthorized to work in U.S. • 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

  16. 0 State Laws • Workers Compensation • employers must pay workers compensation premiums in each state they operate • can self insure if state approved • in most states only the employer pays • State Disability Benefit Laws • a handful of states have established laws requiring employers to provide disability benefits to employees that become disabled • this applieseven if the disability did not arise due to employment!

  17. 0 Human Resource System • FLSA requires stringent personnel record- keeping • Application/screening document design and retention also critical [prehire inquiries] • No questions alluding to religion, gender, race or national origin • unless implicates 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. 0 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

  19. 0 Human Resource System (continued) • Employee history record 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

  20. 0 Outsourcing Payroll • Many small to mid-sized businesses hire a payroll company to do their processing • This company responsible for compliance and can quickly and efficiently process payroll

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