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Payroll Management

Ineffective payroll management and shoddy payroll systems can result in personal liability (including JAIL TIME) for non-compliance.

Business Management Daily helps our readers with information on payroll processing and tips on timesheets that will help you to implement payroll programs that pay off.

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Q. Some of our Illinois employees have taken out payday loans and now expect the Payroll department to set up a payroll deduction to repay the loans ... We’d like to discourage this behavior by charging these employees a fee for servicing these loans. Can we?
All new hires must provide the Payroll department with Forms W-4. The amount of employees' federal income tax withholding, and, often, state income tax withholding, is determined by entries on this form. Forms must be signed under penalties of perjury. The IRS updates this form every year.
Clean breaks are always the best. You don’t want any pay problems lingering after an employee terminates. What you must pay a terminating employee, in addition to any final wages, is determined under state law. And mistakes can be expensive. Two recent cases illustrate.
Federal taxes withheld from employees' pay, the employer's share of FICA, and the employer's FUTA payment must be timely deposited, by cash, check or electronically with an authorized federal depositary institution.  Income and FICA taxes are deposited on a monthly or semiweekly schedule, depending on a look-back rule ...
A federal appeals court has ruled that an employee whose wages were subject to a federal tax levy can’t sue his employer for violations of his Fourth and Fifth Amendment rights or for theft of money under state law.

Under the IRS’ Voluntary Classification Settlement Program (VCSP), you may change workers’ status from independent contractors to employees for future tax periods on favorable tax terms, without in­­curring penalties or interest. Now, however, new questions have arisen. Unfortunately, there are no easy answers.

To speed the processing of child support with­holding orders, the federal Office of Child Sup­port Enforcement is encouraging employers to sign up for its electronic Income Withholding Order, or e-IWO. Cur­­rently, 23 states use e-IWOs.
The IRS keeps track of your company’s tax liabilities as separate modules in its Business Master File. If, say, your corporate income tax module is short, the IRS can offset that shortfall with an overdeposit from your payroll module. Worse: The IRS can make these offsets without telling you.
Final IRS regulations exclude from taxpayers’ gross income damage awards for personal physical injuries or illness received from a lawsuit or in settlement of legal claims. The regs delete the requirement that to qualify for the tax exclusion, damages must be based on a tort or tort-type right.
Time clocks, time cards and time sheets are basic necessities for payroll purposes, workplace recordkeeping, Family and Medical Leave Act (FMLA) tracking, etc. But legal disputes under the Fair Labor Standards Act (FLSA) can arise over whether managers are allowed to alter time sheets; whether exempts may have their employment status altered by having to fill out time cards; and methods to prevent employees from falsifying their time records.
Q. Employees who don’t use all of their paid time off (PTO) lose it at the end of the company’s fiscal year. Management wants to amend this policy to give employees the option of selling back their unused PTO days to the company at their current pay rates or rolling over the PTO days into the next year. Before Payroll gives its final OK to this plan, we’d like to know if we’re missing anything.

The IRS recently announced that it has begun conducting correspondence audits of employers that took the 6.2% Social Security tax credit authorized by the 2010 Hiring Incentives to Restore Employment Act. The Treasury Inspector General for Tax Administration has concluded that the audit program remains error-prone, and that those errors affect taxpayers’ rights.

April is the cruelest month not because it rains ­buckets, but because it’s time to file your first-quarter Form 941, Employer’s Quarterly Federal Tax Return. Here’s help for Payroll:
A federal trial court has ruled that an auto body shop’s inside CPA/controller was personally responsible for 100% of its unpaid payroll taxes. It was enough, the court said, that the CPA had some authority over the company’s finances; exclusive authority wasn’t necessary.
Employees can be reimbursed for their travel and entertainment expenses (T&E) on a tax-free basis. However, if a T&E policy does not meet the IRS standards, or employees do not adequately substantiate their business expenses, their reimbursements are fully taxable.
The IRS has retired Form 941-M, which is filed monthly by employers with serious payroll compliance problems. Also retired are the special deposit rules, which required deposits to be made into a special trust fund account within two banking days of payday.
Q. A new employee was mistakenly paid through Accounts Payable for January, so no federal or state taxes were withheld from his pay. It’s still early in the year, so we’d like to take out the taxes that should have been withheld from later wage payments. But we don’t want to leave him with no net pay. According to our calculations, it should take us two months to withhold the additional taxes. Is this OK?
Form W-2 and the 1099 series of forms are called information returns. Withheld income and FICA taxes are reconciled quarterly when you file your Form 941 with the IRS. They're reconciled again, annually, when you file a Form W-2 for each employee with the Social Security Administration.

Allowing wage-and-hour problems to fester can land you in hot water, which puts a premium on performing a self-audit of your company’s pay policies. But be aware that you may have to provide this so-called self-critical analysis to employees’ attorneys, should they sue you. Take these steps to minimize this possibility:

A federal appeals court has ruled that an employee-tax protester can’t sue his employer and individual employees for withholding taxes. The court also rejected the employee’s Title VII claim that he was unlawfully terminated for complaining about the withholding.
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