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.
Wednesday, May 12, 2010
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.
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:
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?
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 = $400.00And 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:
$10.00 x 1.5 = $15.00 x 10 hours of OT = $150.00
$400.00 + $150.00 = $550 for the gross pay.
40 x $10.00 = $400.00And 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:
$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.
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?
Friday, May 7, 2010
I’m a Blogger, He’s a Blogger, You Can Be a Blogger Too!
I had originally set up Fridays to discuss the payroll profession as a whole, current events, or career development. But I have decided to go one step further. I would like to use Friday for guest bloggers. So here is your chance. If you have always wanted to blog but didn’t want to set up your own, or deal with the “crazies” on other blogs come blog with us on Fridays.
The topics will still apply. You must blog about payroll, of course. This is after all a payroll blog. But other than that the subject is open to current events such as the new health care act and how it affects payroll. Or career advancement, studying for the CPP tips. Or share with us your latest and craziest payroll story. Anything is fair game as long as it is related to payroll.
We do have to observe the normal etiquette rules of course. And they are a little stricter here. No name calling. No politics for either side unless it is the politics of payroll. This is not the place to vent anger at President Obama, the Tea Partiers, Fox News or MSNBC. You can do that on Daily Kos or Red State. But complaining about congress as a whole, the work they give payroll, the portions of bills that apply to payroll etc are certainly fair game. You can even use the blog to complain about the IRS as it relates to payroll. But remember you name is still on the blog somewhere!
The length of the blog should be around 600 words. Just type it up in Word and e-mail it over to me at payrolladvisor@cox.net by Thursday at 5pm Pacific time. I will review for rule following only. No editing and certainly no spellchecking so be sure to do both before submitting. I will then post it to the blog on Friday morning. Please give me your full name and e-mail address. I will post your guest blogger name anyway you would like me too but I need to know who submits the blogs.
I am hoping to get regular bloggers to submit blogs weekly or monthly. If you gain that status you will be given a password to the blog to post yourself.
So here is your opportunity to become a payroll blogger.
Have a great weekend. We will see you on Monday.
The topics will still apply. You must blog about payroll, of course. This is after all a payroll blog. But other than that the subject is open to current events such as the new health care act and how it affects payroll. Or career advancement, studying for the CPP tips. Or share with us your latest and craziest payroll story. Anything is fair game as long as it is related to payroll.
We do have to observe the normal etiquette rules of course. And they are a little stricter here. No name calling. No politics for either side unless it is the politics of payroll. This is not the place to vent anger at President Obama, the Tea Partiers, Fox News or MSNBC. You can do that on Daily Kos or Red State. But complaining about congress as a whole, the work they give payroll, the portions of bills that apply to payroll etc are certainly fair game. You can even use the blog to complain about the IRS as it relates to payroll. But remember you name is still on the blog somewhere!
The length of the blog should be around 600 words. Just type it up in Word and e-mail it over to me at payrolladvisor@cox.net by Thursday at 5pm Pacific time. I will review for rule following only. No editing and certainly no spellchecking so be sure to do both before submitting. I will then post it to the blog on Friday morning. Please give me your full name and e-mail address. I will post your guest blogger name anyway you would like me too but I need to know who submits the blogs.
I am hoping to get regular bloggers to submit blogs weekly or monthly. If you gain that status you will be given a password to the blog to post yourself.
So here is your opportunity to become a payroll blogger.
Have a great weekend. We will see you on Monday.
Thursday, May 6, 2010
Here a Change…There a Change or What’s New on the Form 941 This Week
We will be using Thursdays to explain, discuss, debate and even complain about reporting requirements. This is a broad topic I know but it seems like we are always reporting something somewhere in payroll. So why not devote a day a week to examine the requirements of reporting and to bi$&h when it gets to be a little crazy from time to time. This week I will be venting about reporting.
Of course it is part of the profession to deal with IRS and state forms. But I think the last two years have really gone far and above the call of duty when it comes to reporting. My point…how many Forms 941 do we have to have in one year…two years in a row?
I have been in payroll for over 30 years and as with the rest of the payroll profession I am accustomed to having a new form at the beginning of each year. Since 1990 I have been writing manuals on payroll. So every January I gleefully wait for the new forms, check for the minor or sometimes major changes and update my books and training courses by the end of January. And the changes are rarely a surprise because we always get the draft forms to examine in plenty of time to make any needed adjustments.
But between last year and this year I am about ready to scream. Last year I had everything updated, posted to my school websites for my students and submitted to my publisher for their subscribers and BLAM! Here comes the American Recovery and Reinvestment Act with COBRA premium assistance. So in the middle of February with students half way through courses I am scrambling to update sections so the info is current and they are not learning last year’s information or form. And it seemed like it would never end. Every few days the IRS was releasing new tables within temporary publications etc. By mid-April it stopped but boy what a struggle to keep up. My payroll friends were scrambling even faster trying to get all the changes into systems to meet deadlines and learn the new form before having to file it at the end of April.
So this year I assumed it would go back to the usual one form, check for minor changes since COBRA premium assistance had been extended and that would be it until COBRA assistance finally expired sometime in 2011. BUT NO! Along comes the HIRE Act and rebates on the employer portion of social security. So now we have to file one version of the Form 941 for the first quarter that matches 2009’s last version. And then we will have a new version for second quarter that will allow us to catch up what we need to for first quarter for the HIRE Act plus what we have in the second quarter. And just when we get that all dialed in remember…the COBRA premium assistance will expire this year at some point. So you know what that means. The 2011 Form 941 will have to be changed to reflect the discontinuation of the HIRE Act as of December 31, 2010. Then it will have to be adjusted to reflect the discontinuation of the COBRA premium assistance. Since COBRA assistance is 15 months from May 31, 2010 the last premium assistance will be in August 2011. So we will have at least two forms again next year.
The next time someone dares say to me that payroll taxes aren’t that tough, just fill in one form a quarter and send it in, I will punch ‘em right in the mouth. So much for my venting on reporting. What is your take?
Of course it is part of the profession to deal with IRS and state forms. But I think the last two years have really gone far and above the call of duty when it comes to reporting. My point…how many Forms 941 do we have to have in one year…two years in a row?
I have been in payroll for over 30 years and as with the rest of the payroll profession I am accustomed to having a new form at the beginning of each year. Since 1990 I have been writing manuals on payroll. So every January I gleefully wait for the new forms, check for the minor or sometimes major changes and update my books and training courses by the end of January. And the changes are rarely a surprise because we always get the draft forms to examine in plenty of time to make any needed adjustments.
But between last year and this year I am about ready to scream. Last year I had everything updated, posted to my school websites for my students and submitted to my publisher for their subscribers and BLAM! Here comes the American Recovery and Reinvestment Act with COBRA premium assistance. So in the middle of February with students half way through courses I am scrambling to update sections so the info is current and they are not learning last year’s information or form. And it seemed like it would never end. Every few days the IRS was releasing new tables within temporary publications etc. By mid-April it stopped but boy what a struggle to keep up. My payroll friends were scrambling even faster trying to get all the changes into systems to meet deadlines and learn the new form before having to file it at the end of April.
So this year I assumed it would go back to the usual one form, check for minor changes since COBRA premium assistance had been extended and that would be it until COBRA assistance finally expired sometime in 2011. BUT NO! Along comes the HIRE Act and rebates on the employer portion of social security. So now we have to file one version of the Form 941 for the first quarter that matches 2009’s last version. And then we will have a new version for second quarter that will allow us to catch up what we need to for first quarter for the HIRE Act plus what we have in the second quarter. And just when we get that all dialed in remember…the COBRA premium assistance will expire this year at some point. So you know what that means. The 2011 Form 941 will have to be changed to reflect the discontinuation of the HIRE Act as of December 31, 2010. Then it will have to be adjusted to reflect the discontinuation of the COBRA premium assistance. Since COBRA assistance is 15 months from May 31, 2010 the last premium assistance will be in August 2011. So we will have at least two forms again next year.
The next time someone dares say to me that payroll taxes aren’t that tough, just fill in one form a quarter and send it in, I will punch ‘em right in the mouth. So much for my venting on reporting. What is your take?
Wednesday, May 5, 2010
How Do I Know What a Best Practice for Payroll Is When I See It?
When I was planning out this blog I decided that I wanted to use Wednesdays to discuss best practices in the payroll department. But when I mentioned this to a fellow payroll professional recently her first question was really an eye-opener. She simply asked “how would I know a best practice without it coming up and biting me in the a$#? She always gets right to the point by the way. But it is a good question. If I am going to blog weekly about best practices we need a common starting point for everyone to use. So what exactly is a best practice and how do I know I have one for my payroll department.
We need a definition to get us started. So of course since I am blogging I have to go to that “supreme” source for knowledge on the web, Wikipedia for a definition. Please do read the sarcasm there. According to Wikipedia a best practice is:
a technique, method, process, activity, incentive, or reward that is believed to be more effective at delivering a particular outcome than any other technique, method, process, etc. when applied to a particular condition or circumstance. The idea is that with proper processes, checks, and testing, a desired outcome can be delivered with fewer problems and unforeseen complications. Best practices can also be defined as the most efficient (least amount of effort) and effective (best results) way of accomplishing a task, based on repeatable procedures that have proven themselves over time for large numbers of people.
Hey even Wikipedia can get one right on occasion. That is exactly the definition I am going to use for this weekly blog topic. So what we are looking for is something that a payroll department can take, a process, a form, a template, a procedure, anything that can increase efficiency, communication, or make processing the payroll easier.
Now I will be sharing my own experiences with you on what are my best practices. But this is where I am hoping that my readers will come forward. You see we all have a best practice to share. So I am asking those who comment or read to give us your best practice each week. It can be on any facet of payroll. Maybe it’s a way of organizing a payroll department, or maybe it’s a template to use when you receive a garnishment for an employee. It doesn’t matter. We want to hear all about.
Hey how often do you get asked to share your A-Game with other payroll professionals? So think about all the best practices that you use, have heard of or tried and it didn’t work (warn off all the rest of us) and be prepared to share with us next Wednesday.
But of course you can always post it this week too!
We need a definition to get us started. So of course since I am blogging I have to go to that “supreme” source for knowledge on the web, Wikipedia for a definition. Please do read the sarcasm there. According to Wikipedia a best practice is:
a technique, method, process, activity, incentive, or reward that is believed to be more effective at delivering a particular outcome than any other technique, method, process, etc. when applied to a particular condition or circumstance. The idea is that with proper processes, checks, and testing, a desired outcome can be delivered with fewer problems and unforeseen complications. Best practices can also be defined as the most efficient (least amount of effort) and effective (best results) way of accomplishing a task, based on repeatable procedures that have proven themselves over time for large numbers of people.
Hey even Wikipedia can get one right on occasion. That is exactly the definition I am going to use for this weekly blog topic. So what we are looking for is something that a payroll department can take, a process, a form, a template, a procedure, anything that can increase efficiency, communication, or make processing the payroll easier.
Now I will be sharing my own experiences with you on what are my best practices. But this is where I am hoping that my readers will come forward. You see we all have a best practice to share. So I am asking those who comment or read to give us your best practice each week. It can be on any facet of payroll. Maybe it’s a way of organizing a payroll department, or maybe it’s a template to use when you receive a garnishment for an employee. It doesn’t matter. We want to hear all about.
Hey how often do you get asked to share your A-Game with other payroll professionals? So think about all the best practices that you use, have heard of or tried and it didn’t work (warn off all the rest of us) and be prepared to share with us next Wednesday.
But of course you can always post it this week too!
Tuesday, May 4, 2010
Is it Still a “Gift” Card If the Employee Has to Pay Taxes on It?
I will be using Tuesdays to discuss fringe benefits. It could be taxation or reporting or offering. This week let’s discuss gift cards and their taxation. It amazes me how confusing this topic can be to a lot of people, especially employees. Let’s say you give a gift card for a local store (Target, K-Mart, Wal-Mart etc) to an employee as employee of the week. It’s for $25. The employee expects to get the full $25 of course. They take the card, shop at the store and buy something nice for themselves or a family member spending the full $25. Then on their next payroll check he or she sees that you added the $25 to their gross, took out extra taxes and then deducted it from the net. In other words, treated the gift card as imputed income as required by IRS regulations. Now the employee is on a rampage because it wasn’t “money” they received it was a gift card and they spent the whole amount rather than allow for taxes.
That is where the disconnect seems to be. Employees and even some payroll professionals and employers do not consider anything other than actual money paid through the payroll as taxable wages. Unfortunately the IRS has a different view. Anything received by the employee for services rendered is considered wages unless the IRS specifically exempts the item. Example of an exemption would be a 401(k) deduction from income tax. The pay can be in any form and can include personal property. The IRS regulations spell out that gift certificates are considered the same as cash and are taxable wages when given to an employee for services rendered. Gift cards are merely an extension of a gift certificate. They were not included in the original law because they did not exist at the time. But they are the same thing in the eyes of the IRS.
So what recourse does Payroll have when it comes to taxing gift cards given to employees? Actually none if they want to be incompliance with IRS regulations. To make it easier on themselves payroll professionals need to make sure that everyone, from the employees receiving gift cards to the supervisors and managers issuing them that they are taxable and exactly how they will be treated in payroll.
But as we all have experienced, sometimes payroll can be overruled on taxation issues. If you are overruled and instructed not to withhold on gift cards make sure to document the instructions from superiors in case of future audits.
That is where the disconnect seems to be. Employees and even some payroll professionals and employers do not consider anything other than actual money paid through the payroll as taxable wages. Unfortunately the IRS has a different view. Anything received by the employee for services rendered is considered wages unless the IRS specifically exempts the item. Example of an exemption would be a 401(k) deduction from income tax. The pay can be in any form and can include personal property. The IRS regulations spell out that gift certificates are considered the same as cash and are taxable wages when given to an employee for services rendered. Gift cards are merely an extension of a gift certificate. They were not included in the original law because they did not exist at the time. But they are the same thing in the eyes of the IRS.
So what recourse does Payroll have when it comes to taxing gift cards given to employees? Actually none if they want to be incompliance with IRS regulations. To make it easier on themselves payroll professionals need to make sure that everyone, from the employees receiving gift cards to the supervisors and managers issuing them that they are taxable and exactly how they will be treated in payroll.
But as we all have experienced, sometimes payroll can be overruled on taxation issues. If you are overruled and instructed not to withhold on gift cards make sure to document the instructions from superiors in case of future audits.
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