Friday, May 14, 2010

Why Doesn’t the IRS Think Payroll Needs Affordable Tax Workshops?


Every year the IRS offers a series of Tax Forums across the country, usually in seven or eight cities from east to west coast.  Of course they come here to Las Vegas.  The Forums offer all kinds of workshops on all kinds of tax issues. It is geared primarily to CPAs and Enrolled Agents.   But the cost is only $165 so even if there are only two or three workshops for payroll it is still a great deal.  This is especially true if you are a CPP like me who needs to have these types of classes to renew. After all the APA charges $1300 to attend their Congress each year and they offer tax compliance workshops.  Why not get the info from basically the same speakers at a price one (or the company I work for) can afford to pay?

For the past several years I have attended the Tax Forum here in Vegas with my CPA friend.  I even wrote about them in the Payroll Manager’s Report touting how great they were for payroll professionals.  Workshops I have attended included taxing nonresident aliens and filing W-2s electronically.  Well after the first Forum I attended they asked for a survey of attendees as to what workshops they would like to see in the future.  I, of course, jotted down some quick suggestions on adding Form 941, third party sick pay, and taxing fringe benefits in general.  I submitted the survey and went merrily on my way, knowing I would see at least one or two of these courses next time around.

The next year came around but they did not have any new workshops for payroll people.  In fact they had dropped a few from the time before.  But still they had enough to get my money’s worth so I attended.  And again they asked for ideas for workshops.  Well this time I got a large cup of Starbuck’s coffee, a muffin and a pen and off I went.  War and Peace it wasn’t but it was nearly that large.  I explained how they could attract payroll professionals thereby increasing attendance, and ensure better compliance by offering these workshops.  And it’s not like CPAs don’t need the information, they do.  I submitted my tome of a survey and headed off into the future secure in the knowledge that I would see these workshops this year. I mean the IRS would surely jump at the chance to educate those professionals who are responsible for collecting at least half of the taxes in this country.  Isn’t compliance in payroll one of the most important things to them?  They have all these publications to tell us how to handle fringe benefits surely a workshop or two wouldn’t be out of line?

So as soon as I got the e-mail for the Tax Forum this year I opened it with great anticipation.  Wondering how I was going to fit in all the payroll related workshops this year.  You know where this is going of course.  Not only did they ignore my suggestions for workshops related to payroll but actually dropped any workshops that would even matter to payroll professionals.  They only ones they kept were the tired old ones they always offer.  Those are the ones on how to submit W-2s electronically and matching names and numbers on the W-2 to the SSA’s data base.  Those both are actually offered by the Social Security Administration so I can’t fault them for not adding any new ones.

So the question arises, why doesn’t the IRS want to offer affordable tax compliance workshops to payroll professionals at their Tax Forums?  Are they worried that so many payroll professionals will show up there will not be enough room for the CPAs?  I don’t think so! Do they not care about compliance when it comes to payroll?  I doubt that.  The only reason I can think of is maybe they don’t want to tick off the APA by offering us affordable training.

What do you think?

PS:  No I am not attending the Forum this year! Why waste the money.

Thursday, May 13, 2010

Why Not Use One Form When We Can?

I just finished writing my monthly article for the Payroll Practitioner’s Monthly for IOMA. This month my article is on abandoned wages. So as you might have guessed I am still knee deep in reporting requirements and forms for all the states. So that brings up my reporting topic for this week. Why can’t we have one common form to use when one common form will work? I mean how many different ways do we have to know in order to report an employee’s name, address, check date and amount? 50 different states, so we have 50 different forms. Can’t the form for California be identical to the form in Alabama? Yes they are similar. But each one is just different enough to cause you to have to learn the form. The requirements are all pretty similar. Most are after one year, most due in November for wages owed as of June 30. There are a few notable exceptions such as New York on the reporting dates or Delaware on the time limit. But the information being asked for is still the same in most cases.


Now I understand that we must report the wages to the state where the employee last resided. The 1965 U.S. Supreme Court case gave us that requirement. So no, we can’t report all abandoned wages to one state like we do new hires. But nothing says the reports can’t all be the same. After all, they have managed to pretty much standardize new hire reporting forms again with a few notable exceptions. Why not abandoned wages forms?

So what do you think? If they can standardize a complicated form such as the Child Support Withholding Order then why not the abandon wages reporting forms? It sure would make it much simpler come this November.

Wednesday, May 12, 2010

According to Our Payroll Calendar That is Due on…

One of the best practices that a payroll professional can implement is publishing an annual department calendar. It doesn’t matter if you are the manager of a 15 member payroll department of a multinational corporation or the sole payroll clerk in a small company. By publishing a calendar of dues dates for payroll you go along way towards increasing communications with other departments and individual employees.


I am not talking about your processing calendar that you set up every year with your outside payroll service vendor or the IT department if you are in-house. But rather a calendar that explains every deadline you have to anybody who reads it and needs to know a deadline. You could lists period end dates, processing dates, dates for submissions of such items as new hires, FormsW-4 updates, address changes, direct deposit set ups or changes to existing accounts or even pay raises. For example you could list the entry on the calendar as: Friday, May 14th: Last day to submit changes or updates for the May 21st Payroll. Please have into payroll by noon Pacific time.

Of course you would also list when you need things from other departments if you would like or send a separate calendar for them alone. Whatever works best for your company’s way of communicating. The calendar is distributed to all departments. You can even distribute it to all employees if you can use e-mail. Paper would be way too much time and effort. Post it where you post other payroll items such as payday notices or wage orders. Publish in the company newsletter on a monthly basis for the upcoming month. Reminder e-mails for the month ahead can help in gently keeping everyone on schedule. And don’t forget to put it on your webpage if you have one set up.

This best practice goes a long way in helping employees and departments to get the information they need to process and the paperwork you need for the payroll to you on time and not ten minutes after you close the payroll.

Have you used a payroll calendar before? How did it work for you? Let us hear from you.

Tuesday, May 11, 2010

Hey Senator! Stop Taxing My Company Cell Phone!

There are a lot of fringe benefits making the news these days. But none with as much confusion as cell phones and the taxation thereof. If you follow IRS regulations closely you know there is an entity known as the property list. Items on this list are subject to taxation if used by employees for personal use. For example, company cars are on the list. And so are cell phones. They came on the list when they were first introduced way back when they were big clunky things with battery packs. Back then only executives, company owners or those who were a bit bucks up had cell phones. Over time they have gotten smaller, smarter and cheaper. But they are still on the property list. Therefore even though they are common place at work and every second employee gets one, the personal use is still taxable wages to the employee.


Now the reason why I say they are in the news is because last year the IRS was asked to come up with a way to make the taxation easier to track and maintain. You see the only way to do it is to take each cell phone bill for each phone for each employee and total up the personal calls. For some companies this requires an army of accounts payable clerks, so they weren’t doing it. So the IRS came up with three ways to account for the usage without having to actually review each bill. Unfortunately CNN and the other news outlets got a hold of the IRS Notice announcing the new methods and asking for comments. The IRS must always ask for comments from the public before implementing a new method for this type of thing. Next thing you know CNN and the Wall Street Journal are announcing that cell phone are NOW taxable! Like they weren’t before? Of course they were. They always have been.  And it has always been enforced.

Well the blogosphere went nuts with everyone up in arms and attacking the IRS for daring to tax our cell phones. They called for the IRS to cease this taxation attempt immediately. But what was not explained was the property list and how the IRS has no control over what goes on it. It is totally controlled by Congress.

In reaction to this uproar a new bill has been debated and passed in the House. H.R. 4994, the Taxpayer Assistance Act of 2010. Introduced by Rep. John Lewis, this bill calls for cell phones to be taken off the property list immediately. It has been sent to the Senate and is currently in the Committee on Finance. But this is not the first time that the House has attempted to take cell phones off the property list. But the bill always dies in the Senate. So payroll professionals and anyone who cares about taxing fringe benefits, now is the time to act. You need to write or call your senator and let them know you want this passed in the Senate and made law.

Just remember if we don’t get this passed we are taxing cell phones as before.

Monday, May 10, 2010

Is Regular Rate of Pay Regular Enough for the 21st Century?

Since 1938 and the passage of the Fair Labor Standards Act (FLSA) employers have been mandated to calculate overtime using the regular rate of pay. Although most employees and by the way most employers understand overtime to be one and one-half times the regular rate for hours worked over 40 in a workweek. The term regular rate of pay has not been commonly understood. If you were to ask anyone in the “street” what the term means they would most likely answer ‘it’s the employee’s hourly rate”. But it has never been that. And that’s why I think we need to address the issue of calculating overtime for the 21st century. It is ridiculous for payroll professionals to have to calculate overtime by hand because they are subject to an archaic law that needs to be updated to reflect the 21st century technology and common practice.

As I just mentioned most employees think overtime is calculated by taking the hourly rate of the employee times one and one-half and then by the number of overtime hours. For example if an employee works 50 hours in a workweek and is paid $10 an hour they believe the calculation would go something like this:

40 x $10.00 = $400.00

$10.00 x 1.5 = $15.00 x 10 hours of OT = $150.00

$400.00 + $150.00 = $550 for the gross pay.
And that is how most payroll computer software calculates it. And it would be acceptable to the Department of Labor (DOL) in most cases. But the regular rate of pay is a calculated rate by law. So anything that is included in the paycheck for other items such as commissions, or shift differential or even bonuses affects the rate. So let’s do this again paying the employee a small commission of $20. Again most employees would think it should be calculated as:
40 x $10.00 = $400.00

$10.00 x 1.5 = $15.00 x 10 hours of OT = $150.00

$400.00 + $150.00 + $20 bonus = $570 for the gross pay.
And if the employer calculated it that way they would be out of compliance and subject to fines and penalties for failure to pay overtime correctly. For the FLSA actually requires the employer to pay all the items to an employee first including the straight time for all hours worked and then add on the “overtime premium”. The calculation actually should be performed as follows:


50 x $10.00 = $500.00 + $20 = $520 This is paying all the hours worked at straight time plus all other payments

$520/50 = $10.40 x .5 = $5.20 This is taking all the straight time and dividing it by all the hours worked to get the regular rate of pay and then multiplying by one-half to get the overtime premium rate.

$5.20 x 10 = $52.00. This is the overtime premium. It gets added by to the all the straight time gross

$520 + $52.00 = $572.00 gross pay.


The difference is $2 to the employee.

And computer systems cannot generally handle this calculation. Especially if there is more than one workweek involved. For example if an employee worked 45 hours one week and 47 hours the next week of a biweekly payroll and earned commissions of $20 the first week and $30 the second week each week would have to be calculated separately to determine the correct overtime payment.

This type of manual calculation was okay in 1938 when it was mandated because all payrolls were calculated by hand. Let’s face it. No companies had computers to do their payroll. And even up until the 1970’s this would have been fine. But we use computers systems now and I think the FLSA needs to reflect changing technologies. Because what tends to happen is that the employer uses the generally understood way to do the overtime, ends up out of compliance and doesn’t even understand why. It’s not fair to employers to expect them to calculate thousands of paychecks by hand because of an archaic law. Yes, it would end up costing employees some money. In our example, for instance, the employee would get $2 less in his paycheck. But the payroll department had to spend more than that to handle the calculation. And let’s face it most employees don’t even know they are supposed to be paid that way. So when the employer fails to follow the FLSA the employee doesn’t even know to complain.

Although I am a Democrat and a liberal I still think that there comes a time when laws have to reflect actual reality. I thought that the Bush Administration would address this issue but they did not, much to my surprise. So I think that the Obama administration should. By changing the definition of regular rate of pay to the generally understood one of “the employee’s hourly rate” regardless of anything else paid it would mean less confusion to the employer, the employee wouldn’t know the difference and Obama could gain some points with the business community. And most important of all, payroll professionals can stop worrying about hand calculating overtime.

What do you think?