Streamline. Connect. Reward. Payroll 101 CPE Seminar Streamline. Connect. Reward. The ADP logo, ADP, TotalSource and Resource are registered trademarks of ADP, Inc. In the Business of Your Success is a service mark of ADP, Inc.

Tax Depositing and Filing ***What’s New*** Agenda The Payroll Equation Earnings Deductions Taxes Tax Depositing and Filing ***What’s New***

At the end of the session, participants should be able to: Objectives & Agenda At the end of the session, participants should be able to: Present the payroll equation Identify types of payroll earnings and how they are taxed Distinguish between a voluntary and involuntary deduction List employee vs. employer taxes as well as corresponding tax forms and filing frequencies Determine when a company needs to make payroll tax deposits

What is the Payroll Equation? How Do You Arrive at Net Pay?      Gross Pay minus Taxes minus Deductions equals Net Pay Examples Gross Pay - Taxes - Other Deductions = Net Pay Regular FIT 401k Check Overtime SS Medical 125 Direct Deposit Taxable Fringe Med Voluntary Cash Non-Taxable Fringe State Involuntary Payroll Cards

What are Examples of Gross Earnings? Q – What are different types of gross earnings? Solicit responses. Display slide. Regular Earnings: Salary or Hourly Overtime Vacation/Sick/Personal/Holiday Commission Shift Pay Taxable Fringe Benefits Bonus Shift pay can be calculated as dollars/cents times hours or a percentage of earnings Contract work is usually non-taxable 1099 earnings.

$7.25 What is the current federal minimum wage? Transition: Let’s start with regular pay, specifically minimum wage. What is the current federal minimum wage? $7.25 There may be times when there are conflicts between federal law, state law, and local law How do you know which one to use? Very simple --- Whichever law benefits the employee Employer must pay an employee at least the greater of federal law or state law Ask the questions below before you click to reveal slide. Q - Who can tell me what the Federal minimum wage is? $5.85 per hour. Q - Who has a state minimum wage that differs from the Federal? Solicit responses. Q - How can an employer decide which one to use? Pay the higher of the two. Reveal slide. Example: FLSA Minimum Wage = $7.25 California Minimum Wage = $8.00 San Francisco Minimum Wage= $7.50 Which should you use?

Who is Eligible for Overtime? FLSA states that a non-exempt employee must receive overtime of at least one and one-half times their regular rate of pay for hours worked in excess of 40 within a workweek What makes an employee non-exempt vs. exempt? Q – Who can explain what makes an employee exempt or non-exempt from overtime? Based on the white collar test which is explained on the following slide Non-exempt Salary is less than $455/week Job duties do not pass white collar test Paid hourly

What is the White Collar Test? Three Parts of Test: Salary-level: (amount the employee is paid) At least $455 per week Salary-basis: (how the employee is paid) Guaranteed salary for any week in which any work is performed Duties: (the work that is performed) Primary duty must meet specific criteria outlined within exemption

Primary Job Duties for White Collar Exemptions Executive A manager, someone who directs work of two or more workers, and/or has the ability to hire/fire Administrative Works in an office conducting non-manual work and exercises both discretion and independent judgment Professional Has primary duty work in advanced knowledge in the field of science/learning, and learned through specialized intellectual instruction OR performs Work requiring invention, imagination, originality, or talent in recognized field of artistic or creative endeavor Computer Professional Performs application of systems analysis techniques; design, development, testing or modification of computer; design, documentation, testing, or modification of computer programs related to machine operating systems; or a combination of the above and paid in accordance with the salary test or $27.63/hr or more Outside Sales Representative The salary test does not apply to this exemption. Duties include making sales; or obtaining orders or contracts for services or for the use of facilities. Must be customarily and regularly engaged away from the employer's place of business.

Employee vs. Independent Contractor The classification of workers as employee vs. independent contractors tend to be among the top reasons a business is out of compliance. A recent edition of ADP’s Tax Researcher highlights some of the areas to be considered when classifying a worker.

Employee vs. Independent Contractor Reference this Tax Researcher showing areas to be considered

IRS Amnesty Program: The Voluntary Classification Settlement Program In 2011, the IRS launched the Voluntary Classification Settlement Program (“VCSP”), which encourages employers to voluntarily reclassify independent contractors as employees for federal employment tax purposes. The VCSP provides partial tax relief to eligible employers that have consistently treated workers as independent contractors and agree to treat the workers as employees going forward. The new Voluntary Classification Settlement Program is part of the IRS’s larger “Fresh Start” initiative to get more businesses and individual taxpayers into tax compliance and help close the tax gap.

IRS Amnesty Program: The Voluntary Classification Settlement Program Here are the eligibility requirements: To be eligible, an applicant must consistently have treated the workers in the past as nonemployees, have filed all of the required Forms 1099 for its workers for the previous three years, and not currently be under audit by the IRS, the Department of Labor, or a state agency concerning the classification of workers. Employers can apply for the new program by filing Form 8952, Application for Voluntary Classification Settlement Program, at least 60 days before they want to begin treating the workers as employees. The potential relief afforded to employers includes: employers pay 10% of tax liability resulting from misclassification; not liable for penalties or interest for covered workers; not subject to an audit on payroll taxes for prior years. Note: The VCSP applies to federal employment taxes only; it does not relieve employer from obligations of FLSA, workers’ comp, and related laws.

Vacation & Sick Time Fixed Amount Examples: Say: Another type of earnings category is Vacation and Sick. Q – How many of you have had clients ask you how to handle vacation and sick time? Let’s talk about how you might advise them. There are two basic ways: Fixed amount -employees are awarded a set amount of time for the year. Accrual - time earned as employees are paid throughout the year, Display slide. Here’s an example: Q – What are the pros and cons of these two options? Fixed Amount Pros – easy to calculate & track. Con – if employee leaves they’re owed the entire amount of unused time Accrual : Pros – if employee leaves, only due the amount accrued, reduced employer liability. Con – more difficult and time consuming to calculate Fixed Amount Examples: Allowed 40 hrs sick time as of Jan 1st Allowed 80 hrs vacation as of Jan 1st What are some pros and cons of this method? Accrued (Earned) Earn .77 hrs/pay period (.77x 52 = 40.00hrs/yr) Can only take what they earned

What Are Some Deductions From Pay? Voluntary Deductions or Assignments Pre & Post Tax Deductions Section 125 Benefit Deductions Deferred Comp. Plans (e.g.401k, 403b, etc.) Involuntary Deductions or Attachments Tax Levies Bankruptcy Garnishments Child Support Say: There are two categories of deductions: Assignments – Any voluntary deduction that an employee wants taken out of their paycheck Attachments – Any deduction that is involuntary and is made mandatory by an outside party Q – What are some other examples of employee deductions? Union dues Health benefit deductions Stock purchase Loans

Examples of Pre-Tax Deductions Cafeteria Plans - Internal Revenue Code (IRC) Section 125 Deferred Compensation Plans IRC Sections - 401k, 403b (non-profits) IRC = Internal Revenue Code Q – How many of you have clients who are currently offering a cafeteria or retirement plan to their clients? Let’s go into how these pre-tax deductions can affect wages and which specific taxes are considered.

Qualified Pension Plan Contribution Limits

Which Taxes Are Affected? Stress: Because an assignment is pre-tax, does not mean that it is excluded from all taxes. Taxation can vary by state and by type of pre-tax deduction. Q – What taxes are exempt for 401k deductions? Federal income tax Q- What taxes are exempt for Section 125 deductions? Solicit responses Federal income tax, Social Security, Medicare, and FUTA Reveal slide

How Do the Deductions Affect Wages? Say: Pre-tax deductions are important because they lower the taxable pay increasing the employees’ net pay. Even more importantly, employers can save money with their FICA match if they institute a Section 125 for their benefits. Let’s assume that the employee’s gross pay is $1,000. If he/she didn’t have any pre-tax deductions then the taxes wouldn’t be affected but let’s see what deductions this employee has…

How Do the Deductions Affect Wages? Say: If there is a $100 pre-tax health insurance deduction, it’s non-taxable for FIT, SS, Medicare but taxable for state.

How Do the Deductions Affect Wages? Say: If an employee has a $50 401k deduction. It’s non-taxable for Federal Income tax. 401k deductions are also pre-tax or non-taxable in several states for state income tax. Check your tax guide for information on specific states.

How Do the Deductions Affect Wages? Decrease in taxable wages equal Increase in employees’ net pay & a Decrease in an employer’s tax liability. Say: We see here that based on the pre-tax deductions taken out of this employee’s check, his/her taxable gross was, in most cases, reduced. Essentially, having pre-tax deductions lowers the amount of FIT, Social Security and Medicare the employee will have to pay, increasing their net pay. This is a benefit to the employee but also helps with employee retention because it’s an added benefit. It also reduces an employer’s Federal Deposit (8109) tax liability saving a company money.

How is Federal Income Tax Calculated? (insert a 2012 picture or take out) Methods of calculation: Wage Bracket Percentage Who issues these tax tables and where do you get them?

Social Security & Medicare (FICA) Q – What is the current SS/Medicare percentage? SS – 6.2% Medicare 1.45% Total 7.65% Q – What are the limits? $110,100 No limit for Medicare What are the current tax rates for 2012? What are the taxable wage limits? Social Security-EE 4.2% Social Security-ER 6.2% Medicare 1.45% Social Security $110,100 Medicare No Limit

Another example of ADP’s Tax Researcher to reference.

What Are the State Payroll Taxes? State Income Tax (SIT) State Unemployment Tax (SUI) State Disability Tax (SDI) Briefly mention these items. Distribute Fast Wage & Tax Facts for the state in which you are giving the presentation ***Know the taxes that apply to your specific state(s)

Where can you find out info about specific states www. accountant. adp Where can you find out info about specific states www.accountant.adp.com

Agencies Affecting Payroll Q - After the payroll is calculated and distributed, the employer’s work is not done. What else does the employer have to do? Calculate and deposit taxes. Say: Let’s take a look at these agencies in more detail. Internal Revenue Service (IRS) The IRS is the United States national tax collection agency Audits your clients on payroll and taxes U.S Department of Labor Provides employment information, statistics and data Maintains and enforces US labor laws and regulations, as well as compliance information Examples: Labor law posters and time and attendance Say: It is important to build an awareness with your client about their employer responsibilities to the various regulatory agencies. Lack of compliance and/or misuse of payroll funds can result in severe penalties

State Agencies collect funds Department of Revenue: collects State Income Taxes Unemployment Division: manages and collects unemployment taxes and benefits Disability Division: oversees administration of disability benefits, where applicable (NY, NJ, CA, HI, RI, and Puerto Rico) State Agencies collect funds

Employee versus Employer Taxes FIT Employee Only Who Pays? Pass out the Tax Matrix Job Aids to each member of the audience Review the next 8 slides slowly asking the audience to fill in the answer to each empty box. Click to reveal the answer once you’ve asked the question. Marital Status # of Exemptions Gross Pay Pay Frequency What is Tax Based On? Any Limits? N/A Refer to Tax Matrix Job Aid

Employee versus Employer Taxes SS Employee & Employer Who Pays? EE 4.2% ER 6.2% What is Tax Based On? Any Limits? $110,100 Refer to Tax Matrix Job Aid

Employee versus Employer Taxes Medicare Employee & Employer Who Pays? What is Tax Based On? 1.45% Any Limits? No Limit Refer to Tax Matrix Job Aid

Employee versus Employer Taxes FUTA Employer Only Who Pays? 6.2% (receive 5.4% credit if pay SUI correctly) = .8% What is Tax Based On? Any Limits? $7,000 Refer to Tax Matrix Job Aid

Employee versus Employer Taxes State Disability Insurance *EEs only in CA, HI, NY, RI *Both EE & ER in NJ and Puerto Rico Who Pays? What is Tax Based On? Varies by State Refer to Tax Matrix Job Aid

Employee versus Employer Taxes SUI *Employer Only *Employees pay too in NJ, PA, AK Who Pays? Experience Rate: 1. # of claims filed 2. Years of experience What is Tax Based On? Varies by State Any Limits? Refer to Tax Matrix Job Aid

Employee versus Employer Taxes SIT Employee Only Who Pays? What is Tax Based On? Varies by State Varies by State Any Limits? Refer to Tax Matrix Job Aid

Employee versus Employer Taxes CIT Employee Only Who Pays? What is Tax Based On? Varies by State Varies by State Any Limits? Refer to Tax Matrix Job Aid

How are the federal tax funds deposited? Tax Deposits How are the federal tax funds deposited? Form 8109 Coupon – Eliminated as of 1/1/2011 EFTPS – Electronic Federal Tax Payment System All employers are required to deposit their taxes via EFTPS

Electronic Federal Tax Payment System EFTPS Electronic Federal Tax Payment System Threshold is dropped from $200,000 to $.00 in 2011 Required to deposit electronically Banks will no longer accept Form 8109

What is the Look Back Period? (needs to be updated) Helps determine a company’s deposit frequency and due dates. Based on federal deposit tax liability within a specified time frame Look back period = July 1 - June 30 of previous year Look Back Period for Calendar Year 2010 2009 2010 2011 July 1 Sept 30 Oct 1 Dec 31 Jan 1 Mar 31 Apr 1 Jun 30 Calendar Year Jan - Dec

Lookback Period Deposit Frequencies If the total taxes for the lookback period are... The employer is covered under the... And must make their deposits by... Monthly Depositor Rule The 15th day of the following month $50,000 or less More than $50,000 Semi-weekly Depositor Rule Wednesday or Friday, depending on what day of the week the employees are paid Q - If an employer pays $46,000 in federal taxes during July 1 to June 30st, how often would they deposit their taxes? Monthly Q - If an employer was a monthly depositor and by March they have deposited over $51,000 of federal taxes, what type of depositor would they be for March? Q - What type of depositor would they be the next calendar year? Semi-weekly Q – What will ADP do to help the client who us subject to the next day deposit rule or the quarterly deposit rule? The client during FLT will be analyzed and ADP will determine based on the current and previous information what kind of depositor they are. Transition: Q - How do employers transfer monies to the federal government? Not applicable Next banking day* $100,000 or More Note: For new employers, the total taxes for the look back period are considered to be zero; therefore, new employers are considered under the Monthly Depositor Rule for their first year in business * Employer is still considered either Monthly or Semi-Weekly

Federal Payroll Filings Federal payroll taxes are filed on which forms? 940 and 941 What must an employer file at the end of the year based on employee’s gross to net wages? W-2 and W-3

Reporting / Forms This should be a review.

Reporting / Forms This should be a review.

Reporting / Forms This should be a review.

Reporting / Forms This should be a review.

Closing Calculating payroll can be complicated Calculating payroll taxes as well as depositing & filing payroll taxes can be even more complicated. Payroll can vary by state, city, locality Payroll tax laws/limits seem to change yearly Difficult to keep up with ever changing laws Reference the Fast Wage & Tax Facts on www.accountant.adp.com to keep you current

Questions?

For Additional CPE Credits Ask Your Local ADP Representative How Go to www.accountant.adp.com and click on “CPE Program” to see a list of topics