CHAPTER 1 THE NEED FOR PAYROLL AND PERSONNEL RECORDS Developed by Lisa Swallow, CPA CMA MS Payroll Accounting 2004 Bernard J. Bieg

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 ( 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 $88,200  ER and EE pay  HI (Hospital Insurance, part of Medicare*)  1.45% with no ceiling  ER and EE pay  *Medicare consists of HI and optional supplemental medical paid by individual – matched by federal government

Income Tax Withholding Laws  Federal income tax  16 th 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

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 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)

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 ServicePension Plan 250% 475% 5100%  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  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