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

Many Laws Affect Payroll zFair Labor Standards Act of 1938 zState Minimum Wage and Maximum Hour Laws zFederal Insurance Contribution Act (FICA) zIncome Tax Withholding Laws zUnemployment Tax Acts zFair Employment Laws zOther Federal Laws

Fair Labor Standards Act of 1938 zFederal Wage & Hours Law zAdministered by US Department of Labor Wage & Hour Division yif audited must provide records within 72 hours of notice zSets law for companies involved: y in interstate commerce yIn production of goods/services for interstate commerce zRequires payroll records be maintained zMinimum wage and overtime provisions zEqual pay for equal work provisions

State Minimum Wage & Maximum Hours Law zEstablished minimum wage rates for specific industries zEmployees covered by both federal and state laws receive the higher hourly rates zState minimum rates and regulations vary

Federal Insurance Contributions Act (FICA) zFICA administered by SSA (Social Security Administration) zComprised of two taxes paid by employers (ER) and employees (EE) yOASDI (Old Age, Survivors & Disability) x6.2% of first $89,700 xER and EE pay yHI (Hospital Insurance, part of Medicare*) x1.45% with no ceiling xER and EE pay x*Medicare consists of HI and optional supplemental medical paid by individual – matched by federal government

Income Tax Withholding Laws zFederal income tax in 1913 y16 th amendment in 1913 authorized income tax yCurrent Tax Payment Act in 1943 authorized withholding from wages zState and local income tax yWithholding from paychecks yDifferent in each state

Unemployment Tax Acts zFUTA (Federal Unemployment Tax Act) yPassed in 1935 yIncorporated in Internal Revenue Code (IRC) yER tax - Paid on $7,000 per EE per year yER gets credit for SUTA paid against FUTA yTaxes used to pay state and federal administrative expenses, not used to pay unemployment benefits

Unemployment Tax Acts (continued) 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 yUsed to pay unemployment benefits

Fair Employment Laws 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

Fair Employment Laws (continued) - Age Discrimination Employment Act of 1967 zADEA states employers cannot use age to discriminate against hiring/firing/promoting yApplies to employers with 20+ employees yException to rule is employees aged 65 or over, who hold key strategic decision-making positions, can face mandatory retirement if annual pension from the employer will be at least $44,000

Fair Employment Laws (continued) - Americans with Disabilities Act of 1990 yKnown as ADA yPrevents employers with 15 or more 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)

Other Federal Laws - Personal Responsibility and Work Opportunity Reconciliation Act of 1996 zRequires employers to report all new hires yRecords coordinated through Office of Child Support Enforcement (OCSE) y5 states now require same from independent contractors

Other Federal Laws (continued) – Employee Retirement Income Security Act zKnown as ERISA 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

Other Federal Laws (continued) - Pension Plans zIRA (Individual Retirement Account) allows employees to contribute up to $3000/year (subject to certain income limitations) into a retirement account pretax yan employer can offer this option to employees, but it is not subject to ERISA zSIMPLE (Savings Incentive Match Plan for Employees) allows EE to contribute up to $8000/year into tax deferred account yfor companies with less than 100 employees z401(k) allows EE to contribute pretax compensation to pension plan; ER may chose to match the EE’s contributions ymaximum EE deferral allowed is $12,000 for 2003

Other Federal Laws (continued) – Immigration Reform and Control Act of 1986 zKnown as IRCA zBars hiring and retaining aliens unauthorized to work in U.S. 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

Other Federal Laws (continued) – Family Medical Leave Act 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 yER continues health care coverage 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

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/birth date, 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) zEmployee history record 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