Archive for the ‘Payroll and Tax’ Category

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Wage and Hour Laws Part 2 – How to Calculate Bonuses

Monday, October 19th, 2009

In our last post we reviewed some of the basic guidelines relating to wage and hour compliance, and how California law differs from Federal law. In this post we continue to review wage and hour laws, but move to bonuses.

Discretionary and Non-Discretionary Bonuses

Employers usually pay two types of bonuses: non-discretionary and discretionary.

Discretionary bonuses are usually paid as a gift for past services and are not measurable by an employee’s work performance, and/or hours worked.  An example of a discretionary bonus is a holiday bonus or special occasion bonus.

Non-discretionary bonuses are bonuses that are intended to increase an employee’s performance and efforts.  For example, bonuses paid on work performance efficiency and quality, attendance, years of service, and bonuses promised to employees at time of hire are considered non-discretionary.

When paying out non-discretionary bonuses, you must also pay the overtime “premium” on the bonus.  According to the Department of Labor, since the bonus was earned during the regular hours as well as the overtime hours, the overtime “premium” on the bonus is paid on half-time or full-time (for double time hours) on the regular bonus rate (from DLSE Manual). Unfortunately, you cannot just pay an employee a $100 bonus, if they worked any overtime in the pay period for which the bonus was earned.  You must reference the bonus on their pay stubs and note the workweek(s) that the bonus was earned.

Example On How to Calculate Overtime Premium When a Bonus is Paid:

Regular hourly rate of pay………………………………………………………………………………………..$10.00

Overtime rate of pay………………………………………………………………………………………………..$15.00

Total hours worked in workweek = 50

Total regular hours worked= 40 (8 hours x 5 days)

Total overtime hours at time and one-half = 10 (2 hours x 5 days)

Bonus………………………………………………………………………………………………………………………$100.00

Regular bonus rate:

$100.00 (bonus) ÷ 50 (total hours worked) =

$2 .00 ÷ 2 (for half of the regular rate) =

$1.00 x 10 (Overtime Hours) = $ 10.00

Total earnings due for the workweek:

Regular hours: 40 hours @ $10.00 ………………………………$400.00

Overtime: 10 hours @ $15.00 ……………………………………..$150.00

Bonus ……………………………………………………………………………$100.00

Overtime on bonus…………………………………………………………$ 10.00

Total ……………………………………………………………………………$660.00

Remember, wage and hour laws vary by state, it is important that you understand that as an employer you are mandated by law to pay your employees for all hours worked.

The Bottom Line

Confused yet?? There is a lot to know, and a lot to implement. If you are concerned about tackling wage and hour compliance alone, you may want to consider outsourcing some of these complicated laws to professionals who can guide you every step of the way. Please contact us for a free wage and hour consultation.

Contributed by: Thi Ha and Monique Stennis, CPEhr

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Wage and Hour Compliance for Small Employers – What You Need To Know

Saturday, October 17th, 2009

Companies both large and small are finding themselves in legal battles against employees for not complying with overtime laws as outlined in the Fair Labor Standards Act of 1938 (FLSA). The complex regulations found in the FLSA code governing proper payment of wages is overseen by the Department of Labor and can result in hefty fines, or possibly prison time, for multiple violations. In this and subsequent posts, we will look at some of the potential pitfalls, guidelines and laws governing wages as outlined in the FLSA.

The Department of Labor states the following on their website:

The Fair Labor Standards Act (FLSA) establishes standards for minimum wages, overtime pay, recordkeeping, and child labor. These standards affect more than 100 million workers, both full‑time and part‑time, in the private and public sectors.

The Department of Labor uses a variety of remedies to enforce compliance with the Act’s requirements. When Wage and Hour Division investigators encounter violations, they recommend changes in employment practices to bring the employer into compliance, and they request the payment of any back wages due to employees.

Willful violators may be prosecuted criminally and fined up to $10,000. A second conviction may result in imprisonment. Employers who willfully or repeatedly violate the minimum wage or overtime pay requirements are subject to civil money penalties of up to $1,100 per violation.

Recent Lawsuits

A New Jersey federal court jury unanimously awarded $2.5 million to Staples, Inc. employees in a class-action lawsuit for failing to comply with the laws that require the correct classification of employees (e.g. exempt or non-exempt) and paying for overtime wages. In another case, Valero Energy Corp. is currently involved in a class-action lawsuit that seeks $100 million in damages. The suit, brought on by three current employees, alleges that Valero required employees to work overtime hours “off the clock” without compensation.

As an employer, it is important that all wage and hour laws are adhered to, including payment of overtime and the pay-out of bonuses.

Understanding California Overtime Hours

While the Federal standards of the Act are complicated enough, California employers must adhere to a different set of guidelines. Most fundamentally, California requires that all hours worked in excess of eight (8) regular hours in one workday or forty (40) regular hours in one workweek will be treated as overtime. Non-exempt hourly employees are compensated as follows for working overtime:

  • Time and a half the regular rate of pay for hours worked beyond eight (8) in a workday;
  • Double the regular rate of pay for hours worked beyond twelve (12) in a workday;
  • Time and a half the regular rate of pay for the first eight (8) hours worked on the seventh consecutive workday in a workweek;
  • Double the regular rate of pay for hours worked beyond eight (8) on the seventh consecutive day worked in a workweek;

Time and a half the regular rate of pay for hours worked beyond 40 in a workweek. There is no “pyramiding,” which means you will not be paid overtime twice for the same hours of work.

Outsourcing Solutions

Considering the complex laws and potentially expensive implications of non-compliance, many employers have elected to outsource the management of their FLSA compliance to outside experts who specialize in these laws. Human Resources specialists recognize violations and can offer immediate solutions to remedy them. Additionally, most small business owners are unable to remain abreast of developing laws and changing regulations. In contrast, Human Resources Outsourcing firms are constantly on the lookout for new laws that my impact their clients, and can quickly implement them. We encourage you to investigate the benefits of outsourcing your payroll and wage compliance to an HR Outsourcing firm familiar with the laws in your state. Contact us for more information.

In our upcoming posts, we will examine how overtime laws impact Bonuses and how to calculate overtime pay based on a sample workweek.

Contributed by: Thi Ha and Monique Stennis, CPEhr

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More on Worksite Enforcement – from the Office of ICE

Wednesday, September 16th, 2009

In recent weeks the U.S. Immigration and Customs Enforcement (ICE) has significantly increased its efforts to prosecute employers who knowingly employ illegal workers. As noted by Janet Napolitano, Secretary of the Department of Homeland Security,  ICE’s worksite enforcement program targets unscrupulous employers who prey upon illegal aliens by subjecting them to poor or unsafe working conditions or paying them sub-standard wages.

Why do employers break the law?

In a previous post we reviewed the significant penalties attributed to improper documentation of employees. So why would employers put so much at risk to seemingly save a few dollars? The answer according to ICE all boils down to two simple words: big money.

According to ICE, employers hire undocumented workers for reasons such as:

  • obtaining a financial advantage over their competitors by paying lower wages
  • offering few if any benefits
  • failing to comply with tax laws
  • avoiding health and safety related complaints

Improving the workplace, not fines.

Contrary to popular belief, the recent increase in ICE’s activities is not to create an additional revenue stream for the government agency. The following quote was made by Marcy Forman, Director, Office of Investigations, Immigration and Customs Enforcement in April, 2009:

However, we are not interested simply in a punitive approach to worksite enforcement. Our goal is an approach that incorporates compliance and prevention. To this end, ICE has established a robust industry outreach program, our IMAGE (ICE Mutual Agreement between Government and Employers) program. Since 2006, ICE has partnered with industry to provide “best practices,” training, and recommended tools industry can use to comply with worksite laws and requirements. Currently there are 46 IMAGE members, associates, and endorsees of the program. In FY 2008, ICE outreach coordinators in our 26 field offices made IMAGE presentations to more than 8,300 businesses. Based on our comprehensive strategy to address worksite enforcement, we believe that we are creating the conditions of a culture of industry compliance.

Don’t play dumb.

While the lure of saving a few dollars by avoiding taxes, benefits or offering lower wages may entice some employers to break law, may others are simply unaware of the federal requirements. As stated in the earlier post, the rules are complicated so often times employers will unwittingly violate the law. Government agencies are apt to work with an employer that exhibits a willingness to clear up their operations, only issuing fines for intentional, flagrant or repetitive violations.

If you or someone you know employs illegal workers, or is currently being audited by the DHS, please contact us immediately for assistance.

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Immigration Law Enforcement – New Challenges on the Horizon

Tuesday, September 8th, 2009

The Department of Homeland Security (DHS) recently issued a press release stating that the agency intends to shift the focus of its worksite enforcement strategy away from illegal workers and towards the criminal prosecution of employers who knowingly hire them. Last year, the Department made more than 6,000 arrests related to workplace enforcement, while 135 of the arrests were employers.

As a result of this shift in DHS’s priorities regarding worksite enforcement, employers should ensure that they have appropriate documentation for current employees and those employers lawfully prepare and maintain the Form I-9, Employment Eligibility Verification, for all newly hired employees. Employers should review their immigration compliance procedures, which should include:

  • Regularly scheduled in-house audits of I-9 records to ensure proper completion and retention, and to correct any discrepancies
  • Ongoing training of human resources professionals involved in the I-9 process
  • A procedure for appropriately responding to a Social Security No Match letter, a DHS Notice of Suspect Documents, or other evidence indicating that they might have “constructive knowledge” that a certain worker does not have work authorization.

High Priced Penalties

The fines attributed to I-9 violations can lead to catastrophic results. The key to understanding the severity of these penalties is “Knowledge”.  The basic penalty for improper completion of the I-9 form can range from $100 – $1,100 for each I-9, and they grow from there:

  • Improper retention or hiding from inspectors can range from $100 to $3,000 for each I-9.
  • Knowingly hiring or continuing to employ unauthorized workers fines range from $250 up to $11,000 per violation.
  • Firms who continually hire unauthorized workers can face criminal penalties of as much as $3,000 per employee and may be subject to prison time.

Complex regulations, simple solutions

While small and mid-sized employers may have the ability to implement a compliant I-9 audit, the rules are complicated and the bar has just been raised even higher. A single audit of improperly maintained I-9s can result in fines in the tens-of-thousands of dollars. It is highly recommended that you engage the services of a professional Human Resources Outsourcing firm that is familiar with the rules, can manage the process, and can be your first line of defense in the event of a DHS audit. Staffed with employment experts, the HRO firm is well equipped to remain abreast of the changing regulations, and to provide the necessary direction before, and during, a DHS audit.

CPEhr can assist you with Immigration Law Enforcement. If you have further questions, please call 1.800.850.7133 or email info@cpehr.com.

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The Three Most Common Payroll Tax Mistakes… Are You Guilty?

Monday, August 10th, 2009

There is no doubt that the laws surrounding payroll and payroll tax submission are difficult to master, even for the tax accounting specialist. Consider the following statistics:

  • The tax code (the basic law written by Congress) is 2,840 pages.
  • The IRS regulations add an additional 46,000 pages.
  • The combined number of forms for businesses and individuals is now over 480

Internal Revenue Code (IRC) 6656 reviews penalties for late payments of payroll deposits. A deposit only ONE day late will result in a penalty equal to 2% of the delinquent amounts. It jumps to 5% for payments made 6 days late, and doubles to 10% for payments made 16 or more days late. A recent report states that over 1 MILLION tax penalty statements are sent out quarterly.

Three Common Payroll Tax Mistakes

Simple attention to the details can often reduce the risk of missing a tax payment, or making an incorrect deposit. Below are three common mistakes that can typically be avoided easily:

1. Submitting Deposits Late
Once you have withheld taxes from the employee, it is important to know when and how these taxes, along with the employer contributions, must be paid.  There are many regulations at the Federal and State levels that dictate when and how payments are to be remitted.  If payments are late, penalties and interest can be assessed. Contact your accountant, bookkeep or payroll vendor to find out your payment obligations.

2. Late or Incorrect Payroll Tax Return Filings
There are numerous Federal and State returns that must be filed for payroll taxes, including withholding, unemployment, local and school district taxes.  All have different reporting requirements (paper, e-file, mag media, etc.) and due dates.  If proper procedures are not followed, penalties and interest can be assessed.

3. State Unemployment Insurance Rates not Updated

Most States update employer SUI rates annually.  It is important to update the payroll software with the new rates, so taxes are properly paid.  Underpayment of taxes can result in penalties and interest. Once again, contact your CPA for this information.

Avoid the Obligations Altogether – Outsource it.

Most small employers recognize they are unable to stay abreast of all their payroll tax obligations. Many outsource payroll to a payroll vendor, such as ADP or Paychex. However, many more employers are now turning to Professional Employer Organizations (PEOs). A PEO “co-employs” the client’s worksite employees and assumes the payroll and tax obligations of the client. The payroll is reported under the PEO’s Federal Tax ID Number, which in turn provides a layer of compliance to the business. IRS audits, payments and inquiries are directed to the PEO, which has teams of payroll and tax specialists on staff.

While the concept may sound foreign at first, thousands of employers have found that a PEO is precisely the cure to the payroll tax headaches they have been looking for. Learn more about PEO Payroll Tax services here.

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