The Answer We Waited a Week For

Last Thursday I blogged about using the Employer Social Security Credit under the Hire Act. You can re-read the blog for the full scope of the discussion.  But one point that I made was that while researching questions on using the credit I wondered how the IRS would answer if the question of whether or not an employer can use the credit at the end of the quarter or do they have to do deposit by depost was put to them.

So as I said in the blog I e-mailed the IRS and asked the following question:

I have a webinar atendee who is using the Employer Social Security Tax Credit under the Hire Act for the first time in the second quarter.  The question is can an employer take the credit on the Form 941 only and forgo using the credit for each deposit made or must the credit be used as each tax deposit is made for the appropriate payrolls? 

I got the answer back on the following Tuesday so as promised here is the IRS's response to the question:

Since the credit allowed under the HIRE act reduces the total tax liability on the Form 941, the deposits may be reduced accordingly but it is not a requirements that those deposits be adjusted.  If the tax deposits are not reduced, the result will be an overpayment of the tax and a refund may be claimed when the Form 941 is filed.

Well I feel really great about this.  My answer to my seminar attendee was spot on! But it never hurts to confirm it with the IRS.

How are you using the credit?  Let us know

Electronic Signals or Piles of Paper--You Decide

At this year's APA  Congress a panel was held on Electronic Income Withholding Orders for Child Support (e-IWO).  According to Bill Stuart, a software developer who works with the federal Office of Child Support Enforcement, the Electronic Income Withholding Order, designed for large employers, has become so prevalent that some states are considering the mandatory use of the program.

The e-IWO portal, which facilitates the transmission of the withholding orders to employers, is used in 22 states.  New Jersey began using the portal on May 26th.  The e-IWO program allows employers to make entries on a spreadsheet or PDF.  The program is user-friendly, accurate and provides secure delivery to employers.  The portal is a central location for child support orders and is helpful for employers dealing with multiple employment sites.  The portal also quickly gets payments to state disbursement units (SDU) and recipients.  The panel also discussed converting to not just receiving support orders electronically, but also sending payments to the SDUs using electronic funds transfers.  With the exception of South Carolina, SDUs receive and send payments electronically, said Nancy Benner, employer services specialist for the Office of Child Support Enforcement.

Boy, have things changed since I began my payroll career back in the mid-70's. Back then and through the decades since we basically had paper everywhere when it came to child support.  As laws were passed that increased our responsibility in collecting child support, the paper piles increased as well.

So our best practice suggestion for today is to take advantage of modern technology when you can and sign up for electronic Income Withholding Orders.  In addition, set up a program to submit your child support payments via EFT through the SDUs.

Let us know what you are doing in your payroll department.  Are you signed up for the e-IWO?  What has been your experience using the system--good or bad?  Do you have questions about using SDUs?  Post them here and we will get the answer for you. 

HHS Wants Us Fit—IRS Wants the Tax

It’s been in the news a lot lately—how unfit Americans have become. The First Lady is advocating programs to fight childhood obesity while AARP is starting an online movement to get fit over the summer. Everyone is being asked to join in and help. But for employers helping fight obesity is a two-edged sword.


If the employer takes office space and puts in a gym on site for employees to use, it is tax free and employee good will is created in addition to the benefit of giving employees a chance to work out. But for the employer to use valuable and sometimes nonexistent “extra” office space to put in a gym can cause a lot of “bad will” among workers who are crammed into cubicles. And let’s face it not too many companies have an extra 500 square feet just laying empty. Plus I really have to ask how many of us overweight and out of shape payroll professionals want to huff, puff, and sweat in front of our staff and fellow co-workers. I know I never did. Plus with no shower that’s not too pleasant back in the small and cramped payroll office. And if the employer does put in a shower, I really don’t want to strip and shower in front of my staff!

But the employer really wants to offer a healthier lifestyle to its employees. And many local businesses want to help other local businesses by buying services. So they buy a gym membership for all their employees. It might be a one-off benefit or even part of a larger and more complex wellness program that includes quitting smoking and diet tips. Either way it doesn’t matter. If the employer buys the gym membership everyone is paying taxes on it. FIT, FICA, FUTA, SIT, SDI (where required), SUI, Local Taxes. All of them. In essence the employer is made to pay more simply because they don’t want a gym next to their conference room.

My point is if the government wants Americans to get fit why make it harder and more expensive to buy a gym membership rather than gym equipment. Why should employers have to pay more for offering basically the same thing.

That’s my thought, what do you think?

Does your company have a gym? Do they buy memberships? Let us know what you do and how you handle it.

Multiple Rates of Pay—Finally a Use for High School Math

Under the FLSA it is required that employers pay employees overtime based upon the regular rate of pay. Over the course of the next few months we will often discuss this topic. But today I want to look at one facet of calculating overtime and the regular rate of pay. What to do when an employee works at two or more different rates within the same workweek. In this type of situation, the regular rate of pay for the week is the weighted average of all the rates. Remember weighted average is not the same as average.

Let’s do an example: At Secrest Corp this week Paul worked to cover for other employees on vacation. His time card reads as follows:

Day                     Per Hour Rate               Number of Hours Worked
Monday                    $8.00                                 8
Tuesday                    $8.00                                 8
Wednesday               $9.00                                 8
Thursday                   $8.75                                 9
Friday                       $7.50                                10
Total Hours                                                        43

Paul does not work in a state which requires daily overtime. So under the FLSA we would calculate his gross pay as follows:

Step 1… Calculate the Earnings for Each Day
Monday                            8 x $8.00 = $64.00
Tuesday                            8 x $8.00 = $64.00
Wednesday                       8 x $9.00 = $72.00
Thursday                           9 x $8.75 = $78.75
Friday                             10 x $7.50 = $75.00
Total                                                    $353.75

Many times I have seen payroll professionals confuse weighted average with average. They add up the rates then divide by the number of rates. For example $41.25 (total of all the rates) divided by 5 (number of rates) = $8.25 and try to use that as the regular rate of pay. In this case it would be close enough. But unfortunately it doesn’t always work out so close and can end up underpaying the employee.

Step 2: Divide the total earnings by the total hours worked to determine the regular rate of pay
$353.75 divided by 43 = $8.23 (regular rate of pay)

Step 3: Determine the premium pay for overtime by multiplying the regular rate of pay by .5 (or divide by 2) then multiplying that amount by the number of overtime hours
$8.23 x .5 x 3 = $12.35

Step 4: Determine the total weekly compensation by adding the total earnings (step 1) and the premium pay (step 3)
$353.75 + $12.35 = $366.10 (total weekly compensation)

These 1938 rules under the FLSA require this method to properly pay employees working at more than one rate in a workweek. So you see, you should have paid closer attention to your teacher in high school math class.

Do you have to do weighted averages where you work? How do you handle it?

Let us know. Join in the discuss.

Where is my PH.D in Payroll?

A good friend of mine that I have known for over 30 years joined the thousands of grads this year by getting her Master’s Degree. She had a BA but decided to get her Master’s. This happy event got me to thinking maybe I should go back and get my Master’s or even a Ph.D. I have always wanted to be known as Doctor Vicki. But then the same old roadblock comes up. What would I get the degree in? When I first started out in payroll in 1977 or so I was still attending college as an undergrad. When I realized what I wanted to do with my life (I live for payroll, of course!) I encountered the fact that there were no under graduate or graduate degrees in either personnel or payroll at that time just accounting.

Well 10 years later I was able to finally get my undergraduate degree but it was in Business Administration with an emphasis in Personnel Management. And I had to go to National University to get it. I was living in San Diego at the time and San Diego State didn’t offer it. But neither school had anything that related to payroll. Now, of course, 25 years later I can go back and get a Master’s degree in Human Resources Management from Penn State or even Rutgers or San Diego State if I wanted to. I can even get a Ph.D in Human Resources from Temple University or UCLA. But where the f%$@ is my Ph.D in payroll!

Google it sometime and you will see. You can take payroll accounting courses, human resources courses, labor law courses but nothing that prepares you for payroll itself. Yet, as a payroll professional I am required to know all of the wage and hour laws not only on the federal level, but for every state in which I have one employee located. How many attorneys can say they know wage and hour law in 47 states well enough to actually pay an employee? I’ll be the answer is zippo! But there are thousands of payroll professionals who must know this information on a daily basis and do.

Payroll professionals must know all the Internal Revenue Codes that relate to paying employees including taxation of fringe benefits, withholding tax and deposit/reporting requirements. If they make a mistake—fines and penalties. Not only do they need to know it for the IRC but for every state they are located in. And not just income tax, but FUTA, and the state’s SUI plus local taxes. How many CPAs can claim they can rattle of the taxation requirements for SUI for 50 different states and the District of Columbia and are able to do the 941 in Spanish for Puerto Rico?

So where do we have to learn this? Where do the 214,000 payroll professionals working in the United States (as of 2004) learn it all? By hook or by crook. By reading IRS publications, begging for funds to take a training course or two, taking my on-line courses, attending free seminars given by the IRS or State agencies or by learning from each other.

This is no way for the number one collector of taxes and child support in the nation to be trained. Why can’t I as a payroll professional attend college, learn all about everything I need to know, take that into the real world, find out it is useless and then learn it all on the job just like all other professions such as lawyers, human resource professionals and accountants! Where is my Ph.d in Payroll!

What about you? What did you end of getting your degree in or have you not bothered since it doesn’t matter in payroll? Let’s hear from you.

Employer Social Security Credit—Whose Using and How

In May I conducted a webinar on the Form 941. As is customary attendees can submit questions in advance. One question that I received was very intriguing. The attendee wanted to know if anyone was actually claiming the Employer Social Security Credit permitted under the Hire Act. And if they were using it, how were they taking it. Was it per deposit? Or were they just going to wait and claim the entire quarterly credit on the Form 941? The attendee went on to ask if taking the credit at the end of the quarter was even permitted by the IRS.

See what I mean about intriguing. Of course the first step I took was to review the new instructions for the 941 concerning the credit. Nothing there prohibited the employer from taking it all at once but nothing said okay either. I read the FAQs and again the same thing. So the opinion I gave the attendee was simply that I didn’t see anything that prohibited the employer from taking the credit as a lump sum on the 941 instead of using it deposit by deposit.

But then the more I thought about it the more I wondered if the IRS would actually make the same interpretation if the question were put to them directly. So this morning I sent an e-mail over to the IRS and asked them about taking the credit as a lump sum on the 941. I will share their answer with you in next Thursday’s blog on reporting. I should have it back by then.

The second part of the attendees question asked how other payroll departments were handling the credit in the real world. I made a few phone calls to some payroll friends to take a quick unscientific survey. Amazingly I got the same answer from all of them. If they were using the credit they were waiting until the end of the second quarter and just claiming as a lump sum. It was not worth the time and effort to do it deposit by deposit. What surprised me a little is how many companies are not even using the credit.

So our discussion for today is simple. What are you doing in your payroll department? Are you taking the credit deposit by deposit? Are you going to wait until quarter end and do a lump sum on the 941? Or maybe your company isn’t even taking advantage of the credit. Post a comment and let us know.

Reconciling Form 941 to Forms W-2 is Definitely a Best Practice

Hey everybody I am back! Sorry to disappear so suddenly and for two weeks (in the cyber world a long time!) right after starting the blog. I would love to be able to tell you that I took an impromptu vacation to a beautiful island in the Caribbean but unfortunately that was not the case. I got laid up with a severe bout of pneumonia. Between urgent care trips, hospital stays, and sleeping for 7 days with a temperature of 103 degrees the blog, as important as it is to me, got lost in the chaos. Trust me I wish I could have done the blog instead of watching Real Housewives of New Jersey! Those ladies are CRAZY! So please accept my apology and let’s get back up and running.

We use Wednesdays for our best practices in payroll topic so today I would like to discuss reconciling the Form 941 against the W-2s quarterly. This is the best and most efficient way to ensure that your W-2s balance before final processing during year end. The reason I am picking this topic today is it seems to be on everyone’s mind with the new version of the Form 941 being released recently.

Now a lot of payroll professionals tell me they don’t do this quarterly. After all year end is 2 quarters away why reconcile now. Why not just do it when year-end gets here. But that is just the point. By reconciling each quarter you know as you go along that everything is in balance. Then at year end it’s just a quick reconcile of the 4th quarter and a submission to close out the year. This is much more efficient and definitely a better way than to sit down in January and hope it all balances. Basically it is balance now or balance later. And I hate spending all of January looking for a $4.00 difference!

What about you? What do you think?

Note: For those of you who would like more on reconciling Form 941 to Form W-2 I will be placing a white paper on my new website www.thepayrolladvisor.com by the end of this quarter. It will be available for download.