1. Payroll Source Review Course Spring 2017
Paying the Employee
Payroll Source
Review Course Spring 2017
Presented by:
Carmela Miller, CPP

2. Chapter 5 ------ Objectives
Pay Frequency
Payment on Termination
Payment Methods
Cash or Check
Direct Deposit
Electronic Paycards
Branded vs. Non-Branded

3. Objectives cont. Pay Statements Unclaimed Paychecks (Escheatment)
Wages owed to deceased Employees
Extra Pay Periods (53rd pay period in a year)
Review Questions

4. Certification is based on Federal not State Laws
Content of Chapter 5 is a great resource for State Regulations on Employee Payment. Always check for Updates on States
State Reference Charts
State by State Pay Frequency pg. 5-2
State by State Payment upon Termination (Another good source for this is the APA book on States) pg. 5-6
State by State rules on Direct Deposit (this could always change) pg. 5-14
Paycard State Compliance issues, Pay Stub Information pg and pg. 5-29
Escheatment pg. 5-31
State by State wages to deceased employees pg. 5-33

5. Chapter 5- Paying the Employee
Payroll Frequency & Payment on Termination

6. 5.1 Pay Frequency States Regulate how often employees must be paid.
Table 5.1 gives us a quick look at state rules
Another great source is the State Book by APA

7. Minimum Pay Frequency Required
Alabama – No general provision
California –Semimonthly; monthly for FLSA exempt employees; weekly for temporary service employees; daily if employee is assigned on a day-to-day basis.
District of Columbia –Semimonthly; monthly for FLSA-exempt employees.
Florida – No Provision
Illinois – Semimonthly; monthly for FLSA-exempt employees; union contract can provide different intervals.

8. Min. Pay Freq. Cont.
Indiana – Semimonthly or biweekly; less frequently for FLSA-exempt employees
Kentucky – Semimonthly; less frequently for FLSA-exempt employees.
Michigan – Semimonthly; monthly OK if wages paid by the 1st of next month; weekly or biweekly OK if paydays regularly scheduled.
Wisconsin – Monthly; union contract may differ

9. Lag Time Before Pay
Arizona – 5 days after end of pay period; 10 days if payroll system is out of state; 16 days for overtime or exception pay.
Colorado – 10 days after end of pay period.
Georgia – No provision
Indiana – 10 business days after end of pay period.
Illinois – Semimonthly or biweekly—13 days; weekly – 7 days; monthly – 21 days; daily – 1 day.

10. Lag Time Before Pay cont.
Michigan – Wages earned from the 1st-15th, pay by 1st of next month; 16th – end of the month, pay by 15th of next month; 14 days after end of pay period for weekly & biweekly.
Oklahoma – 11 days after end of pay period.
Pennsylvannia – 15 days after end of pay period.
Wisconsin – 31 days after end of pay period.

11. 5.2 Termination Pay Different rules for Voluntary & Involuntary
Many states require Immediate Pay for Involuntary Terminations
California Immediately; within 72 hours for seasonal ee’s; etc.
Hawaii Immediately; Next working day if that is impossible; etc.
Illinois Immediately if possible; if not, by next regular pay day
Massachusetts--- Immediately
Michigan Immediately, or as soon as amount due is determined
Minnesota –------Immediately or within 24hrs of demand
Nevada Immediately
Oregon By the end of the 1st Business Day after Discharge
Utah hours
Vermont hours
Wisconsin Next regular payday; within 24 hrs if employer closes/moves

12. Chapter 5 – Paying the Employee
Payment Methods

13. Direct Deposit (EFT-Electronic Funds Transfer) Paycards
Payment Methods
Cash
Check
Direct Deposit (EFT-Electronic Funds Transfer)
Paycards

14. Payment Methods Direct Deposit (EFT) State Controlled
Safe and secure means of payment
Alleviates lost or stolen checks
Minimizes Unclaimed wages (Escheatment)
Storage of Documents
Employee time allotment for tendering payment
PRENOTIFICATION
ODFI, NACHA, RDFI, ACH
Regulated by Federal Reserve Board, Consumer Credit Protection Act and EFT Act
When initiating a International ACH Transaction (IAT) add coding to the transaction to identify it as an IAT.
Direct Deposit cannot be made mandatory as part of a hiring process –must provide choice of financial institutions and check as an option.
We use Bank of America card which allows the employee to write a check for their pay and cash it.

15. ODFI, RDFI, NACHA, ACH
ODFI –Originating Depository Financial Institution
This file contains , the employee wages, their account number and their financial institution.
ACH – Automated Clearing House
This is the process that receives the ODFI and coordinates the financial settlement between the participating financial institutions.
NACHA – National Automated Clearing House Association
This provides the rules that the ACH must follow
Office of Foreign Assets Control is an agency made it necessary for NACHA to adopt rules creating special requirements for IAT (International ACH Transactions)
RDFI - Receiving Depository Financial Institution
This is the employees bank, savings &loan or credit union
See Chart on page Table 5.3

16. Going Green??
Can direct deposit totally eliminate the paper and go Green?
Authorization agreements must be signed, Unless you have it set up for electronic authorizations
Authorizations must be retained for a certain pay period
Employees must still be provided a paper pay stub depending on state requirements
See Table 5-4 on page 5-14 for State by State Rules

17. Cash or Check ???
Generally all 50 states allow payments by cash or check without additional law or regulations regarding this payment option.
Ease of tendering the negotiable payments by:
Financial Institutions must be convenient/or even located in state of company’s operations
No additional fees are imposed for tendering the payment option(unless it is a check and the employee does not have a checking account)
Security
Signatures required
Internal Audit and need checks and balances
Be mindful of the impact that a voided or manual check issuance causes to other departments process
GL, Taxes, Benefits

18. Direct Deposit (EFT) Advantages:
Immediate availability of funds on Payday
No Bank Interaction
No Delay in constructive receipt of pay
No Lost/Stolen Checks
Reduction of Paper Flow
Cost Effective
Ease of Reconciliation
Reduction of Escheatment

19. Direct Deposit Disadvantages: No Bank Account Comfort Level in Payment
Incorrect Pay
Employee changes accounts without telling Payroll
Not truly “Green”
Loss of Float
Additional Processing Fees
Challenges for stopping payment/reversals

20. Direct Deposits Late Direct Deposits:
Troubleshooting Funds must be posted by 9:00 am on pay date
Verify Routing and Account Numbers Prenote?
RDFI posting schedule
Federal Holiday Impact on processing
Additional resources can be found in communications with the ODFI for internal challenges.
Regardless of delay – funds should be honored without penalty to employee. Based on voucher verification.
Employers must keep the authorization agreement for at least
2 yrs after revocation,

21. Full Payroll Reversals vs. Single entry reversals
Regardless these requirements are mandatory
Amount of reversal must match the amount of the credit
Must be reversed within 5 days of settlement date
No employee authorization is necessary

22. Chapter 5 – Paying the Employee
Pay Cards

23. Paycards Paycards are similar to debit cards
Prefunded, host based cards providing employees access to their net pay via bank, ATM (Automatic Teller Machine) or POS( Point of Sale) purchase.
Paycards are similar to direct deposit
Funding process for the employer is same as for direct deposit
Process subject to the same NACHA regulations.

24. Paycards cont. New way to pay employees
Many variable options in the plans
Many competitors trying for business – ensure reputability
Verify with legal for implications from plan
Cardholder security
Employee age (18 yrs)and turnover consideration
Understand the difference between branded vs. non-branded
An employee under 18 is only liable for their branded paycard use if the employer gets the written approval from employee’s parents before card is issued.

25. Paycards Branded vs. Non-Branded
Visa MC Discover
Employee Signature only, easily used if stolen
ATM – PIN
Personalized
Parental Approval < 18 yrs old

26. Paycards Branded vs. Non-Branded
Network Logo
PIN required for ALL transactions, Stolen card only needs pin to purchase
Most reliable – Safer
Host computer authorizes funds are there

27. Paycards Employee & Employer Benefits
Reduced costs
Increased independence
Improved credit status (not true with all cards)
Financial Safety
Ease of use
Replenishment if lost
No time or geographical limitations
Pg through 5-25 for state compliance

28. Paycards Employee & Employer Benefits
Reduced Costs
Enhanced efficiency
All employees eligible
Increases employee productivity time
Escheatment reduction

29. Paycard Implementation
Financial Institution agreement and offering
Anticipation program for employees
Establish a funding pool with a bank
Institution establishes employee account cards, names
Funding by wire or ACH
Adjustments are done via web application
Issues:
Communications regarding the change
Implementation Team with members from all affected departments – HR, Payroll, Operations, Training and Finance.
Marketing Campaign promoting paycards. Vendors may be able to help with this.
Enroll Employees
Make sure you have trained employee’s to answer questions.
Table 5.5 shows each state requirement for pay statements. Pg. 5-29
Reversals:
Based on card policy-talking points when researching vendor
Bank notification for reversal and refunding
Blank checks available for employees to use
Check to see if they do credit checks on employees

30. Pay Cards
A payroll card is subject to Regulation E whether the account is operated or managed by the employer, a third-party payroll processor, or a depository institution.
Payroll card account represents the means by which an employer regularly pays the employee’s salary or other form of compensation.
Cannot use Health Expense Cards that are used solely for health-related expenses are not covered by Regulation E.
Dual Function card accounts are okay to use because the funds come from a “corporate expense funds” which is not a payroll account used primarily for personal, family or household purposes.

31. Pay Statements
Each State determines what information must be included on an employee’s pay stub.
Table 5.5 on pg lists the states and the required information for pay stubs.
Both New York and California enacted legislations to help prevent underpayment of wages and overtime pay by employers. The information required on notices to new hires and whenever information changes.
Employee’s rate(s) of pay
Employee’s overtime rate of pay
Basis of wage payment (hourly, weekly, piece rate, commission, etc.)
Allowances that are part of minimum wage, including tip, meal, and lodging allowances.
Regular payday
Employer’s name and any doing business as names
Physical address of employer’s mailing address
Employer’s telephone number

32. Escheatment
Escheatment is the unclaimed wages (form of abandoned property) process governed by State Laws
State regulated (See table 5.6) pg. 5-31
Length of time payment held (generally 1 yr)
New York/Oregon – 3 yrs
North Dakota/Pennsylvania – 2 yrs.
Notification process
Wage turnover process
Best practice is to utilize direct deposit and paycards as wage payment methods.

33. Wages Owed to Deceased Employees
Payments, Payee and Taxation are based on when the employee passes. (See Table 5.7)
Federal Regulates Taxation
State Laws Regulates the payee and payment amount in accordance with the current situation.
Illinois: Maximum Payable: All unpaid wages
To Whom: Person owed for funeral
expenses, spouse or child.
Allowed Conditions to Pay: Small estate affidavit: estate not over $15,000

34. Extra Pay Days
Each year we have extra pay days caused by the calendar.
Years affected with the 53rd pay period.
2015, 2016 (Leap Year – Friday AND Saturday), 2017, 2018…
Payroll must anticipate and plan for proper processing and compliance.
Holidays
Weekend pay date
Salaried employees can be adjusted. Most employers don’t bother
Hourly employees must be paid all wages. No different
Best practice is to maintain pay structure and schedule without deviation… Keep good relations with employees.
Verify contracts if applicable.

35. Review Questions
What laws govern how often employers must pay employees?
Who governs the treatment of Escheat laws?
3. What is a branded pay card?
Answer 1: State, 2: State, 3: Visa, MC or Discover

36. Review Cont. True or False
The Fair Labor Standards Act regulates how often employees must be paid by their employer or how soon they must be paid after performing services.
Direct Deposit is one area where the federal and state governments share regulatory responsibility.
All States regulate the payment of wages owed to deceased employees.
A bi-weekly salary is paid twice a month, usually the 15th and last day of the month.
If 250 employees consent to direct deposit, then all employees must comply.
Answer 1. F States do 2:T 3: F more than 15 have no statutory provisions 4:F this is a semi-monthly 5: F No min Requirement

37. Review Cont. Multiple Choices:
The employer prepares a automated file of direct deposit records that indicates where its employee’s pay is to be deposited. What is the name of the financial institution where this file is then sent?
Automated Clearing House
Originating Depository Financial Institution
NACHA
Receiving Depository Financial Institution
Answer is B ODFI

38. Review Cont.
2. How many years must an employee keep the authorization agreement for direct deposit after revocation by the employee?
At least two years
At least one year
There is no retention requirement
At least three years
Answer is A: 2 yrs

39. Review Cont. 3. What are “escheat” laws?
Federal laws governing the treatment of unclaimed wages as abandoned property.
State laws governing the treatment of unclaimed wages as abandoned property.
State laws protecting employees from their employer
State laws outlining the frequency with which employees are paid.
Answer: B

40. Review Cont.
4. Once an employee has given authorization for EFT and the employer creates electronic pay transactions for deposit, where does the employer send them?
ACH
RDFI
ODFI
NACHA
Answer : C

41. Review Cont.
Under the EFT system, what participating party receives the individual transactions and posts them to the customers’/employees’ accounts?
ODFI
ACH
RDFI
NACHA
Answer: Clue Receives C: RDFI

42. Review Cont.
6. Which of the following laws and regulations does not regulate EFT?
Federal Reserve Board Regulation E
Title IX of the Consumer Credit Protection Act
Fair Labor Standards Act
Electronic Fund Transfer Act
Answer C

43. Review Cont.
7. Which of the following agencies made it necessary for NACHA to adopt rules creating special requirements for International ACH Transactions?
Internal Revenue Service
Federal Reserve Board
Department of State
Office of Foreign Assets Control
Answer D

44. Review Cont.
Which of the following participants in the direct deposit process distributes EFT payments to the receiving financial institutions?
ODFI
ACH
RDFI
FRB
Answer B

45. Review Cont.
9. Which of the following is not an employee benefit of using paycards to pay employee wages?
Eliminating check cashing fees
Increased risk of paycheck theft
Protection from loss because paycard can be replaced
No time or geographic limitations on funds access
Answer B

46. Review Cont.
If an employer uses pre-notification to test the employee’s banking information before initiating direct deposit, how long before any actual pay is sent through the ACH network must be pre-notification be sent?
6 Banking Days
2 weeks
3 Banking Days
6 Calendar Days
Answer A

47. Questions Comments Paying the Employees
Read the chapter, do the quizzes, know the difference between ACH, ODFI, RDFI, NACHA and IAT
Read Questions twice, know what they are asking!