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

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

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

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

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

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

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

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