CHAPTER 1 THE NEED FOR PAYROLL AND PERSONNEL RECORDS Developed by Lisa Swallow, CPA CMA MS

Many Laws Affect Payroll zFederal income tax – 16 th amendment to constitution  1943 – withholding from paychecks started (Current Tax Payment Act) zState income tax  Different in each state

Federal Insurance Contributions Act zFICA administered by SSA (Social Security Administration) zComprised of two taxes yOASDI (Old Age, Survivors & Disability) x6.2% of first $84,600 xER and EE pay yHI (Hospital Insurance known as Medicare) x1.45% with no ceiling

FUTA zFUTA (Federal Unemployment Tax Act) yPassed in 1935 yIncorporated in Internal Revenue Code (IRC) yER tax - Paid on $7000 per EE per year yER gets credit for SUTA paid against FUTA yTaxes used to pay administrative expenses, not used to pay unemployment benefits

SUTA zSUTA (State Unemployment Tax Act) yMandatory unemployment insurance - each state has different laws ySSA outlines what kinds of standards each state’s unemployment compensation law must follow yGenerally an ER tax - in some states, EE also pay

Fair Labor Standards Act zFLSA zFederal Wage & Hours Law zAdministered by USDL Wage & Hour Division yif audited must provide records within 72 hours of notice zSets law for companies involved in interstate commerce zRequires payroll records maintained zMinimum wage and overtime provisions zExempt vs. Nonexempt employees yProfessional yAdministrative yExecutive

Family Medical Leave Act zFMLA of 1993 zCompanies with 50+ employees within 75 mile radius zEE guaranteed 12 weeks unpaid leave for: ybirth, death, adoption, critical care ycan use for child, spouse or parent zRight to return to same/comparable job and continue health coverage in absence zExempts 10% most highly compensated and those in job under one year

Title VII of the Civil Rights Act of 1964 zKnown as EEO (Equal Employment Opportunity) zCan’t discriminate in hiring, firing, promotion or compensating based on ycolor yrace yreligion ynational origin ygender zGender orientation added in certain states See for more information

Other Civil Rights Law zADEA (Age Discrimination in Employment Act) of 1967 adds age to list of items employers cannot use to discriminate yApplies to employers with 20+ employees yException to rule is employees aged 65+ who hold key strategic decision-making positions, they can face mandatory retirement if annual pension => $44,000

Americans with Disabilities Act yKnown as ADA yPassed in 1990 yPrevents employers with 15+ employees from discriminating against disabled employees and job candidates based upon disability yReasonable accommodation must be provided (this is a very vague term and subject to court interpretation) yMany companies needed to rewrite job descriptions to specify physical requirements for jobs

ERISA zEmployee Retirement Income Security Act of 1974 zTrustees must monitor pension plans zVested 100% in 5-7 years Example of a vesting plan zProvides for PBGC yPension Benefit Guaranty Corporation - a federal agency which guarantees benefits to employees

Pension Plans zIRA (Individual Retirement Account) allows employees to contribute up to $3000/year (subject to certain income limitations) into a retirement account pretax (FIT and SIT) - an employer can offer this option to employees, but it is not subject to ERISA zSIMPLE (Savings Incentive Matching Plan for Employees) allows EE to contribute up to $7000/year into tax deferred account -for companies with less than 100 employees z401(k) allows EE to contribute pretax (FIT and SIT) compensation to pension plan; ER may chose to match the EE’s contributions (maximum EE deferral allowed is $11,000 for 2002)

IRCA zImmigration Reform and Control Act zPassed in 1986 zINS (Immigration and Naturalization Services) requires proof of citizenship zAccomplished by employee completing I-9 within 3 days of employment zHefty civil penalties for noncompliance

Personal Responsibility and Work Opportunity Reconciliation Act zKnown as “Welfare Reform” zContains 215 provisions zRequires employers to report all new hires zRecords coordinated through Office of Child Support Enforcement (OCSE) zEach state required to have centralized collection/disbursement by 10/98

Health Insurance Portability & Accountability Act zAvailable to employees covered under high deductible health insurance plans and self- employed zEstablished MSA (medical savings accounts) zER contributions excluded from FIT/FICA zEE contributions deductible on tax return zLong term care insurance premiums paid for by ER excludable from EE income (FIT/FICA)

Human Resource System zFLSA requires stringent personnel record- keeping zApplication/screening document design and retention also critical yNo questions alluding to religion, gender, race or national origin (unless implicates ability to perform job - for example, bilingual capabilities) as may violate EEOC yIf application asks age/birthdate, should contain ADEA language notifying candidate of anti- discriminatory provisions

Human Resource System (continued) zReference Checks yDue to amount of litigation in this area, respondents should only verify facts (not offer subjective information) yReally diminishes credibility of reference inquiries xOr prospective ER may require applicant to sign “Employment Reference Release” form zInterview records should be written/retained zEmployment offer yProvides 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) zPermanent personnel file contains performance evaluations, compensation adjustments, disciplinary issues, etc. zPayroll Department documentation yHiring Notice (from hiring department) states rate of pay, W-4 information, etc. yPayroll Register compiles data per paycheck yEE Earnings Record outlines earnings per period, quarter-to-date and year-to-date for each EE