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PAYROLL  PROCESSING  &  

PAYROLL  TAX  FRAUD    

What  you  need  to  know  to  protect  your  business  

INTRODUCTION  

PAUL STAPPAS    

PRESIDENT    

   

“Watch the costs and the profits will take care of themselves” Andrew Carnegie

The world’s first billionaire

BEFORE  WE  BEGIN  

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WHAT WE WILL COVER  

SAVING  YOU  MONEY  MAXIMIZING  SERVICES  &  BENEFITS  

 HOW  TO  SELECT  PROVIDER  WHAT  TO  AVOID  

PROTECT  AGAINST  PAYROLL  FRAUD  

HISTORY STARTED  OVER  35  YEARS  AGO  

STRATEGIC  PLANNING  CONSULTANT  STARTED  BOOKKEEPING  SERVICE  PROVIDED  PAYROLL  PROCESSING  

******  SO  

 

HISTORY CONTRACTED  WITH  PAYROLL  PROVIDERS  

ADP  PAYCHEX  INTUIT  

AS  A  RESULT  OF  COST  INCREASES  AND  SERVICE  DECREASES  

BMA  PAYROLL  WAS  BORN    

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SOURCES OF PAYROLL PROCESSING    

DO  IT  YOURSELF  BANKS  

PAYROLL  PROCESSING  FIRMS  PEO’S  

DO IT YOURSELF The least cost effective method possible !  Usually results in mistakes, errors, omissions !  Takes time and time is money !  Takes on risk of penalties and late fees !  Responsible for updating tax rates ! Responsible for dealing with IRS or state authorities when

mistakes are made ! Open to fraud by employee handling payroll

 

NOT  COST  EFFICIENT  (per  paychex  cost  analysis)  

DO IT YOURSELF

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* 1.  The  $8.25  per  hour  rate  is  probably  too  low  especially  with  the  minimum  wage  rates  * 2.  A  recent  analysis  actually  indicates  that  small  business  owners  actually  spend  an  average  of  EIGHT  hours  per  month  performing  payroll  functions.    That's  12  full  days  per  year.  * 3..  You  are  responsible  for  any  mistakes  or  errors  * 4.  Who  will  deal  with  state  or  federal  or  local  problems  * 5.  DO  IT  YOURSELF  IS  PENNY  WISE,  DOLLAR  FOOLISH  

DO  IT  YOURSELF  

Primary  objective  is  DEPOSITS  and  

Selling  their  other  products  They  outsource  the  work  NO  customer  service  

Price  is  low  BUT  It  is  basically  “do  it  yourself”  

EXAMPLE  

BANKS

Company using a large bank "  Firm processed payroll on line "  The firm made a change "  Change resulted in taxes not being paid "  Firm received IRS notice "  Firm contacted bank for help "  Bank responded “not their problem” "  Firm hit with penalties & interest "  Firm contacted BMA

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SOLUTION  " He called BMA " We resolved the problem he experienced " We advised how he could eliminate IRS fines & penalties "  He became a client even though our fee was higher than the

banks NOTE – OWNER SPENT CONSIDERABLE TIME (MONEY) TO SOLVE A SIMPLE PROBLEM. WITH THE RIGHT PAYROLL FIRM THIS PROBLEM WOULD NEVER HAVE OCCURRED

EMPLOYEES  BECOME  THEIR  EMPLOYEES  THEY  PROVIDE  ALL  BENEFITS  

THEY  ARE  RESPONSIBLE  FOR  ALL  TAXES  PROBLEM  -­‐  COST  

   

PROFESSIONAL EMPLOYER ORGANIZATIONS

PAYROLL PROVIDERS

BEST  OPTION  MOST  COST  EFFICIENT  

GUARANTEED  ACCURACY  TAXES  CURRENT  AND  UP  TO  DATE  

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PAYROLL DANGERS

1099  CONTRACTORS    

WORKMAN’S  COMP  

1099 CONTRACTORS  Commonly  called  INDEPENDENT  CONTRACTORS  

 WHY  FIRMS  LIKE  TO  CLASSIFY  WORKERS  AS  INDEPENDENT  

CONTRACTORS  SAVE  ON  FICA  TAXES  SAVE  ON  BENEFITS  

SAVE  ON  UNEMPLOYMENT  SAVE  ON  WORKERS  COMP  

1099 CONTRACTORS  IMPORTANT  FACTORS  TO  CONSIDER  PER  IRS  

Common  Law  Rules  Behavioral:  Does  the  company  control  or  have  the  right  to  control  what  the  

worker  does  and  how  the  worker  does  his  or  her  job?  Financial:  Are  the  business  aspects  of  the  worker’s  job  controlled  by  the  payer?  

(these  include  things  like  how  worker  is  paid,  whether  expenses  are  reimbursed,  who  provides  tools/supplies,  etc.)  

Type  of  Relationship:  Are  there  written  contracts  or  employee  type  benefits  (i.e.  pension  plan,  insurance,  vacation  pay,  etc.)?  Will  the  relationship  continue  

and  is  the  work  performed  a  key  aspect  of  the  business?  

EXAMPLE        

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1099 CONTRACTORS  EXAMPLE OF THE DANGERS "  CHIROPRACTOR  " ON  ADVISE  OF  HIS  ACCOUNTANT    "  PUT  ALL  WORKERS  AS  1099  CONTRACTORS  " WAS  AUDITED    RESULT "  IRS  WENT  BACK  5  YEARS  "  HAD  TO  PAY  TAXES  NOT  PAID  FOR  THE  5  YEARS  "  PLUS  PENALTY  (UP  TO  25%)  and  INTEREST    

       

1099 CONTRACTORS  SIMPLIFING HOW TO DETERMINE QUALIFICATION "  INDEPENDENCE  –  employer  must  have  no  control  " SCHEDULE  –  contractor  controls  own  hours  " PROCEDURE  –  contractor  controls  how  to  perform  tasks  " CONTRACT  –  contractor  has  a  written  contract  with  the  firm  "  INVOICES  –  contractor  provides  invoices  for  payment  " OTHER  CLIENTS  –  benefit  if  contractor  has  other  clients  

   

       

WORKERS COMP    WHAT IS IT "  INSURANCE  TO  PROTECT  EMPLOYEES  THAT  ARE  INJURED  ON  THE  

JOB  "  COVERED  UNDER  STATE  LAWS  "  IT  IS  REQUIRED  "  NOT  HAVING  COVERAGE  IS  CONSIDERED  A  CRIMINAL  &  CIVIL  ACT  "  SUBJECT  TO  SEVERE  FINANCIAL  PENALTIES  

EXAMPLES    

       

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WORKERS COMP  NEW YORK Civil  Fines:  Pursuant  to  Section  52-­‐5  of  the  Law,  an  employer  may  be  subject  to  a  fine  of  $2,000.00  for  each  10  day  period  of  non-­‐compliance.    Criminal  Liability:  Pursuant  to  Section  52-­‐1  of  the  Law,  an  non-­‐compliant  employer  with  five  or  less  employees,  may  be  subject  to  a  criminal  misdemeanor  punishable  by  a  fine  of  not  less  than  $1,000.00  and  no  more  than  $5,000.00.    In  addition,  non-­‐compliant  employers  with  more  than  five  employees  may  be  subject  to  Class  E  Felony  punishable  by  a  fine  of  no  less  than  $5,000.00  but  no  more  than  $50,000.00.    Subsequent  violations  can  be  considered  a  Class  D  Felony  for  all  employers  and  may  result  in  additional  fines  not  less  than  $10,000.00  but  no  more  than  $50,000.00.  Your  Business  May  Be  Closed:  Under  Section  141-­‐a  of  the  Law,  the  Board  may  issue  a  Stop  Work  Order  to  a  non-­‐compliant  business          

       

WORKERS COMP  NEW JERSEY "  The  law  –  failure  to  insure  is  a  disorderly  persons  offense  and,  if  determined  

to  be  willful,  a  crime  of  the  fourth  degree    "  Penalties  can  be  assessed  up  to  $5,000  for  the  first  ten  days  and  up  to  

$5,000  for  each  additional  ten-­‐day  period  of  failure  to  insure  thereafter.  "  In  the  case  of  a  corporation,  liability  for  failure  to  insure  can  extend  to  the  

corporate  officers  individually.    "  Penalties  assessed  for  failure  to  insure  are  not  dischargeable  in  bankruptcy.  "  Where  a  work-­‐related  injury  or  death  has  occurred,  the  employer,  including  

individual  corporate  officers,  partners  or  members  of  an  LLC,  is  directly  liable  for  medical  expenses,  temporary  disability  and  permanent  disability  or  dependency  benefits.

     

       

WORKERS COMP  FLORIDA "  If  an  employer  fails  to  purchase  workers’  compensation  coverage  and  comply  with  the  law,  

then  an  injured  employee  may  sue  the  employer  for  the  benefits  required  under  the  Workers  Comp  Law  or  may  bring  a  tort  action  against  the  employer.  In  a  tort  action,  the  employee  would  have  the  possibility  of  recovering  substantially  more  than  is  provided  under  the  workers  comp  law.    

"  The  employer  loses  the  right  to  defend  against  liability  based  on  certain  common  law  defenses  which  are  normally  available  in  lawsuits.  

"  Employee  would  also  be  able  to  sue  for  noneconomic  damages,  such  as  pain  and  suffering,  which  are  not  compensated  under  workers’  compensation  law.    

"  In  addition  to  being  sued,  an  employer  can  actually  be  prevented,  by  a  court  injunction,  from  conducting  business  until  such  time  as  payment  of  compensation  is  secured.  

"  Penalty  of  $1,000  per  day  for  period  not  insured.  HOW TO PAY WORKERS COMP PREMIUM

     

       

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WORKERS COMP HOW TO PAY

TRADITIONAL    

PAY  AS  YOU  GO      

       

WORKERS COMP HOW TO PAY TRADITIONAL " WORK  WITH  AN  AGENT  " PAYROLL  FOR  THE  YEAR  IS  ESTIMATED  BASED  ON  PRIOR  YEAR  " AT  LEAST  25%  DOWN  PAYMENT  REQUIRED  " BALANCE  PAID  OVER  NEXT  10  MONTHS  " ANNUAL  AUDIT  PERFORMED  

"  IF  UNDER,  BALANCE  IS  IMMEDIATELY  DUE  "  NEW  25%  DOWNPAYMENT  IS  REQUIRED  

     

       

WORKERS COMP HOW TO PAY PAY AS YOU GO "  PROVIDED  THRU  PAYROLL  PROCESSOR  "  PROVIDOR  PROVIDES  INSURANCE  COMPANY  PAYROLL  EACH  

PERIOD  "  COMPANY  IS  CHARGED  EACH  PAYROLL  "  CHARGE  IS  FOR  EXACT  PAYROLL  "  NO  DOWN  PAYMENT  REQUIRED  "  ANNUAL  AUDIT  PERFORMED  THERE  IS  NO  ADJUSTMENT        

       

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WORKERS COMP HOW TO PAY WHICH IS BEST      

         

TRADITIONAL PAY AS YOU GODOWNPAYMENT REQUIRED NO DOWNPAYMENTN0 ADDED FEE FOR PROCESSING $10.00 PER MONTH PROCESSING ASSISTANCE FOR CLAIMS NO ASSISTANCE FOR CLAIMS

BUNDLING WHAT IS IT " Combines other services with payroll

"  Retirement  plans  "  Medical  plans  "  HR  "  Life  insurance  "  Disability  insurance  "  Business  insurance  

     

         

BUNDLING SHOULD NEVER BE DONE WITH A PAYROLL PROCESSOR

" Very  good  for  the  payroll  company  " Very  poor  for  the  business  

       

         

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BUNDLING

QUESTION

WOULD  YOU  GO  TO  YOUR  FAMILY  DOCTOR  FOR  

BRAIN  SURGERY    

ALWAYS USE AN EXPERT

     

         BUNDLING

WHY PAYROLL FIRMS BUNDLE "  Primarily to make it difficult for a business to switch payroll firms "  Charge additional fees "  Make money on the float

       

         BUNDLING- major problems

RETIREMENT PLANS "  Only offer limited plans "  NO proper analysis for client "  NO expertise in retirement planning "  Make money on the float

"  EXAMPLE

       

         

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BUNDLING- major problems

RETIREMENT PLANS "  Firm with 35 employees used ADP "  Had a 401k plan with ADP

"  Only 5 employees were participating "  None were investing $5,000 or more "  Were paying substantial fees for the 401k

       

         

BUNDLING- major problems

RETIREMENT PLANS "  SHOULD NOT HAVE HAD A 401K

"  Should have had a SIMPLE IRA "  No cost to employer "  No IRS reporting requirements

"  SO, WHY DIDN’T ADP SUGGEST A SIMPLE IRA? ADP DID NOT SELL A SIMPLE IRA

WOULD NOT HAPPEN WORKING WITH AN EXPERT SUCH AS ALLIED WEALTH

       

         

BUNDLING- major problems

MEDICAL "  NO expertise in medical insurance "  Make money on the float "  Their service?

" They become the broker of record " They mail a check to insurance company AGAIN WORK WITH EXPERTS SUCH AS ALLIED WEALTH

       

         

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BUNDLING- major problems

MEDICAL "  NO expertise in medical insurance "  Make money on the float "  Their service?

" They become the broker of record " They mail a check to insurance company

EXAMPLE

       

         

BUNDLING- major problems

MEDICAL EXAMPLE "  An attorney firm had a SECTION 125 plan with ADP

"  Had 4 partners & about 12 other employees

"  The firm was a Sub S Corporation "  ADP charged them $40.00 per month for a compliance report

"  REPORT WAS NOT NECESSARY "  Since this was a Sub S, principals/owners were not eligible for the SECTION 125 "  The plan would ALWAYS be in compliance

"  FIRM IS NOW A BMA CLIENT WOULD NOT HAPPEN WORKING WITH AN EXPERT SUCH AS

ALLIED WEALTH

       

         

BUNDLING- major problems

HUMAN RESOURCES " NO expertise in HR "  It is an online system "  It is do it yourself "  No CUSTOMIZATION "  No onsite expert meeting with business owner " Just adds income to payroll firm

BEST TO WORK WITH AN EXPERT IN THIS FIELD

       

         

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FRAUD PROTECTION

WHERE IT COMES FROM TAX IMPOUNDING

NOTE If a firm uses a payroll firm that does TAX IMPOUNDING

it is 100% exposed to fraud

WHAT IS TAX IMPOUNDING?

       

         

FRAUD PROTECTION TAX IMPOUNDING PROCESS

       

         

EMPLOYER    

IRS/STATE  TAX  AUTHORITIES  

PAYROLL  CO  

EARNS INTEREST

FRAUD PROTECTION HOW YOU GET IN TROUBLE

"  There are no laws or regulations on what a payroll firm can do with the impounded money.

"  Unlike an attorney trust account "  If payroll firm does not pay the taxes

"  In about 6 months you get a notice that taxes not paid "  You say “I paid to my payroll company”

"  IRS says “I don’t care, you are responsible”

"  You are now out twice– the “stolen” funds plus the taxes "  In addition you are hit with penalties and interest "  PLUS payroll taxes cannot be wiped out by bankruptcy

EXAMPLES OF PAYROLL FRAUD

       

         

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FRAUD PROTECTION EXAMPLES OF FRAUD

 

HOW TO GET 100% FRAUD PROTECTION?    

         

FRAUD PROTECTION BMA ELIMINATES TAX IMPOUNDING

       

         

EMPLOYER    

IRS/STATE  TAX  AUTHORITIES  

PAYROLL  CO  

WHY PAYROLL FIRMS LOVE

TO HOLD YOUR MONEY EXAMPLE

PAYCHEX IN 2014 INTEREST ON FUNDS HELD FOR CLIENTS

$40,700,000 AND

THIS IN A 0% ECONOMY

       

         

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BMA PAYROLL INFORMATION ON BMA PAYROLL

"  BMA  is  a  family  owned  company  with  over  30  years  experience  "   BMA  a  national  firm    "  Provides  a  comprehensive,  all-­‐inclusive,    FLAT  MONTHLY    FEE  processing  z  "  ssthat  includes:  

"  Cost  savings,  up  to  70%.  "  No  added  charges  for  end  of  year  W2’s  940  and  941  tax  forms,    "  Free  direct  deposit  for  all  employees  "  Free  employee  on  line  access  to  their  payroll  account  "  Free  download  of  payroll  data  into  QuickBooks  and  many  other  accounting  software  programs  

(into  specific  accounts)  "  Free  new  employee  reporting  "  Simple  transfer  from  other  providers  "  NO  contracts  required    "  Experience  -­‐  has  been  working  with  small  to  mid  size  firms  for  over  30  years  "  Best  customer  service  in  the  industry  

       

         

BMA PAYROLL

I THANK YOU FOR ATTENDING and

FOR YOUR KIND ATTENTION