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2. Unit 1 Payroll Laws and Regulations McGraw-Hill/Irwin Copyright © 2006 The McGraw-Hill Companies, Inc. All rights reserved.

3. 1-3 3 Federal Income Tax Laws Current Tax Payment Act (1943) –“pay as you go” basis –Employers are able to withhold federal income tax from employees –Guidelines Circular E Pub 15 Pub 15-A Copyright © 2006 The McGraw-Hill Companies, Inc. All rights reserved. 1-3

4. 1-4 4 Employees vs. Independent Contractor Employee: –anyone who performs services for you –and you can control what will be done –and how it will be done. Independent contractor (consultant) –he/she has the right to control the result of the work, – and not what will be done – and how it will be done Copyright © 2006 The McGraw-Hill Companies, Inc. All rights reserved. 1-3

5. 1-5 5 Social Security Laws Federal Insurance Contribution Act (FICA) –Social Security (Old, Age, Survivors and Disability Insurance) 6.2% –Medicare (HI- Hospital Insurance) 1.45% Copyright © 2006 The McGraw-Hill Companies, Inc. All rights reserved.

6. 1-6 6 Social Security Laws Federal Insurance Contribution Act (FICA) –Taxable base limits Social Security –taxable wages base limit - $89,700 (2005) Medicare –taxable wages base – no limit (2005) Copyright © 2006 The McGraw-Hill Companies, Inc. All rights reserved.

7. 1-7 7 Required Payroll Records Internal Revenue Service (IRS) bookkeeping requirements: –Keep the following items per employee: Personal information: –name, –address, –date of birth –social security number amount and dates of wages payments period covered by the wages/salaries payments Copyright © 2006 The McGraw-Hill Companies, Inc. All rights reserved.

8. 1-8 8 Required Payroll Records Internal Revenue Service (IRS) bookkeeping requirements: –Must keep the following items per employee: wages payments period covered by the wages/salaries payments Hiring date Termination date Reason for termination/separation Copyright © 2006 The McGraw-Hill Companies, Inc. All rights reserved.

9. 1-9 9 Unemployment Insurance Program Partnership Federal and State Insurance programs: –Federal unemployment established by the “Federal Unemployment Tax Act” (FUTA) Administer by IRS and the Dept of Labor 6.2% of the first $7,000 of each employee Paid only by the employer

10. 1-10 10 Unemployment Insurance Program Partnership Federal and State Insurance programs: –State Unemployment established by the “State Unemployment Tax Act” (SUTA) states set the tax rate per employer states set the limit on taxable wages taxable earnings varies within state Administer by the individual states Contribution paid by employees and employers

11. 1-11 11 Fair Labor Standards Act –Established in 1938 –Enforced by the Wage and Hour Division of Employment Standards Administration (ESA) under the Dept. of Labor. –Establish federal minimum wage of $5.15 (2005). –Overtime hours: are work done beyond 40 worked hours rate = 1.5 times regular rate

12. 1-12 12 Fair Labor Standards Act Exempt employees vs. non-exempt employee –Non-exempt employees employees covered by the FLSA covered by minimum wage and overtime pay provisions –Example: hourly employees

13. 1-13 13 Fair Labor Standards Act Exempt employees vs. non-exempt employee –Exempt employees: Not covered by the FLSA Not covered by minimum wage and overtime pay provisions –Example: management, Office professional and salary employees

14. 1-14 14 State Minimum Wage Laws State minimum wage: –state is responsible to establish the minimum wage –If state’s minimum wage is: higher than the federal rate, then you must pay the higher of both rates. If the state does not have a minimum wages then the federal rate applies. –Some states have their own minimum wage for employees who are not covered under FLSA. Copyright © 2006 The McGraw-Hill Companies, Inc. All rights reserved.

15. 1-15 15 State Minimum Wage Laws State Minimum Wage: Copyright © 2006 The McGraw-Hill Companies, Inc. All rights reserved.

16. 1-16 16 State Minimum Wage Laws Copyright © 2006 The McGraw-Hill Companies, Inc. All rights reserved.

17. 1-17 17 Other laws affecting wages….. Davis Bacon Act of 1931 –Applies to businesses that have contracts of $2,000 with the federal government for contraction, repair or alterations of public buildings.

18. 1-18 18 Other laws affecting wages….. Walsh-Healy Public Contracts Act of 1936 –Covers firms holding contracts exceeding $10,000 with agencies of the federal government McNamara-O’Hara Service Contract Act of 1965 –Applies to business with contracts worth more than $2,500 with government Copyright © 2006 The McGraw-Hill Companies, Inc. All rights reserved.

19. 1-19 19 Workers Compensation and State Disability Benefits Workers Compensation Insurance –protects employees and their families from lost wages –because of job-related accidents, disabilities or death. State Disability –protects employees who are absent from work, –because of illness or accidents that are NOT job- related. Copyright © 2006 The McGraw-Hill Companies, Inc. All rights reserved.

20. 1-20 20 Fair Employment Laws Equal Employment Opportunity Commission is responsible for enforcing the Fair Employment laws. Copyright © 2006 The McGraw-Hill Companies, Inc. All rights reserved.

21. 1-21 21 Fair Employment Laws Enforce fair practices in employment: Prevent discrimination based on: –Race –Color –Religion –National origin –Age –Sex

22. 1-22 22 Fair Employment Laws Title VII of the civil Rights Act of 1964 –Prohibits discrimination based on: Race Color Religion Sex National origin Equal Pay Act of 1963 –Requires equal pay for men and woman in equivalent jobs Age Discrimination in Employment Act of 1967 –Protects worker over 40 years of age Copyright © 2006 The McGraw-Hill Companies, Inc. All rights reserved.

23. 1-23 23 Fair Employment Laws American with Disabilities Act of 1990 (ADA)/Rehabilitation Act of 1973 –Protects qualified workers with disabilities Civil Rights Act of 1991 –Provides monetary damages to employees who have been intentionally discriminated against. Copyright © 2006 The McGraw-Hill Companies, Inc. All rights reserved.

24. 1-24 24 Fair Employment Laws Family and Medical Leave Act – –Up to 12 weeks of unpaid leave For the birth/adoption of child Provide care of family member that has a serious illness –employee’s position is protected for up to 12 weeks.

25. 1-25 25 Fair Employment Laws Copyright © 2006 The McGraw-Hill Companies, Inc. All rights reserved.

26. 1-26 26 Pension Security Laws Employment Retirement Income Security Act (ERISA) –Protects the pension funds –Regulates the pension fund operations –Specifies the actions that can be taken if the employer’s fund does not have enough money to pay the benefits –Enforced by the Employees benefits security administration (EBSA) Copyright © 2006 The McGraw-Hill Companies, Inc. All rights reserved.

27. 1-27 27 Immigration Reform Act Employers must certify that newly hired employees have shown either proof of: –U.S. citizenship or –Working visa

28. 1-28 28 Immigration Reform Act Documents accepted as proof are: –Certificates of US citizenship/naturalization –Valid foreign passports plus employment authorization –Social security card and valid Id

29. 1-29 29 New Hire Reporting Personal Responsibility and Work Opportunity Reconciliation Act (Welfare Reform Act) –Requires employers to file a new hire report. –Report must be completed within 20 days of employment –Federal Parent Locator services– child support Copyright © 2006 The McGraw-Hill Companies, Inc. All rights reserved.

30. 1-30 30 Summary Copyright © 2006 The McGraw-Hill Companies, Inc. All rights reserved.

31. 1-31 31 Questions? Copyright © 2006 The McGraw-Hill Companies, Inc. All rights reserved.