payroll pitfalls - ascentis€¦ · ©2017 the payroll advisor 13 travel spent by an employee in...

Presented on Thursday, May 11, 2017

Payroll Pitfalls

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Travel Pay

Auto Allowances

Regular Rate of Pay

Abandoned Wages

Taxing Prizes, Gifts, Awards and Cell Phones

What Is Our Focus For Today?

©2017 The Payroll Advisor

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Vicki M. Lambert, CPP, is President and Academic Director of The Payroll Advisor™, a firm specializing in payroll education and training. The company’s website www.thepayrolladvisor.comoffers a subscription payroll news service which keeps payroll professionals up-to-date on the latest rules and regulations.

Today’s Presenter

Vicki M. Lambert CPP

http://www.thepayrolladvisor.com/

Pitfall #1 Travel Pay7


When Is travel pay hours worked?

The Principles of Travel Pay


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The principles which apply in determining whether or not time spent traveling is working time depend upon the kind of travel involved.

These are contained in §785.34 to 785.41of the FLSA/ Portal-to-Portal Act

Applies to nonexempt employees only


An employee who travels from home before his regular workday and returns to his home at the end of the workday is engaged in ordinary work travel which is a normal incident of employment.

This is true whether he works at a fixed location or at different job sites. Normal travel from home to work is not work time.

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Home to Work Ordinary Situation


There may be instances when travel from home to work is work time. For example, if an employee who has gone home after completing his day’s work is called out at night to travel a substantial distance to perform an emergency job for one of his employer’s customers, all time spent on such travel is working time. Section 785.36

And no before you ask we don’t have an definition of “substantial distance” to give. The DOL does not provide one.

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Home to Work—Emergency Situations


Where an employee is given prior notice (for example Friday night) that he will be required to work at a customer’s place of business on Saturday it will not be considered as an emergency call outside of his regular working hours.

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However…


Problem arises when an employee who regularly works at a fixed location in one city is given a special 1-day work assignment in another city

Considered hours worked for the travel as the employee is traveling for the employer’s benefit

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Home to Work on Special One-Day Assignments in Another City

Travel That’s All in a Day’s Work


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Travel spent by an employee in travel as part of his principle activity, such as travel from job site during the workday, must be counted as hours worked.

Where an employee is required to report at a meeting place to receive instructions or to perform other work there, or to pick up and to carry tools, the travel from the designated place to the work place is part of the day’s work and must be counted as hour worked regardless of contract, custom, or practice.

Travel Away From Home Community


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Travel that keeps an employee away from home overnight is travel away from home.

Travel away from home is clearly work time when it cuts across the employee’s workday

The employee is simply substituting travel for other duties.

Traveling by Car


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If an employee is offered public transportation but requests permission to drive his car instead the employer may count as hours worked either the time spent driving the car or the time he would have had to count as hours worked during work hours if the employee has used public conveyance.

Yes, You Can Pay Differently


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Travel pay can be paid at a different rate if that rate is equal to the applicable minimum wage and the employee is clearly informed of the different rate before the travel occurs. That is why the written policy is needed.

Vanpools and Van Pool Drivers


The transportation provided must be primarily for the benefit of the participating employees

Participation is in the program is entirely voluntary and employees are free to accept or reject the arrangement at any time

The employee-driver is chose by the participating employees

The pickup times and route are established by the participating employees

The employer has virtually no control over the arrangement

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Travel Pay and Overtime


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If hours worked goes into overtime calculation

If different rate can use weighted average

Any pay premiums are included in regular rate of pay calculations

Watch out for time differences and change of days

Watch out for daily on state level

State Watch for Travel Pay


The states can vary widely on travel pay requirements. Some may match federal others will be stricter or the state may not even address the issue.

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Pitfall #2: Auto Reimbursements20


When is reimbursing for business use of a personal vehicle taxable wages?

Handling Auto Allowances


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Handling auto allowances correctly—when is it taxable and when it is not

Accountable and nonaccountableplans and how they apply to auto allowances

Auto Reimbursements


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Falls under Per Diems or Accountable Plans

2017 per diem rate: is 53.5 cents per mile

Must have a log

Must list all requirementsNature of trip

Actual Mileage

Auto allowances fall under same rule

Business Use Personal Vehicle


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Acme Tile Company has 20 employees on its sales staff. Each sales person must call on 20 to 30 customers per week. The sales staff uses their own personal vehicles to make these calls. Acme pays each sales person a $500 per month auto allowance to cover the costs of using their own vehicles. This payment is made on the 15th of each month and paid through the accounts payable department.

Business Use Personal Vehicle—Example


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John Levy is one of the sales staff at Acme. In July he submits his auto log for the month of June. For all his sales calls, John logged 1,268.8 miles.

Using the 2017 IRS standard mileage rate of 53.5 cent, his calculation would be done as follows:

1,268.8 x $.535 = $678.81

Since $678.81 exceeds the $500 payment, nothing needs to be reported to payroll.

Example 2: Taxable


Joe Bumble is also a salesperson for Acme. In July he also submits his log. But Joe spent the majority of his time in June at Acme’s two biggest clients and didn’t do as much traveling as he usually does. The total mileage for his log is only 322.6 miles. We would do the calculation for his mileage as follows:

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Business Use Personal Vehicle—2nd

Example


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322.6 x $.535 = $172.59

Since $172.59 is less than the monthly payment of $500, the difference will be taxable to the employee

Therefore, accounts payable must submit $327.41 ($500.00 – $172.59) to the payroll department as taxable income for July

Or the employee must return the excess to accounts payable

No you cannot “average” over the year if paid monthly math done monthly

Example 3: Totally Taxable


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Acme does not require its sales staff to submit logs or any backup for the auto allowance that is paid each month

That is a nonaccountable plan under IRS rules—no paperwork

Therefore the entire $500 per each sales staff member is taxable income for that month and must be reported to payroll

Pitfall #3: Regular Rate of Pay28


When do I calculate overtime using the employee’s file rate and when do I calculate using another rate?

Regular Rate of Pay


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What is regular rate of pay and how is it calculated

The eight narrowly construed exceptions to inclusion of payments in the regular rate

How to calculate the overtime premium

Definition of Overtime


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Overtime pay under the Fair Labor Standards Act is computed at 1 1/2 times the regular rate of pay for all hours worked in excess of the 40 hours in a workweek. There is no limitation on the number of hours an employee may work in any workweek, as long as they are compensated in accordance with the FLSA's requirements.

Regular Rate of Pay


It is a calculated rate and not just the file rate

The employer must consider many different payments in accurately calculating the correct rate of pay for overtime hours.

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Regular Rate of Pay …


In addition to the contract or file rate, any additional amounts paid for:

shift differential,

non-discretionary bonuses

promotional bonuses

cost of living adjustments

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1. Does Not Include Gifts…


Sums paid as gifts, such as payments in the nature of gifts given during holidays or on other special occasions, or as a reward for service. The amounts of the gifts or payments may not be measured by or dependent on hours worked, production or efficiency. (29 CFR 778.212)

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http://www.dol.gov/dol/allcfr/ESA/Title_29/Part_778/29CFR778.212.htm

2. Does Not Include Nonworking Hours…


Payments made for occasional periods when no work is performed due to vacation, holiday, illness, failure of the employer to provide sufficient work, or other similar cause.

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3. Does Not Include Expenses…


Reasonable payments for traveling expenses, or other expenses an employee incurs while furthering the employer’s interests and that are properly reimbursable by the employer (such as laundering uniforms or buying supplies or materials on behalf of the employer); and other similar payments to an employee which are not made as compensation for the employee’s hours of employment.

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4. Does Not Include Discretionary Bonuses…


Sums paid in recognition of services performed during a given period if one of the following three conditions is met: both the fact that payment is to be made and the amount of the payment are at the sole discretion of the employer at or near the end of the period and not according to any prior contract, agreement, or promise causing an employee to expect such payments regularly.

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5. Does Not Include Profit Sharing…


The payments are made pursuant to a bona fide profit-sharing plan or trust or bona fide thrift savings plan, which meet additional requirements set forth in the regulations.

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6. Does Not Include Health or Life…


Contributions irrevocably made by an employer to a trustee or third person according to a bona fide plan for providing old-age, retirement, life, accident, or health insurance or similar benefits to employees.

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7. Does Not Include Premium Pay…


Extra compensation paid at a “premium rate” for certain hours worked by an employee because such hours are hours worked in excess of eight in a day, or in excess of 40 hours in the week, or in excess of the employee’s normal working hours or regular working hours, as the case may be. Such extra compensation may be creditable toward overtime compensation. (29 CFR 778.202)

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8. Does Not Include Premium Pay…


Extra compensation provided by a “premium rate” for work by the employee on Saturdays, Sundays, holidays, or regular days of rest, or on the sixth or seventh day of the workweek. The premium rate may not be less than one and one-half times the rate established in good faith for work performed in non-overtime hours on other days. Such extra compensation may be creditable toward overtime compensation. (29 CFR 778.203, 29 CFR 778.205)

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Regular Rate of Pay…


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Is an hourly rate

Employers not required to pay employees by the hour but may pay by the hour, piece, salary, commission or other type of payment

Overtime must be computed on an hourly basis

Regular Rate of Pay…


Computation of the hourly “regular rate of pay” is calculated as follows:

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Now an Example with Numbers…


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Step by Step Example With Bonus


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Step 1: 44 x $15.00 = $660.00 + $10.00 = $670.00

Step 2: $670.00 / 44 = $15.23

Step 3: $15.23 x .5 = $7.62

Step 4: $7.62 x 4 = $30.48

Step 5: $670.00 + $30.48 = $700.48

Pitfall #4: Abandoned Wages45


What do I do with wages that have not been claimed by

employees?

Abandoned Wages


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When are wages considered abandoned

What laws or regulations cover unclaimed wages

What is payroll’s responsibility relating to abandoned wages

How to correctly report and remit unclaimed wages

Liability issues if you have an outside payroll service

Names and Definitions


Abandoned wages

Unclaimed property

Escheat

Consists of various types of personal property including intangible. Items such as checking and savings accounts, uncashed checks, insurance refunds and wages are examples of unclaimed property

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More Definitions

Holder

Holders include financial institutions, business corporations and retailers

The one who is “holding” the money has the liability to report the wages

As the employer you are the “holder” for the wages

Dormancy Period

Period of inactivity

Governed by state law

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Why Are the States Involved?


Each state is involved in unclaimed property as a service to the citizens of its state

There is one place to look for the property

State attempts to find the owner

Money held forever until owner found

Citizens benefit since earned interest is used to fund public programs

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Uniform Unclaimed Property Act


Each state and DC have enacted a version of the law

Considered a consumer protection law

Revenue measure as well

Various revisions-last one in 1995

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The Laws


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Each state has its own laws

These include:

When considered abandoned

When to report/remit

How to report/remit

Due Diligence

The Laws


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When considered abandoned

When to report or

remit

Is due diligence required

Each state has its own laws. These include:

Finding Those Laws


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Google “abandoned property”

or Link to states’ websites http://www.unclaimed.org/reporting/ part of NAUPA (National Assoc. of Unclaimed Property Administrators)

Look for “holder reporting”

http://www.unclaimed.org/reporting/

When Considered Abandoned


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Wages are generally one year after becoming payable

Example: California, Florida and Louisiana

But the states can be different.

Example:

Kentucky, Maryland and Massachusetts: Three years after becoming payable

Delaware: Five Years after becoming payable

When to Report/Remit


Each state again has their own rule:

Typical: Before Nov 1 of each year for any wages unclaimed as of June 30 that year

AZ, HI follow this rule …but…

CA requires 2 reports—one by Nov 1 and 1 in June

CT: Before March 31 of each year for wages abandoned as of the preceding Dec 31

NY: by March 10 for the period of January 1 thru December 31 of the preceding year

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How to Report


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State usually has a report you can complete

States allow electronic filing or internet

Some require electronic filing only of reports

Some only diskette or CD

Some want paper with electronic filing

Some still allow paper for small reporting of less than a certain amount of checks

UPExchange is one of the free common software

Another is HRS Pro Software

How to Report


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Some states may have reciprocal agreement filing such as Massachusetts and Wisconsin—usually not to California

Negative reports may be required—example OH—Yes; MA—No

Aggregate reporting: may be allowed for small dollar amounts such as under $100 for MA—be careful some states don’t allow—CT

Due Diligence Reports may have to be filed with the state

How to Remit


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Remit can be electronic as well

Some states require EFT if over a certain amount

Example: CA required if over $20K

Example: MA required if over $10K

What is Due Diligence?


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Required to notify owners that their property is in danger of being escheated to the state

This is known as due diligence

May not be required by state

May have threshold before required

Example WI’s threshold is $50

Examples: Due Diligence


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CA: The holder shall send by mail, to the address of record, a notice not less than six nor more than 12 months before the time the account becomes reportable to the controller

NV: This process, known as “Due Diligence”, must be completed not less than 60 nor more than 120 days before the report is filed for each owner whose balance is more than $50.

Due Diligence-Example Iowa


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What Happens If a Company Doesn’t Comply?


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Most every state does have penalties

These economic times, states are turning to revenue where they can get it

Can range from $100 per report to up to 6 months in prison! Depends on the state

In addition the interest on the monies that should have been turned over

Agent Issued Stale Dated Payroll Checks


If an employer uses a payroll processing agent to issue checks that clear on the agent’s account, the agent will periodically notify the company of stale dated payroll checks that have not cleared their account. They will then redeposit these funds to the company’s checking account and the checks will no longer be negotiable. The company then has the responsibility for controlling and reporting the re-deposited payroll checks as unclaimed.

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Agent Issued Stale Dated Payroll Checks


If the payroll processing agent does not redeposit stale dated payroll checks back to the company’s account you need to contact the agent to determine if they review outstanding payroll checks for unclaimed funds reporting. If the agent reviews outstanding payroll checks for unclaimed funds reporting purposes then no additional work is required. If they do not then you should obtain an outstanding checklist from the agent, or the issuing bank, and request that funds for dormant accounts be returned so that they can be reviewed to identify reportable unclaimed accounts.

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What do I do with everything and anything paid out of accounts payable to an employee?

Pitfall #5: Taxing Prizes, Gifts, Awards and Cell Phones

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Taxing Prizes, Gifts Awards and Cell Phones


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What to tax and when if you give out employee achievement awards for length of service or safety

How to handle prizes, awards, and gift cards given to employees

The latest on company supplied cell phones—when to tax

The latest on business use of a personal cell phone—what to do with reimbursements

Employee Achievement Awards


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Length of Service and Safety only

Tangible personal property

Not disguised compensation

Meaningful presentation

No more than specific dollar amounts$1600 qualified plan

$400 nonqualified plan

Length of Service Award


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Will qualify only if either of the following apply:

The employee receives the award after his or her first 5 years of employment

The employee did not receive another length-of-service award (other than de minimis) during the same year or in any of the prior 4 years

Safety Awards


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Qualifies unless one of the following applies:

Given to a manager, administrator, clerical employee or other professional employee

During the tax year, more than 10% of your employees have already received a safety achievement award (not counting de minimis)

Bonuses, Prizes and Awards


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Cash is taxable!

So are all other types of payments

Trips, tangible personal property or whatever!

Doesn’t matter what it is-if given as a prize, bonus or award it is taxable income

Doesn’t matter what you call the “award”

Holiday Gifts/Gift Certificates, Cards


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Can be De Minimis

Cash or cash equivalent is taxableThis includes gift certificates to

supermarkets!

Turkey rule appliesTurkey, ham or similar item of nominal

value at holiday time.

Must be for the actual turkey not to store

Company Supplied Cell Phones


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The value of an employer-provided cell phone, provided primarily for noncompensatory business reasons, is excludable from an employee's income as a working condition fringe benefit. Personal use of an employer-provided cell phone, provided primarily for noncompensatorybusiness reasons, is excludable from an employee's income as a de minimis fringe benefit.

Noncompensatory Business Purpose


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You provide a cell phone primarily for noncompensatory business purposes if there are substantial business reasons for providing the cell phone. Examples of substantial business reasons include the employer's:

Noncompensatory Business Purposes


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Need to contact the employee at all times for work-related emergencies,

Requirement that the employee be available to speak with clients at times when the employee is away from the office, and

Need to speak with clients located in other time zones at times outside the employee's normal workday.

Noncompensatory Business Purposes


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You cannot exclude from an employee's wages the value of a cell phone provided to promote good will of an employee, to attract a prospective employee, or as a means of providing additional compensation to an employee.

Reimbursement for Personal Cell Phones Used for Business


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If the employer requires the employee to maintain and use their personal cell phones for business purposes and reimburses the employee for the business use of their personal cell phones the following rules apply:

Reimbursement for Personal Cell Phones


Must have substantial business reasons for requiring employee’s use of personal cell phones in connection with employer’s trade or business

Definition same as for business cell phones

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Reimbursement for Personal Cell Phones


Employee must maintain cell phone coverage that is reasonably related to the needs of the employer’s business

Reimbursement must be reasonably calculated so as to not exceed actual expenses the employee incurs

Must not be a substitute for a portion of the employee’s wages

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Acceptable Reimbursement Arrangement


Employee must communicate with employer’s clients outside of normal business hours

Employee’s basic coverage plan charges a flat-rate per month for a certain number of minutes for domestic calls

Employer reimburses employee for the monthly basic plan expense to enable employee to maintain contact with business clients after hours

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Unacceptable Reimbursement Arrangements


Reimbursement for international or satellite cell phone coverage for technician whose clients are in local geographical area

Pattern of reimbursement that deviates significantly from a normal cell phone use in the employer’s businessExample: employee is reimbursed $100 per quarter in

quarters 1-3 of the year but receives a reimbursement of $500 in quarter 4

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Accounts Payable Payments


Payroll must determine if an employee has been paid anything out of accounts payable whether or not it is taxable income

Outside of straight business expenses reimbursements any payment may have tax ramifications

Reporting on 1099-MISC does not qualify as taxing and reporting

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Our software can help you remain organized and up to date with the complexity of payroll rules and regulations today, which in turn can help you avoid payroll pitfalls. Our online payroll software can help avoid these pitfalls. Ascentis Payroll stands out from traditional payroll systems by providing instant paperless payroll processing. Our payroll software allows you to process payroll in real-time, ensuring 100% accuracy, flexibility and control, while reducing payroll processing time by as much as 30%. Since changes can occur anytime throughout the year, it is critical that clients have access to make changes.

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payroll pitfalls - ascentis€¦ · ©2017 the payroll advisor 13 travel spent by an employee in...

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