2013 Year End Payroll Seminar


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Stambaugh Ness Annual Payroll Update

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  • Here is a sample of an employee self service portal. As you can see, the employee can view years of data in some circumstances, and, depending on the permissions you set up, the employee can edit address information, etc.
    This not only reduces paper, the need for folding and stuffing envelopes, delivering paychecks, mailing costs, etc. If employees are able to view and print paystubs and W-2s, you will no longer have to be interrupted by employees who are “…going to settlement on their house in an hour and need a reprint of their last 3 paystubs” or those April phone calls from employees “I have a meeting with my accountant in 2 hours and cannot find my W-2 – can you reprint this for me? I will be there to pick it up in 30 minutes”….I can hear many of you laughing from miles away because I know you have experienced this. Employees can reprint their paystubs (they are usually pdf copies) and even provide their accountants with their login information.
    I do want to caution you to limit some of the edits permissions you allow employees to make. Sometimes employees like to make changes they really should not be doing. A classic example of this is marriage where there is a name change. Remember – names should only be changed if they have been changed with social security. Sometimes, new wives get too excited for that new name and forget that part. You always want to make sure employees names match with their social security number. If there is a mis-match on W-2s, the employer can be fined by the IRS up to $50 for each one that is incorrect. Talk with your vendor about these limits – or even make sure you have to approve changes before they are made. In Pennsylvania especially, if an employee changes their address, you want to verify their local and the tax rate and discuss any changes with employees.
  • As you can see, state laws vary widely on what employers can mandate in regards to direct deposit and PayCards. I have listed some of states more local to Pennsylvania. Virginia is especially interesting – you can make paycards mandatory for all amusement facility personnel and new hires. Each state department of labor will have their specific laws for you to review.
  • 2013 Year End Payroll Seminar

    1. 1. CPAs / Business Consultants Welcome to … Passion 4 Payroll! 2013-2014 Annual Payroll Update 1
    2. 2. Your Presenters... Introduction - Presenters: Tricia Richardson, CPP, SPHR Marla Garrett Payroll Advisor Small Business Specialist 2
    3. 3. Your Payroll Team ... Eric Belcastro, CPA Mike Drayer, E.A. Gregory Scott Stephanie Trebatoski 3
    4. 4. Your Payroll Team ... Penny Berkheimer Greta Geisler Holly Mann Jason Sneeringer, CPA 4
    5. 5. Our Panel of Experts… Stambaugh Ness, PC, would like to thank Rich Carson, President of Webb Insurance for his expertise in the area of the Affordable Care Act and Employee Benefits. Rich Carson can be reached via email at rcarson@webbinsuranceinc.com or via phone at 717.637.3670. 5
    6. 6. Our Panel of Experts… Stambaugh Ness, PC, would like to thank the following representatives from PayTime for their expertise in the area of payroll outsourcing and payroll trends. Chris Haverstick, Vice President – Sales & Marketing Dale Chwastyk, Chief Operating Officer PayTime can be reached via email at salesteam@paytimepayroll.com or via phone at: (800) 298-6431. 6
    7. 7. Reminders  Questions – please feel free to ask questions along the way – we will be compiling a list of FAQ and providing these on our website  Evaluations – please complete at the end – we read them and make changes to our material  CPE – sign the log & pick up your Certificate before you leave  Cell phones - please silence, thank you! 7
    8. 8. Download your FREE 2013 Payroll Guide to your Desktop at: www.stambaughness.com Under the “More Knowledge” Tab 2013-2014 Payroll Guide More Information, Less Paper Ongoing Updates Live Links Websites Forms Charts Essential Phone Numbers Detailed Explanations And More! 8
    9. 9. We are sympathetic. . . Introducing some of the Members of the Payroll Team… “Don’t Bother Mike In Payroll!” 9
    10. 10. Agenda          Annual Tax Changes – Federal, State, Local General Payroll Item Limits Employee vs. Independent Contractor Exempt vs. Non Exempt Fringe Benefits Discretionary vs. Non-Discretionary Bonuses Record Retention W-2 & 1099 Forms Telecommuting Taxation Issues 10
    11. 11. Agenda  Business Process Assessment – How Efficient & Compliant Are You?  Handbooks, New Hires, and Personnel Folders  Employee Self Service – HRIS  PayCards  Tip Reporting – Wages or Tips?  Affordable Care Act – What’s Next?  Defense of Marriage Act (DOMA) Reversal – Impact on Employers  Question & Answer 11
    12. 12. Trivia What was the 1st Year We Reported Income on Form 1040? 1.1901 2.1926 3.1913 4.1897 12
    13. 13. Trivia 1913 However, the 1st “tax” that was collected was a result of Civil War funding needs – President Abraham Lincoln signed a bill in 1862 that imposed a 3% tax on incomes between $600 and $10,000 and a 5% tax on anything greater than $10,000. This was later amended in 1864 to 5% on incomes between $600 and $5,000, a 7.5% tax on incomes in the $5,000$10,000 range and a 10% tax on anything greater than $10,000. This Bill was declared unconstitutional and repealed in 1872. The Confederacy began a “graduated income tax” in 1863 to fund their war needs. Wages up to $1,000 were exempted; there was a 1% tax on the first $1,500 over the exemption, and 2% on all additional income. 13
    14. 14. Annual Tax Changes – Federal Social Security Maximum Taxable Earnings EE & ER Contribution Rate Maximum EE & ER Contribution $ Self-Employment Tax Medicare Maximum Taxable Earnings EE & ER Deduction Maximum Deduction EE & ER Self-Employment Tax 2013 2014 $113,700 $117,000 6.2% 6.2% $7,049.40 $7,254.00 12.4% 12.4% 2013 2014 No Limit No Limit 1.45% 1.45% No Limit No Limit 2.9% 2.9% The 1.45% Employee rate applies to the first $200,000 of wages/selfemployment earnings. Wages/self-employment earnings beyond $200,000 are withheld at 2.35%. 14
    15. 15. Annual Tax Changes – Federal Federal Unemployment 2013 2014 Maximum Taxable Earnings $7,000 $7,000 Percent of Taxable Earnings .6% .6% Maximum Tax Per Employee $42.00 $42.00 2013 Credit Reduction States 15
    16. 16. Annual Tax Changes – State PENNSYLVANIA Minimum Wage $7.25 Tipped Employees $2.83 Maximum Tip Credit $4.42 Wage Withholding 3.07% MARYLAND $7.25 $3.63 $3.62 Based on MW-507 Unemployment Insurance Max Taxable Earnings Employee Deduction $8,750 .07% (on all gross wages) $8,500 None Standard New ER Rate New Construction ER Rate 3.6785% 10.1947% 2.6% 16
    17. 17. Annual Tax Changes – Locals We survived Act 32! …Just remember… Obtain PA Certificates of Residency (no PO Boxes!) Verify Resident and Non-Resident Tax Rates Make sure the 2 digit tax collector code is on the W-2 Do not collect Non-Resident Local Taxes in York or Adams County for your Maryland Employees Collect the LST tax for ALL Employees unless an exemption is received (for those paying through another Employer or will have income in the jurisdiction of less than $12,000 for the year) 17
    18. 18. General Payroll Item Limits Description 2014 2013 Elective Deferrals (401(k) and 403(b); not including adjustments and catch-ups) $17,500 $17,500 457(b)(2) and 457(c)(1) Limits not including catch-ups Annual Defined Benefit Plan Limit $17,500 $17,500 $210,000 $205,000 Annual Defined Contribution Plan Limit $52,000 $51,000 Highly Compensated Employee ("HCEs") $115,000 $115,000 Individual Retirement Accounts ("IRAs") for individuals 49 and below $5,500 $5,500 SIMPLE Retirement Accounts $12,000 $12,000 SEP Coverage (minimum compensation) $550 $550 SEP Compensation (maximum) $260,000 $255,000 Health Savings Account (HSA) (Individual/family) $3,300/$6,550 $3,250/$6,450 Catch-up additional HSA if age 55 or older $1,000 $1,000 Flexible Spending Arrangement (FSA) $2,500 $2,500 18
    19. 19. General Payroll Item Limits FSA - For plan years beginning mid-2013, the Treasury Department has announced a new rule, which Employers can adopt, allowing Employees to use up to $500 of unused money in their accounts at the end of a plan year in the following plan year. The Employer has to amend its plan documents to allow this and the Employer would have to drop a common grace period that already lets Employees spend down unused money in the two and a half month period following the end of a plan year. 19
    20. 20. Employee vs. Independent Contractor The Internal Revenue Service (IRS) launched a program in 2010 to audit 6,000 businesses over 3 years looking for worker misclassifications. *The IRS can audit as far back as 3 years from the date of the return (indefinitely if they believe criminal activity is present). On February 10, 2011, Pennsylvania Act 72 went into effect. This Act, also called “The Construction Workplace Misclassification Act”, implemented more stringent guidelines on the definition of an “independent contractor” in the State of Pennsylvania. On July 14, 2009, (amended in 2012), Maryland Governor O'Malley signed Executive Order 01.01.2009.09, creating the Joint Enforcement Task Force on Workplace Fraud - including staff from the Department of Labor, Licensing and Regulation, the Attorney General's Office, the Comptroller's Office, the Insurance Administration, and the Workers' Compensation Commission. Under the Workplace Fraud Act, the Commissioner of Labor and Industry has authority to address misclassification of individuals in the construction and landscaping industries. On September 19, 2011, (expiring September 19, 2014), Maryland was one of 14 States that signed a Memorandum of Understanding (MOU) with the Federal Department of Labor Wage and Hour Division (and, in some cases, other Federal Agencies) that enable the Department of Labor to share information and to coordinate enforcement efforts with participating States. 20
    21. 21. Employee vs. Independent Contractor Why does this matter? If someone is listed as an “independent contractor”, Employers do not have to pay/consider: Social Security & Medicare Unemployment Insurance Worker’s Compensation, General Liability Insurance, etc. Health Insurance Benefits, Vacation, Sick or Personal Leave and any other benefits provided Employees Count towards the Affordable Care Act FTE or eligibility Personnel issues and concerns Timekeeping From the Wall Street Journal Article dated March 13, 2013, “Payroll Audits Put Small Employers on Edge” Since September 2011, the government has collected $9.5 million in back wages for more than 11,400 workers who were misclassified as independent contractors… 21
    22. 22. Employee vs. Independent Contractor Really…How Could “They” Ever Find Out? One way – If a worker believes that they should be an Employee and NOT an Independent Contractor, they can file Form 8919 with their Income Tax Return – this will get Federal attention! Another way… Jane has been cleaning Widgets, Inc. offices for 3 years. Every Monday, she leaves her full-time regular job and proceeds to Widgets, Inc. to clean their offices. She is paid $100 per week and is issued a 1099 at the end of the year for $5,200 for her services. Last October, Jane was laid-off from her full-time regular job and she applied for unemployment benefits. She listed Widgets, Inc. as an income source. 22
    23. 23. Employee vs. Independent Contractor Widgets, Inc. then received a notice from Unemployment to identify the dates/times Jane worked for them and the wages paid. Widgets, Inc. responded by notifying Unemployment that she cleaned for them and was an independent contractor. PA Unemployment decided to investigate further. 23
    24. 24. Employee vs. Independent Contractor PA asked several questions related to Employee vs. Independent Contractor guidelines and found that Jane was indeed an Employee. What did they base this on? Jane used the vacuum cleaner Widgets, Inc. provided in their linen closet. Widgets, Inc. then had to reclassify all of Jane’s payments as wages, pay Social Security, Medicare and Unemployment, as well as amend all Payroll Returns for the last 3 years. The Employer taxes alone (not including penalties and interest) were over $2,000. *This does not include the time you have to spend with the auditor, collect data and amend forms! 24
    25. 25. Employee vs. Independent Contractor The IRS will look at 3 different categories when determining a classification: Behavioral, Financial and Type of Relationship. Behavioral Is the Employer indicating when and where to do the work? Are the Employer’s tools and/or equipment being used? Are other Employees assisting with the work? Does the Employer have the right to choose additional workers to work with the “contractor”? Does the Employer purchase the supplies and/or services and dictate where these are purchased? Does the Employer identify and clarify the order or sequence to follow when performing the work? If you answer YES to any of these – this is an Employee! 25
    26. 26. Employee vs. Independent Contractor Financial Has the independent contractor made an investment in supplies used? Will there be unreimbursed expenses? Will there be an opportunity for profit or loss? Are the services available to the general public and are they marketed? Are the services being paid with a check and based on contractual flat fees or invoices that do not identify hours/expenses? (no timesheets, expense reimbursements, etc.) If you answer NO to any of these – this is an Employee! Type of Relationship Is there NO written contract? Will there be payment for fringe benefits such as health insurance, pension, vacations, disability, etc.? Is this a permanent relationship with no start and end date? Is the service being provided a key part of the business? If you answer YES to any of these – this is an Employee! 26
    27. 27. IRS Guidelines – 20 Questions 1. Instructions: If the person for whom the services are performed has the right to require compliance with instructions, this indicates Employee status. 2. Training: Worker training (e.g., by requiring attendance at training sessions) indicates that the person for whom services are performed wants the services performed in a particular manner (which indicates Employee status). 3. Integration: Integration of the worker’s services into the business operations of the person for whom services are performed is an indication of Employee status. 4. Services rendered personally: If the services are required to be performed personally, this is an indication that the person for whom services are performed is interested in the methods used to accomplish the work (which indicates Employee status). 5. Hiring, supervision, and paying assistants: If the person for whom services are performed hires, supervises or pays assistants, this generally indicates Employee status. However, if the worker hires and supervises others under a contract pursuant to which the worker agrees to provide material and labor and is only responsible for the result, this indicates independent contractor status. 6. Continuing relationship: A continuing relationship between the worker and the person for whom the services are performed indicates Employee status. 7. Set hours of work: The establishment of set hours for the worker indicates Employee status. 27
    28. 28. IRS Guidelines – 20 Questions 8. Full time required: If the worker must devote substantially full time to the business of the person for whom services are performed, this indicates Employee status. An independent contractor is free to work when and for whom he or she chooses. 9. Doing work on Employer’s premises: If the work is performed on the premises of the person for whom the services are performed, this indicates Employee status, especially if the work could be done elsewhere. 10. Order or sequence test: If a worker must perform services in the order or sequence set by the person for whom services are performed, that shows the worker is not free to follow his or her own pattern of work, and indicates Employee status. 11. Oral or written reports: A requirement that the worker submit regular reports indicates Employee status. 12. Payment by the hour, week, or month: Payment by the hour, week, or month generally points to employment status; payment by the job or a commission indicates independent contractor status. 13. Payment of business and/or traveling expenses. If the person for whom the services are performed pays expenses, this indicates Employee status. An Employer, to control expenses, generally retains the right to direct the worker. 28
    29. 29. IRS Guidelines – 20 Questions 14. Furnishing tools and materials: The provision of significant tools and materials to the worker indicates Employee status. 15. Significant investment: Investment in facilities used by the worker indicates independent contractor status. 16. Realization of profit or loss: A worker who can realize a profit or suffer a loss as a result of the services (in addition to profit or loss ordinarily realized by Employees) is generally an independent contractor. 17. Working for more than one firm at a time: If a worker performs more than de minimis services for multiple firms at the same time, that generally indicates independent contractor status. 18. Making service available to the general public: If a worker makes his or her services available to the public on a regular and consistent basis, that indicates independent contractor status. 19. Right to discharge: The right to discharge a worker is a factor indicating that the worker is an Employee. 20. Right to terminate: If a worker has the right to terminate the relationship with the person for whom services are performed at any time he or she wishes without incurring liability, that indicates Employee status. 29
    30. 30. Employee vs. Independent Contractor IRS Penalties: If a misclassification is found, Employers can be faced with: Unreported and undeposited withholding taxes Social Security tax Medicare tax Unemployment (Federal and State) Potential Employee benefits Penalties (up to 100% if the misclassification is deemed negligent) Audits of prior years by both Federal and State even if just 1 or 2 misclassifications are found Late payment interest for taxes 1-5 days late, two percent of the amount due 6-15 days late, five percent 16+ days, 10 percent * IRS deems that the notice was “ignored”, 15 percent,+ interest on the amount not deposited, + 100% if deemed willful 30
    31. 31. Employee vs. Independent Contractor Pennsylvania Act 72 Guidelines An independent contractor must: Have a written contract with the business or person they work for Control and direct their own work Possess the tools that are needed to perform the work Have an arrangement with the business they work for that allows them to earn a profit or suffer a loss from their work Be an owner or partner in their own business Have a business location that is separate from the location of the business or person which hired them to perform the construction Have previously worked as an independent contractor, or hold themselves out to the public as available and able to work as an independent contractor Have liability insurance of at least $50,000 31
    32. 32. Employee vs. Independent Contractor Section 11 of the Act details a poster requirement. While this is not on the list of required posters in PA, if you are in construction, you should display this poster with other poster requirements. You may even want to provide this as a handout to independent contractors. 32
    33. 33. Employee vs. Independent Contractor Pennsylvania Act 72 Violations Any person who misclassifies an Employee as an independent contractor could face criminal prosecution, administrative fines up to $2,500 per violation and a court-issued stop work order. It is also unlawful for a person: •To contract with an Employer knowing that the Employer intends to misclassify workers •To retaliate against workers who exercise their rights under this law, including the right to file a complaint 33
    34. 34. Employee vs. Independent Contractor Maryland Workplace Fraud Act Guidelines Applies specifically to businesses in the construction and landscaping industries Contains a very stringent definition of “independent contractor” and the presumption of an Employer-Employee relationship rather than that of an independent contractor Requires Employers to pay restitution to misclassified persons and possible civil penalties up to $20,000 per misclassified Employee Provides the Commissioner of Labor and Industry with broad powers of investigation, including subpoena power and the right to enter worksites, interview Employees, and copy documents Permits fines up to $500 per day for failure to produced requested materials within 15 days Requires Employers to provide independent contractors with written statements of their classifications, the implications of such classification, and other information 34
    35. 35. Employee vs. Independent Contractor     Requires Employers to keep for at least 3 years records detailing: o The occupation and classification of each Employee and independent contractor o The rates or methods of pay; the amounts paid each pay period o The hours worked each day and each period o “Evidence” that each person classified as an independent contractor is an “exempt person” or is an independent contractor Permits persons not properly classified as Employees to sue for damages Prohibits discrimination or retaliation against a person for filing a complaint or testifying in an action under the Act Prohibits creation of new entities for the purpose of evading the Act 35
    36. 36. Employee vs. Independent Contractor A Maryland business owner must produce the following documents under the 2012 amendments of the WFA to rebut the presumption of an EmployerEmployee relationship: •Written contract between the Employer and the contractor, which includes the description of the nature of the work to be performed, the method of compensation by the Employer to the contractor, and acknowledge by the contractor of its obligation to maintain unemployment and worker's compensation insurance, as well as, pay payroll taxes •A signed affidavit by the contractor that states that it is an independent contractor and is available to work for business entities other than the Employer •A certificate of good standing from the contractors from the Maryland State Department of Assessment and Taxation •Proof of all occupational licenses held by the contractor for all state and local authorities •Proof that proper notice was given from the Employer to the contractor regarding the implications of the classification 36
    37. 37. How Can You Protect Your Company? What EVERY Independent Contractor Vendor File Should Contain: •Signed Contract that includes: o All terms in writing – use “Contractor language” not “Employee language” o Specifically note that the contractor is free from direction by the company in performing the duties assigned (required in PA) o Specifically note that no company tools will be provided to the contractor (required in PA) o Identify the separate business location of the contractor (required in PA) o Identify the Vendor/Worker as an Independent Contractor o Provide a description of the work o Identify the expected completion date o Identify cost in total and any expenses to be reimbursed Note: If anything changes from the original contract, amend the contract – keep this with your documentation. Also, pay the Vendor from invoices ONLY – do not pay the worker from timesheets – the Vendor should provide you with detailed invoices. 37
    38. 38. How Can You Protect Your Company? • Completed W-9 form (make sure the Vendor gets a 1099 at the end of the year) – the W-9 Form can be found here: http://www.irs.gov/pub/irs-pdf/fw9.pdf • Workers' Compensation and Liability Insurance (get copies of insurance certifications and keep them on file) • Licenses or Certifications needed for the scope of work (keep copies on file- electrician license, etc.) • Advertising or marketing materials provided, save this in the file (including RFPs and notes on references, why the Vendor was chosen, etc.) – showing this will also meet the PA guidelines that the contractor “holds him/herself out to the public as a bona fide independent contractor” *Let us know if you would like a sample vendor sheet! 38
    39. 39. What If You Are “not sure” of the Classification? Let the IRS tell you how the individual should be classified. Both Employers and Workers can ask the IRS to make a determination on whether a specific individual is an independent contractor or an Employee by filing a Form SS-8, “Determination of Worker Status for Purposes of Federal Employment Taxes and Income Tax Withholding”. Form SS-8 (along with instructions) can be found here: http://www.irs.gov/pub/irs-pdf/fss8.pdf “Independent Contractors” can also complete this Form and attach the determination to Form 8919. 39
    40. 40. IRS Voluntary Classification Settlement Program (VCSP) The Voluntary Classification Settlement Program (VCSP) is a program developed by the IRS that allows taxpayers to voluntarily reclassify their workers as Employees for future tax periods for employment tax purposes. Under the VCSP, a taxpayer will pay 10% of the amount of employment taxes calculated for the workers being reclassified under the VCSP for the most recent tax year. In addition, the taxpayer will not be liable for any interest and penalties on the payment under the VCSP, and will not be audited for employment tax purposes for prior years with respect to the worker classification of the workers. Taxpayers may apply for the VCSP using Form 8952, Application for Voluntary Classification Settlement Prog . 40
    41. 41. Household Employees Things to consider: Are they “Employees” or “Independent Contractors”? – You could get in trouble with the IRS! If an Employee – you are subject to all of the same rules as any other Employer! Do they have liability insurance? Workers’ Compensation? What happens if they injure themselves on your property? Will your homeowner’s insurance pay that bill? Did you issue a 1099? If you have a “nanny” that transports your children – what happens if there is an accident? What happens if the Worker applies for unemployment and lists you as a revenue source? What if the Worker steals from you? What is your recourse? 41
    42. 42. Household Employees The worker is your Employee if you can control not only what work is done, but how it is done. If the worker is your Employee, it does not matter whether the work is full time or part time or that you hired the worker through an agency or from a list provided by an agency or association. It also does not matter whether you pay the worker on an hourly, daily, or weekly basis, or by the job. Examples of household Employees include babysitters, butlers, cooks, caretakers, drivers, gardeners, housekeepers, and privateduty nurses. Example: You pay Betty Shore to babysit your child and do light housework 4 days a week in your home. Betty follows your specific instructions about household and child care duties. You provide the household equipment and supplies that Betty needs to do her work. Betty is your household Employee. 42
    43. 43. Household Employees Please review IRS Publication 926 for more information regarding Household Employees: http://www.irs.gov/pub/irs-pdf/p926.pdf Household Employer's Checklist You may need to do the following things when you have a household Employee. When you hire a household Employee: When you pay your household Employee: By January 31, 2014: □ Find out if the person can lega lly work in the United States. □ Find out if you need to pay state taxes. □ Withhold Social Security and Medicare taxes. □ Withhold Federal Income Tax. □ Decide how you will make tax payments. □ Keep records. □ Get Employer identification number (EIN). □ Give your Employee Copies B, C, and 2 of Form W-2, Wage and Tax Statement. By February 28, 2014 (April 1, 2014 if you file Form W-2 electronically): □ Send Copy A of Form W -2 to the Social Security Administration (SSA). By April 15, 2014: □ File Schedule H (Form 1040), Household Employment Taxes, with your 2013 Federal Income Tax return (Form 1040, 1040NR, or Form 1041). If you do not have to file a return, file Schedule H by itself. 43
    44. 44. Exempt vs. Non Exempt An EXEMPT Employee is not paid Overtime (1 ½ times their hourly rate) for any hours worked over 40 in a 7-day period. Exempt positions generally fall into six categories: A NON-EXEMPT Employee must be paid Overtime (1 ½ times their hourly rate) for any hours worked over 40 in a 7-day period. 1.Executive 2.Administrative 3.Learned Professional 4.Computer Professional 5.Creative Professional 6.Outside Sales An Employee’s status is based on the actual work performed and on Department of Labor Regulations. In general, two requirements must be met to classify an Employee as exempt: •They must earn a salary equal to or greater than $455 per week, $910 biweekly, $985.83 semi-monthly or $1,971.66 monthly •They must hold a position with duties the U.S. Labor Department designates as appropriate 44
    45. 45. Exempt vs. Non Exempt Executive 1.Is the Employee’s primary duty managing the enterprise or a department or subdivision of the enterprise? 2.Does the Employee customarily direct the work of two or more other Employees or FTEs? 3.Does the Employee have the authority to hire or fire, and do their recommendations carry significant weight if unauthorized to make the final decision? If the answer to any of these questions is “No” – this is NOT an Exempt Employee Note: If the Employee is at least a 20 percent owner of the business and meets requirements 1 and 2 they need not meet the salary requirement or the authority requirement in 3. 45
    46. 46. Exempt vs. Non Exempt Administrative 1.Is the Employee’s primary duty performing office or nonmanual work directly related to the management or general business operations of the Employer or the Employer’s customers? 2.Does the Employee exercise discretion and independent judgment with respect to matters of significance? Do they evaluate and compare possible courses of action and then make a decision or recommendation after considering the various possibilities? If the answer to any of these questions is “No” – this is NOT an Exempt Employee 46
    47. 47. Exempt vs. Non Exempt Learned Professional 1.Is the Employee’s primary duty to perform work requiring knowledge of an advanced type in a field of science or learning customarily acquired by a prolonged course of specialized intellectual instruction? 2.Is the advanced knowledge obtained by completing an academic course of study resulting in a four-year college degree or leading to certification? If the answer to any of these questions is “No” – this is NOT an Exempt Employee Exception: Those who have completed the educational requirements for a law or medical degree need not meet the minimum salary requirement. Also, teachers need not be certified or meet the minimum salary requirement to qualify as learned professionals. 47
    48. 48. Exempt vs. Non Exempt Computer Professional Is the Employee’s primary duty: 1.Application of system analysis techniques and procedures, including consulting with users, to determine hardware, software or system functional specifications? 2.Design, development, documentation, analysis, creation, testing or modification of computer systems or programs, including prototypes, based on and related to user or system design specifications? 3.Design, testing, documentation, creation or modification of computer programs related to machine operating systems? 4.A combination of the aforementioned duties requiring the same level of skills? If the answer to any of these questions is “No” – this is NOT an Exempt Employee 48
    49. 49. Exempt vs. Non Exempt Creative Professional 1.Is the Employee’s primary duty to perform work requiring invention, originality or talent in a recognized field of artistic endeavor such as music, writing, acting and the graphic arts? 2.Does the work require more than intelligence, diligence and accuracy? If the answer to any of these questions is “No” – this is NOT an Exempt Employee Outside Sales •Is the worker’s primary duty making outside sales? •Do they regularly work away from the company’s place of business? •Does the worker sell tangible or intangible items, such as goods, insurance, stocks, bonds or real estate, or obtain orders or contracts for services or the use of facilities? If the answer to any of these questions is “No” – this is NOT an Exempt Employee 49
    50. 50. Exempt vs. Non Exempt Some instances, according to FLSA, that you CAN deduct time from an Exempt Employee: •an Employee is absent from work for one or more full days for personal reasons other than sickness or disability •absences of one or more full days due to sickness or disability if the deduction is made in accordance with a bona fide plan, policy or practice of providing compensation for salary lost due to illness •offset amounts Employees receive as jury or witness fees, or for temporary military duty pay •penalties imposed in good faith for infractions of safety rules of major significance •unpaid disciplinary suspensions of one or more full days imposed in good faith for workplace conduct rule infractions •initial or terminal week of employment if the Employee does not work the full week •unpaid leave taken by the Employee under the federal Family and Medical Leave Act 50
    51. 51. Exempt vs. Non Exempt Improper Deductions Include: •If an Exempt Employee is absent for one and one-half days for personal reasons, the Employer may only deduct for the one fullday absence - the exempt Employee must receive a full day's pay for the partial day worked •A deduction of a day's pay because the Employer was closed due to inclement weather •A deduction of three days pay because the exempt Employee was absent for jury duty •A deduction for a two-day absence due to a minor illness when the Employer does not have a bona fide sick leave plan, policy or practice of providing wage replacement benefits •A deduction for a partial day absence to attend a parent-teacher conference 51
    52. 52. Fringe Benefits The 2013 Guide was issued on January 18, 2013 – based on Government “shutdowns” – the 2014 release could be delayed even later. 52
    53. 53. Discretionary vs. Non-Discretionary Bonuses DISCRETIONARY BONUSES According to the Code of Federal Regulations - (Title 29 › Subtitle B › Chapter V › Subchapter B › Part 778 › Subpart C › Section 778.211): “In order for a bonus to qualify for exclusion as a discretionary bonus under section 7(e)(3)(a) the Employer must retain discretion both as to the fact of payment and as to the amount until a time quite close to the end of the period for which the bonus is paid. The sum, if any, to be paid as a bonus is determined by the Employer without prior promise or agreement. The Employee has no contract right, express or implied, to any amount. If the Employer promises in advance to pay a bonus, he has abandoned his discretion with regard to it. Thus, if an Employer announces to his Employees in January that he intends to pay them a bonus in June, he has thereby abandoned his discretion regarding the fact of payment by promising a bonus to his Employees. Such a bonus would not be excluded from the regular rate under section 7(e)(3)(a). Similarly, an Employer who promises to sales Employees that they will receive a monthly bonus computed on the basis of allocating 1 cent for each item sold whenever, is his discretion, the financial condition of the firm warrants such payments, has abandoned discretion with regard to the amount of the bonus though not with regard to the fact of payment. Such a bonus would not be excluded from the regular rate. On the other hand, if a bonus such as the one just described were paid without prior contract, promise or announcement and the decision as to the fact and amount of payment lay in the Employer's sole discretion, the bonus would be properly excluded from the regular rate.” 53
    54. 54. Discretionary vs. Non-Discretionary Bonuses NON-DISCRETIONARY BONUS “Promised bonuses not excluded. The bonus, to be excluded under section 7(e)(3)(a), must not be paid “pursuant to any prior contract, agreement, or promise.” For example, any bonus which is promised to Employees upon hiring or which is the result of collective bargaining would not be excluded from the regular rate under this provision of the Act. Bonuses which are announced to Employees to induce them to work more steadily or more rapidly or more efficiently or to remain with the firm are regarded as part of the regular rate of pay. Attendance bonuses, individual or group production bonuses, bonuses for quality and accuracy of work, bonuses contingent upon the Employee's continuing in employment until the time the payment is to be made and the like are in this category. They must be included in the regular rate of pay.” Note: Ensure your Policy Manual does not contain wording promising bonuses. A “promised” Holiday Bonus is considered “Non-Discretionary”. Use wording such as “…as financial feasibility dictates, we may or may not provide discretionary bonuses throughout the year”. Or, just leave it out of your Policy Manual altogether. 54
    55. 55. Discretionary vs. Non-Discretionary Bonuses Calculation of Pay with Non-Discretionary Bonus Example: Joe earns $10 an hour and is paid weekly. For this pay date, he worked 52 hours, received a one-time Holiday Bonus of $100 that was discretionary and a $500 Attendance Bonus for perfect attendance over the last 6 months. Because the Attendance Bonus covered a 6 month period, the Overtime (Premium Pay) would have to be allocated and calculated retroactively to the period it reflected. The Employer could take the $500 attendance bonus and allocate $19.23 per week ($500 divided by 26 weeks) and calculate the Overtime (Premium Pay) based on the weekly pays. 55
    56. 56. Discretionary vs. Non-Discretionary Bonuses Below is an example of how a calculation would be completed if all of the $500 attendance bonus was earned in the 1 week: Step 1 Regular Pay = $10 x 52 hours = $520 Step 2 Add Attendance Bonus = $500 Total Regular Pay = $1,020 Total Regular Pay/Hours = $1,020/52 hours = Regular Rate of Pay $19.62 per hour Step 3 Overtime (Premium Pay) = $19.62 x .50 = $9.81 per hour Overtime Pay = $9.81 x 12 hours OT = $117.72 Step 4 Total Weekly Gross Compensation = $1,020 + $117.72 + $100 = $1,237.72 Some ways you can ease the administrative burden of calculating Overtime (Premium Pay) on non-discretionary bonuses for nonexempt staff is to pay a “% of gross pay bonus” – which would automatically include overtime calculations OR pay the bonuses in the week they are earned. 56
    57. 57. Record Retention The Internal Revenue Service requires Employers to maintain the following payroll records for at least four years after the later of (1) the due date of the related payroll tax returns or (2) the date the payroll taxes were paid: State and Locality retention policies may differ from the IRS. The recommendation of Stambaugh Ness is to save all payroll records for 7 years to ensure compliance with all regulatory authorities.  employer identification number  copies of filed payroll tax returns  dates and amounts of completed payroll tax deposits verification numbers for electronic deposits  each employee's name, address, and SSN  gross amount & date of each wage payment  pay period dates for each paycheck  amount subject to FITW, SS & Med  amount and date collected for taxes  reasons for any differences between the taxable amounts and the total wage payment  total amount paid to employees for calendar year  amount of compensation subject to federal unemployment tax & amount paid into state unemployment funds  other info required to be shown on Form 940  fair market value & date of each payment of noncash compensation made to a retail commission salesperson, if no income tax was withheld  amount of each payment for accident/health  1099 information (even for employees)  copies of any statements relating to nonresident alien status, US territory, or foreign country  Form W-4 & Form I-9 for each employee  PA Residency Certificate and State WH Forms  agreements for the voluntary withholding of additional amounts of tax  tip statements 57
    58. 58. W-2 Forms Good News! Employers are still not required to report the cost of the healthcare on W-2s if they provided less than 250 W-2s in 2012!  IRS requires electronically W-2 filing for more than 250 W-2s  Pennsylvania Employers with 250 or more W-2s must report them electronically  Maryland Employers with 25 or more W-2s must report them electronically 58
    59. 59. 1099 Forms The Pennsylvania Act 85 of 2012 has added a 1099-Misc reporting requirement any entity reporting payments on forms 1099-Misc in Boxes 1, 2 or 7, for nonEmployee compensation to residents, non-residents, partnerships (for tax purposes), or single-member LLCs for any Pennsylvania-based work or Pennsylvania-source oil and/or gas lease payments, have to submit copies of the Federal forms 1099-Misc to the Pennsylvania Department of Revenue. If you have 250 or more 1099-Misc forms to report, and you have a Pennsylvania Employer Withholding ID, you must do this electronically through eTides. If you do not have a Pennsylvania Employer Withholding ID, or you are reporting less than 250 1099-Misc forms, mail the Federal Copy of the forms to: PA Department of Revenue P.O. Box 280412 Harrisburg, PA 17128-0412 The copies of the Federal forms 1099-Misc must be submitted to Pennsylvania by February 28 (April 1 if they are electronically filed). 59
    60. 60. Telecommuting Taxation Issues  Normally, telecommuters performing work in their State of Residence for an Employer located in another State are subject to the taxes of their State of Residence – “physical presence rule”.  Five States assess income taxes on nonresidents’ wages under a “convenience of the employer” test: Delaware, Nebraska, New Jersey, New York and Pennsylvania.  Generally, under “convenience of the employer” rules, all of an Employee’s income will be allocated to the Employer’s location unless the Employee is able to prove that work performed away from the Employer’s location was due to the necessity of the Employer rather than convenience of the Employee. 60
    61. 61. Telecommuting Taxation Issues Some States have made agreements among one another that allow Employers to withhold the State personal income taxes of the Employee’s residence. These agreements are called State reciprocal agreements. The Employer may choose to withhold the other State's tax if the Employee is a resident of a reciprocal State and the Employee requests the Employer to withhold the reciprocal State's tax. Additionally, there is also an exemption from the requirement to withhold for nonresident spouses of military service members. 61
    62. 62. Telecommuting Taxation Issues Exemption Form State States with State Tax Reciprocal Agreements District of Columbia Illinois Indiana Iowa Kentucky All non-residents who work in DC can claim exemption from withholding for the DC income tax. Iowa, Kentucky, Michigan, Wisconsin Kentucky, Michigan, Ohio, Pennsylvania, Wisconsin Illinois Illinois, Indiana, Michigan, Ohio, West Virginia, Wisconsin, Virginia IL-W5NR WH-47 44-16 42A809 Maryland District of Columbia, Pennsylvania, Virginia, West Virginia MW-507 Michigan Illinois, Indiana, Kentucky, Minnesota, Ohio, Wisconsin - Employers may create their own exemption form or use the line on MI-W4 for claiming exemption from withholding. Employee should write "Reciprocal Agreement" and the state name on that line. MI-W4 Minnesota Montana New Jersey North Dakota Ohio Michigan, North Dakota North Dakota Pennsylvania Minnesota, Montana Indiana, Kentucky, Michigan, Pennsylvania, West Virginia MW-R NR-2 NJ-165 NDW-R IT-4NR Pennsylvania Indiana, Maryland, New Jersey, Ohio, Virginia, West Virginia Virginia District of Columbia, Kentucky, Maryland, Pennsylvania, West Virginia West Virginia Wisconsin Kentucky, Maryland, Ohio, Pennsylvania, Virginia Illinois, Indiana, Kentucky, Michigan D-4A REV-419 EX VA-4 IT-104 W-220 62
    63. 63. Telecommuting Taxation Issues Unemployment - What to do - Gather the facts on where the Employee in question is based, performs work, and lives. Some general guidelines are as follows: Localized: The Employee works basically in one State with only temporary or transitory work in another State. Pay the State where the Employee normally works. Base of operations: The Employee works in more than one State on more than a temporary or transitory basis, but receives instructions, maintains business records, picks up mail or supplies, or has an office in one of the States where he or she works. You pay that State. Place of control: The Employee's work is not localized and the base of operations can't be pin-pointed. You pay the State where the control over the Employee is localized, if the Employee works there some of the time. Residence: When all else fails, pay the State where the Employee lives, if he or she works there at least some of the time. However, when an Employee works in more than one State it is best to review the unemployment laws of the State(s) they are working in to determine the specific requirements of that State. There will be instances when unemployment tax is required to be paid to more than one State. 63
    64. 64. Business Process Assessment – How Efficient & Compliant Are You? Stambaugh Ness offers a Payroll Business Process Assessment (BPA) to help you identify potential regulatory and processing concerns and provide solutions to improve efficiencies while ensuring compliance. Our two-phase BPA is an investment in your business that delivers ROI! Consider these questions…. Is your Employer Handbook up-to-date and compliant? Does your staff understand and enforce handbook policies? Are all of your processes and procedures documented? Is your New Hire Process solid and compliant? Will your personnel files pass an inspection? Are you compliant with the Affordable Care Act? Does your payroll staff understand taxation and compliance issues? Do you track your leave time through payroll? Are you compliant with overtime rules on bonuses and leave hours? Phase 1 is a preliminary evaluation of your current processes surrounding HR management and payroll processing - will provide you with insight and information into basic regulations and recommendations on current process concerns. 64
    65. 65. Business Process Assessment – How Efficient & Compliant Are You? Phase 2 is a more comprehensive tool that will fully assess and document the processes involved with these integral business functions. Phase 2 will provide these additional assessment tools and benefits: Documented interviews with relevant staff to ascertain needs at the individual task area Detailed investigation of all aspects of the payroll process function (to include, but not limited to): identifying staffing needs - communication, intake, new hire process; wages; fringe benefits; taxation Documentation of key processes and contingency planning for key staff and resources Evaluation of training and skills needed for key areas with benchmarking salary and educational/training recommendations Evaluation of compliance with labor standards, human resource regulations, Affordable Care Act, and other jurisdictional issues Recommendations related to compliance and processes based on the findings and cost benefit analysis for solutions 65
    66. 66. Employee Handbooks A well-crafted, enforced, understandable and thoughtful Handbook will: Ensure Employee/Employer understanding of policies and procedures Create an understanding of fairness Protect the Employer during litigation Make sure they are distributed to all new Employees (with signed documentation indicating date received and understood)! Make sure the Handbook is regularly reviewed and updated! 66
    67. 67. Employee Handbooks I. FOREWORD II. DIVERSITY A.Equal Employment Opportunity Statement B.Antiharassment Policy and Complaint Procedure C.Americans with Disabilities Act (ADA) & Amendments Act (ADAAA) III. EMPLOYMENT A.Employee Classification Categories B.Background and Reference Checks C.Internal Transfers/Promotions D.Nepotism, Employment of Relatives and Personal Relationships E.Progressive Discipline F. Separation of Employment IV. WORKPLACE SAFETY A.Drug-Free Workplace B.Workplace Bullying C.Violence in the Workplace D.Safety E.Smoke-Free Workplace 67
    68. 68. Employee Handbooks V. WORKPLACE EXPECTATIONS A. Confidentiality B. Conflicts of Interest C. Outside Employment D. Attendance and Punctuality E. Attire and Grooming F. Electronic Communication and Internet Use G. Social Media—Acceptable Use H. Solicitations, Distributions and Posting of Materials I. Employee Personnel Files VI. COMPENSATION A. Performance and Salary Reviews B. Payment of Wages C. Time Reporting D. Meal/Rest Periods E. Overtime Pay F. On-Call Pay G. Employee Travel and Reimbursement 68
    69. 69. Employee Handbooks VII. TIME OFF/LEAVES OF ABSENCE A. Holiday Pay, Vacation, Sick Leave B. Family and Medical Leave (FMLA) C. Personal Leave of Absence D. Bereavement Leave E. Jury Duty F. Voting Leave G. Military Leave of Absence H. Lactation/Breastfeeding VIII. BENEFITS A. Medical and Dental Insurance B. Domestic Partners C. Flexible Spending Account D. Group Life Insurance E. Short-Term Disability Benefits F. Long-Term Disability Benefits G. 401(k) Plan H. Workers’ Compensation Benefits I. Tuition Assistance J. Employee Assistance Program (EAP) Remember – Handbooks are an “implied contract” – be careful what you promise! 69
    70. 70. New Hires Have a documented New Hire Checklist and package ready Collect the Following Forms: Emergency Contact Information Form W-4 for Federal Income Tax Withholding State Income Tax Withholding Form (if needed – NA for Pennsylvania Residents) Certificate of Residency (for Pennsylvania Residents only) I-9 Form Direct Deposit Authorization Completed Job Application Form Resume Employee Handbook Receipt Signed Job Offer letter (pay rate) Background Check Forms Designation of Beneficiary for Sponsored Insurance Plans  Enrollment, Change, Cancellation or Opt Out - Health and Welfare Plans  Other Signed Documents (list)       70
    71. 71. New Hires Complete the following steps: Use the E-Verify System to Verify Employment Eligibility HTTP://WWW.DHS.GOV/E-VERIFY Complete New Hire Reporting Pennsylvania HTTPS://WWW.CWDS.STATE.PA.US/CWDSONLINE/NEWHIRE/ Maryland - HTTP://NEWHIRE-REPORTING.COM/MD-NEWHIRE/ Enter into Payroll System Technology user names, passwords, equipment Assign a “mentor” Schedule trainings Other (list) 71
    72. 72. Personnel Files The following documents should be in each personnel file: Job application Job description Form W-4 Records relating to job offers, promotion, demotion, transfer, layoff, rates of pay and other forms of compensation, and education and training records Records relating to other employment practices (including policy acknowledgments and agreements) Letters of recognition Disciplinary notices or documents Complaints received 72
    73. 73. Personnel Files The following documents should be in each personnel file: Attendance records Training records Awards or citations Performance evaluations and goal setting records Termination records and documents such as unemployment forms, letters of resignation, termination letters, etc. Emergency contact information Any contract or written agreement between the employer/employee (such as non-compete agreements, company property, etc.) 73
    74. 74. Personnel Files The following documents should NOT be in each personnel file. These should be stored in separate secure files in the Human Resource Office: EEO/invitation to self-identify disability or veteran status records Interview notes and employment test results (DO NOT PUT NOTES ON APPLICATIONS OR RESUMES – USE SEPARATE PIECE OF PAPER!) Reference/background checks Drug test results Immigration (I-9) forms Medical/insurance records (medical questionnaires benefit enrollment forms and benefit claims, doctor’s notes, accommodation requests, and leave of absence records) X 74
    75. 75. Personnel Files The following documents should NOT be in each personnel file. These should be stored in separate secure files in the Human Resource Office: Child support/garnishments Litigation documents Workers' compensation claims Investigation records - (only any relevant disciplinary action, counseling or other direct communications would be placed in the employee’s personnel file) Requests for employment/payroll verifications X Do not put anything in a personnel file you would not want a jury to see! 75
    76. 76. Personnel Files Electronic Files In this era of electronic storage, for ease, space and search considerations, electronic personnel files are a great idea - but there are some guidelines you have to follow. Below is guidance from the Society for Human Resource Management (SHRM) regarding how this should be handled: Safety. The record keeping system must have reasonable controls to ensure the integrity, accuracy, authenticity and reliability of the records kept in electronic form. 76
    77. 77. Personnel Files Accessibility. The electronic records must be maintained in reasonable order, in a safe and accessible place and in such manner that they may be readily inspected or examined. The electronic records must be readily converted into legible and readable paper copies as may be needed to satisfy reporting and disclosure requirements or any other obligation under Title I of the Employee Retirement Income Security Act (ERISA) or in conjunction with an agency audit. Privacy. Adequate records management practices must be established and implemented, such as following procedures for labeling electronically maintained records; providing a secure storage environment; creating backup electronic copies and selecting an offsite storage location; observing a quality assurance program and conducting regular audits of the system; and retaining paper copies of any records that cannot be clearly or completely transferred to the electronic record keeping system. 77
    78. 78. Employee Self Service Using an Employee Self Service (ESS) Portal will provide the following benefits: No more printing, folding, stuffing and mailing paychecks or paystubs No more reprinting paystubs for Employees for those last minute bank loans No more printing, folding, stuffing and mailing W-2s No more reprinting W-2s for those last minute accountant appointments or lost W-2s …and for the Employee Easy access to pay history and W-2s Secure data Most Payroll Service Providers charge for this service – some do not – don’t pay for what you do not have to! 78
    79. 79. 79
    80. 80. PayCards State Direct Deposit PayCards District of Columbia Voluntary No Law Delaware Voluntary Voluntary (employees must have full free access to pay) Maryland Voluntary Voluntary (fees must be disclosed) New Jersey Voluntary Voluntary (employees must consent in writing, get free access to pay and disclosure is required) New York Voluntary (can be mandatory for exempt employees earning more than $900 a week) Voluntary for non-exempt employees (get free access to pay) Pennsylvania Voluntary (employees must receive a record of their pay) No Law Virginia Voluntary (employees incur no fees) May be mandatory for amusement facility employees and all new hires West Virginia Voluntary Voluntary (employees must consent in writing) 80
    81. 81. PayCards Real Cost Savings: Employers can save an estimated $3 per paycheck by simply removing paper checks from the equation. While you cannot “REQUIRE” Pennsylvania Employees to have direct deposit, you can: Give them an option to have a PayCard when hired Remind the Employees that they will receive their money quicker if they use direct deposit Mail Live Checks on the pay date (this will delay their ability to cash their checks on pay dates) 81
    82. 82. …and now some comments from our Panel on PayCards, ESS and HRIS – and other trends in the “outsourcing” payroll world! 82
    83. 83. Tip Reporting – Wages or Tips? The IRS has recently clarified what constitutes “Tips” and what constitutes “Wages”. Although the Law itself did not change, the IRS has decided to begin enforcing this clarification January 1, 2014. Those “automatic gratuities” such as “…for parties of 6 or more, 18% will automatically be added as a gratuity…” are now being considered “Wages” and not “Tips”. These must now be treated as “Wages”. 83
    84. 84. Tip Reporting – Wages or Tips? In addition, the Employer cannot use these non-tip wages when computing the Tip Credit available to Employers because these amounts are not “Tips.” Common examples of service charges (sometimes called “autogratuities”) in service industries are: Large Party Charge (restaurant) Bottle Service Charge (restaurant and night-club) Room Service Charge (hotel and resort) Contracted Luggage Assistance Charge (hotel and resort), and Mandated Delivery Charge (pizza or other retail deliveries) Best Practice – take this off your receipts and menus. Let the “Tip” remain a “Tip”. 84
    85. 85. Affordable Care Act – What’s Next? The following provisions remain in effect for 2014 for individuals: Individual Mandate: Individuals must have health care coverage or pay a penalty Exchanges: Public Exchanges are still planned to offer coverage effective January 1, 2014 Subsidies: Premium subsidies will be available to help eligible individuals buy policies on the Exchanges The following provisions remain in effect for 2014 for businesses: Summaries of Benefits and Coverage: Employers must distribute this summary during open enrollment for the 2014 coverage period and must specify whether the plan provides minimum value (should be provided by Carrier) Exchange Notices: Employers must distribute “Exchange Notices” to employees by October 1, 2013, and thereafter to new employees within 14 days of hire Application for Advance Premium Credits: Employers are required to complete the “Application for Health Coverage and Help Paying Costs" (use the online version whenever possible) when requested by employees who are applying for benefits using the Exchanges W-2 Reporting: Employers must continue to report the aggregate value of health coverage on Forms W-2 (for 250 or more W-2s issued in the preceding calendar year) Counting Period for Employer Mandate: Employers need to determine whether they will be subject to the employer mandate in 2015 (50 or more full-time equivalent employees in 2014) Benefit Mandates: Plan design requirements for all plans continue to apply (maximum 90-day waiting period, no limits on pre-existing conditions or essential health benefits, expansion of wellness incentives, dependent coverage to age 26) 85
    86. 86. Affordable Care Act – What’s Next? The following provisions were delayed until 2015: Employer Mandate: Employers must offer coverage to employees who work an average of 30-plus hours per week Affordability: Coverage must be affordable (the employee’s share of the EMPLOYEE-ONLY coverage cost cannot exceed 9.5 percent of the employee’s W-2 wages) Coverage and Value Minimums: Minimum essential coverage (60%) must be provided to full-time employees (30 or more hours per week) and must be offered to 95% of full-time employees Reporting Requirements: Employers (and insurers) must provide data regarding employees and coverage (FTE counts) 86
    87. 87. Complying With The Affordable Care Act An Employer with 50 or more Full Time Equivalent (FTEs) in the preceding calendar year would be subject to the ACA in the current year Let us show you the math… Step 1 - Determine the number of full-time employees, including seasonal employees, for each month in the preceding calendar year (employees who worked an average of 30 hours or more per week) NOTE: Partners and 2% or more Shareholders should NOT be included in this count; Controlled group penalties are calculated on the subsidiary level with the 30 employee exemption allocated ratably based on FTE’s in each sub-group compared to the total amount. Remember: For Health Insurance standards ONLY, the Federal Government has defined Full Time as working 30 hours or more per week 87
    88. 88. Complying With The Affordable Care Act Step 2 - Determine the total number of hours worked by part-time employees in each month; divide that total by 120. This is the number of FTEs for the parttime employees Step 3 - Add all of the monthly totals together Step 4 - Divide the Step 3 total by 12; disregard the fractions – this will give you the FTEs for the year Full Time EEs (greater than 30 hours) January 50 February 53 March 50 April 53 May 51 June 52 July 48 August 43 September 50 October 55 November 53 December 47 Month You can use the “Seasonal Worker Exception” (which excludes seasonal workers from the FTE count) if the following conditions exist: The FTE count exceeded 50 employees on only 120 or fewer days OR 4 or fewer months during the prior calendar year AND Seasonal workers were the ONLY reason the FTE count reached the 50 count Note: Neither the 120 or fewer days or the 4 or fewer months have to be consecutive. Part Time Hours FTE Total FTE 1735 1725 1735 1725 1252 1253 1245 789 452 1021 487 1027 14.46 14.38 14.46 14.38 10.43 10.44 10.38 6.58 3.77 8.51 4.06 8.56 64.46 67.38 64.46 67.38 61.43 62.44 58.38 49.58 53.77 63.51 57.06 55.56 TOTAL FTEs For Year 725.38 FTEs Divided by 12 60.45 Drop Fraction 60 FTEs > 50 = SUBJECT TO ACA 88
    89. 89. Complying With The Affordable Care Act Compliance with the ACA (no penalties assessed) requires: •The Employer must provide a Health Benefit Plan that covers the minimum (60% actuarial rate) of health care costs and is offered to at least 95% of all eligible employees •The Employee Cost for single coverage cannot be greater than 9.5% of the wages paid to the lowest paid employee eligible for benefits (safe harbor) 89
    90. 90. Complying With The Affordable Care Act There are two primary penalties associated with noncompliance with the ACA: THE ENFORCEMENT OF THESE PENALTIES HAS BEEN DELAYED UNTIL 2015 (FOR 2014 PLAN YEARS) 1.Failure of a “large employer” to provide health insurance to eligible employees ($2,000 per) 2.Failure to provide “affordable” and/or “minimal coverage” healthcare to at least 95% of the eligible employees (the lesser of $3,000 or $2,000 per) – IF the employee receives a subsidy from the Exchange *penalties will be indexed based on the 2014 healthcare costs These penalties are NOT TAX DEDUCTIBLE! 90
    91. 91. Complying With The Affordable Care Act If the Employer provides NO BENEFITS and is subject to the ACA Obtain the total amount of Full Time Employees. Subtract 30 from that total. Multiply the remainder by $2,000. This will be the penalty the Employer will have to pay. If the Employer provides Benefits but the Benefits do not meet the “affordability test” or “minimal coverage test” Affordability Test - Employee premium contributions cannot exceed 9.5% of W-2 income of the lowest paid Full Time Employee (safe harbor) Minimal Coverage Test – Plan must provide a “minimum value” which pays at least 60% of allowed costs and must be available to at least 95% of the eligible population The Employer would pay a $3,000 fee per employee that obtained coverage, and was subsidized, through the Exchanges. 91
    92. 92. Additional Fees There are two fees each employer will be responsible for paying that are separate from any possible penalties assessed. Patient-Centered Outcomes Research Institute Fee (PCORI) - $2 per "Belly-Button" in 2014 (for plan years ending on or after 10.1.13 and before 10.1.14) *for plan years ending on or after 10.1.14 – this fee is TBD *Reported on Form 720 Transitional Reinsurance Fee (TRF) - $63 per "Belly-Button“ The first enrollment count is due November 15, 2014, to Health and Human Services (HHS); HHS will provide a “notice of fee liability” by December 15 th ; Employer has 30 days to remit the fee Confirm with your broker if they are submitting these counts and forwarding payment! Your Health Insurance Provider MAY or MAY NOT show this as a separate line item on invoices. Both fees are deductible for the Employer under the “…ordinary and necessary expenses paid or incurred in carrying on a trade or business…” category (subject to IRS limitations). 92
    93. 93. Small Employer Tax Credits Federal Credit (States may offer different Credits) SHOP = “Small Business Health Options Program” 93
    94. 94. SHOP?  SHOPs are part of the “Health Insurance Marketplaces” (also known as Exchanges)  Provide competitive pricing  Will ensure “Essential Health Benefits” required by the ACA  Available to businesses with fewer than 50 employees (In 2016, SHOPs will be available to employers with up to 100 employees)  Businesses can begin enrolling October 1, 2013, for coverage beginning January 1, 2014 (after January 1, 2014, this will be available monthly)  How can you enroll? - Through a Marketplace Certified Broker or directly through the SHOP  Sole proprietors are not eligible for SHOP coverage, but can purchase coverage through the Exchanges 94
    95. 95. Complying With The Affordable Care Act We encourage you to go to: https://www.healthc are.gov/. This Website provides some useful integrated tools to assist businesses, as well as individuals, with the ACA. 95
    96. 96. Defense of Marriage Act (DOMA) Reversal – Impact on Employers Section 3 of DOMA, signed by President William Clinton on September 21, 1996, allows individual States to refuse to recognize same-sex marriages granted under the laws of other States. The Act also barred same-sex married couples from being recognized as "spouses" for purposes of Federal Law. Edith Windsor led the case against the United States after she was forced to pay over $363,000 in estate taxes after her same-sex spouse, Thea Spyer, died in 2009. Edie Windsor, 84, sued the Federal Government after the Internal Revenue Service denied her refund request for the $363,000 in federal estate taxes she paid. On June 26, 2013, Section 3 of DOMA was declared unconstitutional by a 5-4 Vote of the United States Supreme Court. 96
    97. 97. Defense of Marriage Act (DOMA) Reversal – Impact on Employers On August 29, 2013, (with an effective date of September 16, 2013), the Internal Revenue Service (IRS) issued Revenue Ruling 2013-17, which provides that same-sex couples who were legally married in a State that recognizes such marriages will be treated as married for Federal tax purposes – even if they live in a State that does not recognize same-sex marriage. The Ruling provides that taxpayers may rely on the ruling retroactively for purposes of filing original returns, amended returns, adjusted returns, or claims for credit or refund for any overpayment of tax, provided the limitation period for amending a return has not expired. In general, the limitation period is three years from the date the original return was filed or two years from the date the tax was paid, whichever is later. All items affected by the marital status of the taxpayer must be adjusted. 97
    98. 98. Defense of Marriage Act (DOMA) Reversal – Impact on Employers Employers will need to review the following: Are any same-sex spouses currently receiving benefits under your plan(s)? Do any of these benefits need to be adjusted for taxability? Consider… 401k – beneficiary forms Section 125 – PA vs. MD vs. Federal FMLA Flu shots Employer Handbook 98
    99. 99. Defense of Marriage Act (DOMA) Reversal – Impact on Employers As of October 21, 2013 99
    100. 100. …and now some comments from our Panel on PPACA, Exchanges and DOMA – and other trends in the employee benefits world! 100
    101. 101. Final Trivia Did Carson get married? a.Yes b.No 101
    102. 102. Final Trivia The answer is… Best wishes, Elizabeth and Carson! 102
    103. 103. Questions? 103
    104. 104. Don’t Leave Us Yet! Please: •Complete your Evaluation •Pick up your CPE Certificate •Drop off your Name Badge Thank you! 104