THE NEED FOR PAYROLL AND PERSONNEL RECORDS Payroll Accounting 2005 Bernard J. Bieg CHAPTER 1 THE NEED FOR PAYROLL AND PERSONNEL RECORDS Developed by Lisa Swallow, CPA CMA MS

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

Fair Labor Standards Act of 1938 Federal Wage & Hours Law 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

State Minimum Wage & Maximum Hours Law 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

Federal Insurance Contributions 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 $89,700 ER and EE pay HI (Hospital Insurance, part of Medicare*) 1.45% with no ceiling *Medicare consists of HI and optional supplemental medical paid by individual – matched by federal government

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

Unemployment Tax Acts FUTA (Federal Unemployment Tax Act) Passed in 1935 Incorporated in Internal Revenue Code (IRC) ER 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

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

See http://www.eeoc.gov/ for more information Fair Employment Laws Known as 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

Fair Employment Laws Age 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

Fair Employment Laws Americans w/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)

Requires employers to report all new hires Other Federal Laws: Personal Responsibility & Work Opportunity Reconciliation Act Requires employers to report all new hires Records coordinated through Office of Child Support Enforcement (OCSE) 5 states now require same from independent contractors

Other Federal Laws: Employee 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

Other Federal Laws: Immigration 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

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 Companies with 50+ employees within 75 mile radius

State Laws Workers Compensation State Disability Benefit Laws employers must pay workers compensation premiums in each state they operate alternatively, the employer can establish a state approved self-insurance scheme 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 applies even if the disability did not arise due to employment!

Human Resource System FLSA requires stringent personnel record- keeping Application/screening document design and retention also critical No questions alluding to religion, gender, race or national origin unless implicates ability to perform job (for example, bilingual capabilities) as may violate EEOC If application asks age/birth date, should contain ADEA language notifying candidate of anti-discriminatory provisions

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

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