Payroll Accounting 2013 Bernard J. Bieg and Judith A. Toland

1. Payroll Accounting 2013Bernard J. Bieg and Judith A. Toland CHAPTER 5 CHAPTER 1 THE NEED FOR PAYROLL & PERSONNEL RECORDS Developed by Lisa Swallow, CPA CMA MS

2. Learning Objectives • Identify various laws that affect employers in their payroll operations • Examine the recordkeeping requirements of these laws • Describe employment procedures generally followed in a Human Resources Department • Recognize the various personnel records used by businesses and outline the type of information shown on each form • Identify the payroll register and the employee’s earnings record

3. 0 Many Laws Affect Payroll • Fair Labor Standards Act (FLSA) • Federal Insurance Contribution Act (FICA) • Income tax withholding laws • Federal, state and local • Unemployment tax acts • Fair employment laws • Other federal laws • State minimum wage and maximum hour laws and other state specific laws LO-1

4. Current Legislation • Health Care and Education Reconciliation Act (HCERA) • Signed into law 3/30/10 • Most provisions effective 2014 • Beginning 2013 single filers with wages over $200,000 and joint filers with wages over $250,000 must pay additional Medicare taxes • Patient Protection & Affordable Care Act • Signed into law 3/23/10 • Offers tax credit to small employers who offer health insurance to employees • If employer pays 50% or more of cost of premium, the credit is 35% (25% for tax exempt organizations) LO-2

5. 0 State Laws • Workers’ Compensation Laws • 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! LO-2

6. 0 Human Resource System • In many mid- and large-sized companies, the human resources (HR) system sets procedures/methods for recruiting, selecting, orienting, training and terminating personnel • FLSA requires stringent personnel recordkeeping – embodied in the HR System • Requisition for Personnel notifies HR of need for new employees • Application for Employment completed by person seeking employment • No law prohibiting questions about religion, gender, race, age or national origin - but must tie into ability to perform job (for example, bilingual capabilities) • Aptitude testing only legal if related to job performance, lie detector tests are illegal and drug testing is dependent upon employer’s state of origin • Preparing comprehensive job descriptions protects companies from discrimination charges LO-3

7. 0 Human Resource System – Personnel Records • Reference Inquiry conducted before employment • 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 Record contains performance evaluations, compensation adjustments, disciplinary issues, performance appraisals, etc. Critical area – employment related litigation is very expensive and often times avoidable LO-4

8. 0 Payroll Accounting System • All procedures and methods related to disbursement of pay to employees – documentation may include • Payroll Register - compiles data per payroll period • Employee Earnings Record - outlines earnings per period, quarter-to-date and year-to-date for each employee • Paycheck written or direct deposit made • Outsourcing Payroll • Many small- to mid-sized businesses hire a payroll company to do their processing • This is an independent company responsible for compliance LO-4