2015 CPP Outline
I. Core Payroll Concepts 27.0%- Worker Status……………………………………………………….PS Section 1
Behavioral--instructions and training given by employer.
Financial--expenses, investment, available to public, how paid, profit/loss.
Type of relationship--written agreement, are benefits provided, term of relationship.
Issued 1099-Misc.if payments is$600 or more in a calendar year.
TIN--W-9 Request for Taxpayer Identification Number. W-8BEN--Certificate of foreign status.
SafeHarbor 530 Act--Reasonable Basis Test--SS-8 Determination of Worker Status for Purposes of Federal Employment Taxes and Income Tax Withholding. Past IRS employment audits, published IRS rulings or Private letter rulings may determine the ER's treatment of a worker as a independent contractor.
ABC test--Absence of Control, Business is unusual and/or away, Customarily independent contractor.
States use either common law or ABC test or both for determining unemployment.
Length of employment, PT/FT, hours or location are not considered in determining worker classification. Attorneys usually not employee's.
Penalty--misclassification--not withholding federal--1.5 % of wages paid(double if no 1099-MISC). No SS/MED--20 %(double if no 1099-MISC). 100 % penalty if intentional--federal plus EE/ER SS/MED.
2. Statutory employees/non-employees
Statutory employees
Subject to SS/Med tax withholding and sometimes FUTA, Federal taxable but no federal tax withholding.
Agent or commission drivers
Homeworkers
Traveling or city salespersons
Full time life insurance sales person--exempt from FUTA if only paid commission.
Statutory nonemployees
Not subject to any taxes
Qualified real estate agents
Direct sellers
3. Temporary agency/leased employees
Temporary
ER responsibility is to temp agency for a fee--agency hires,screens, trains, pays. Temp agency is responsible for withholding and remitting taxes not ER.
Leased
ER pays fee and sets pay level, supervises, hires and fires. Leasing company is responsible for withholding/remitting taxes not the ER.
Note: If taxes not paid by either ER can be held liable.
- Fair Labor Standards Act…………………………………………..PS Section 2
Fair Labor Standards Act or known as Federal Wage-Hour Law
Sets minimum and OT wage, recordkeeping, equal pay, child labor
DOL--Department of Labor--enforces Federal Wage-Hour Law.
EEOC--Equal Employment Opportunity Commission--enforces equal pay piece. (FLSA Regulations)
An EE has 2 or 3 years to file a FLSA complaint with the Wage and Hour Division.
Enterprise coverage--gross sales over $500,000 at least 2 EE's are engaged in interstate commerce activities, hospitals, schools, government agencies, nursing homes, dry cleaners and construction are specifically covered. Partial exemption for family business--immediate family members are not subject to FLSA rules.
Individual coverage--all covered if interstate sales between states.
Exempt--not required minimum wage or overtime or certain records to be kept.
Nonexempt--minimum wage, overtime, time and pay records must be kept.
Interstate commerce--any trade, transportation or communication between one state and another.
Employee's may be paid on any established cycle, must be consistent, can vary throughout company as long as consistent.
1. Regular rate of pay
Hourly pay rate calculated by dividing the total regular worked pay earned by total hours worked.
Items included--Shift differential, nondiscretionary bonuses--production, agreed upon , on-call, retro pay, supplemental disability pay, payments in forms other than cash.
Not included--Gifts, holidays, sick, vacation, jury duty, funeral, discretionary, stock options, overtime, premium pay for weekend or holiday worked.(Paid Time Not Worked)
Daylight savings—Second Sunday in March less one hour if paid 8 need not count one hour, first Sunday of November works 9 hours must count extra hour.
Belo plan--guarantee a fixed salary for irregular hours that includes a set amount for OT. Ex. 45 hours for $380. Hours over 45 for OT calculation at 1 1/2. Klinghoffer rule--If regular salary is for specific number of hours, the hours from those to 40 are not paid additional if the rate received for specific hours is over minimum wage.
Fluctuating workweek--fixed salary, varied hours, receives 1/2 time for hours over 40. To calculate take fixed salary divided by hours for rate, multiply rate times .5 for OT premium, multiply hours over 40 times 1/2 time OT premium for OT pay, add to fixed salary for total earnings.
GAP—nonexempt EE being paid a weekly salary does not need to be paid for hours up to 40 so long as the pay would not bring them under minimum wage.
Tipped EE's--if a tipped EE is paid less than minimum wage because of ER taking allowable tip credit, use the full minimum wage to calculate regular rate.
More than one rate--Total regular pay from all jobs divided by total hours worked. 40 x $12 plus 12 x $9 divided by 52 = $11.31.
Salaried nonexempt--calculate the EE's yearly salary and then divide by the number of hours to be paid in a year. 40wk/2080 yr. 260 work days a year, 35wk/1820 yr. Ex. $1200 x 24=$28,800 annual, 52x35wk=1820,$28,800 \1820=$15.83 hour.
Pieceworkers--Add the weekly piece-rate earnings to any other earnings and then divide the total by the number of hours worked. Method one--once regular rate is calculated the EE must be paid 1/2 time for hours over 40. Method two--agree before work that they will be paid a rate not less than 1 1/2 times the regular piece rate for each piece made during OT hours.
2. Minimum wage
Federal minimum wage is $7.25
If State is higher than state minimum wage is used
Newly hired under 20 $4.25 for 90 days then if work was continuous must raise to $7.25.
May be paid other than cash like room and board--this will count towards minimum wage.
3. Overtime
Must be paid 1 1/2 regular rate of pay for all hours physically worked over 40.
Workweek is a 7day consecutive 24 hour period--168 hours. If the workweeks are changed--add the overlapping days to the old workweek, calculate the OT hours and pay due for the old and new workweeks on this basis. Add the overlapping days to the new workweek, calculate the OT hours and pay due for the old and new workweeks on this basis. Pay the EE the greater of the two.
Hours not counted could be sick, vacation, holiday, jury duty per FLSA.
Public Safety--max of 480(320 OT) for comp. time Firefighters max (212) Police(171) in 28 day period before OT.
Exempt--Foreign vessels, newspapers, babysitters, amusement, homeworkers, fishing, farming.
4. Child labor
Under 18--not allowed to work in hazardous jobs except under apprentice programs.
14 and 15--limit to 3 hrs a day/18 per week during school (8/40 summer), allowed to work 7am-7pm, summer 7am-9pm.
Under 14--prohibited except for working for parents.
Relaxed for agricultural, actors, newspaper carriers, batboys. Mom and Pop shops.
Can drive for one-third of workday/20 % of workweek.
5. White-collar exemptions
Administrative--at least $455 week--examples are executive or admin assistants, Team Leaders, HR Managers, Purchasing agents.
Executive--at least $455 week--direct work, set pay and hours, interview, hire,train and review work.
Professional--at least $455 week--advanced knowledge, teacher, recognized field based on talent or invention
Outside salespersons--Sales of tangible or intangible items, no salary requirement.
Computer professionals—at least $455 week or paid $27.63 per hour. Exempt from OT.
Final Standard Test $455 per week.
6. Public sector/hospital special rules exemption from FLSA
Public sector--public elected official, members of staff, policymaking position, advisors to elected officials, employed by state or local legislative branch.
Hospital--able to use a 14-day period for OT--paid OT for all hours over 8 in a day or 80 in a 14 day period whichever would result in higher pay.
7. Public contracts and other provisions (e.g., compensable time issues, tip credit, public contract laws, sick and vacation time, etc.)
Compensable time issues--all hours during which the EE is under the ER's control, even if the time is unproductive, so long as the time spent is for the ER's benefit. EE's covered by collective bargaining agreements may be exempt from OT requirements under FLSA.
Tip credit--May pay $2.13 per hour under FLSA if tips make up difference of $5.12. Regularly receive more than $30 month in tips. Service charges are automatically added to bill not considered tips but are wages. If the EE's tips do not bring them up to minimum wage the ER must make up the difference. Credit card tips must be given to EE by next payday. The tip credit may not be increased for OT hours worked at the premium rate. Must report tips to ER when they receive $20 or more in a month.
Public contract laws--Walsh-Healey--mfrs. for govt. contracts over $10,000. Davis-Bacon--laborers/mechanics on federally financed construction contracts of $2000+. McNamara-Ohara--fed. govt.to provide services to a federal agency over $2500, nonservice ee's under $2500. Contract WorkHours & Safety Stds. Act--contractors with the federal govt. not covered under other laws.
Compensatory time off--ER can give time off in same pay period as long as at 1 1/2. Public sector ER's can give cash at 1 1/2 times instead of time off, max comp time accrual is 240 hours(160 OT hours).
Meal and rest periods--generally at least 30 minutes of nonwork time (Regulated by States)
Travel time--Portal to Portal Act--worktime if home and called in, special assignment in another city and travels outside regular workday, part of daily job requirements, if away from home but during normal work hours, if using own transportation to travel may count time driving or time it would have taken on public transportation.
On-call--on premise/close to curtail personal activities, on duty even if sleep must be paid if on premise if less 24 hours.
Waiting time--if engaged to be waiting--paid, waiting to be engaged--not paid.
Meetings and training--unpaid if voluntary, outside work hours, not related to job and does not perform any work.
Preliminary and Postliminary Activities--Portal to Portal Act--not compensable unless agreed--changing clothes, cleaning up personal, de minimis time, time clock differences, rounding differences.
Remedial education---8th grade education can work 10 hours over 40 before overtime is required.
- Employment Taxes……………………………………………PS 6.7, Section 7 and 8
Annual wage base $7000.00.--maximum tax per employee is $42.00.
Full tax rate is 6.0 %--Note: surcharge of.2 % ended June 30, 2011.
State credit of 5.4% --states with lower rates can receive credit up to 5.4 %.
Effective tax rate is.6%. Normal credit is 90 % of 6.0 or 5.4 %.
940 Employer's Annual Federal Unemployment (FUTA) Tax Return.
Deposits are made for three quarters, final recap at yearend taking in to account the credit from state paid unemployment. Wages are reported annually. If notification is received of a state rate change, ER must recompute futa liability. Calculate wages taxed ytd times new rate, then subtract from amount already paid and pay the difference. In December notification states that state is 3.8% not 5.4 % so 6.0% less 3.8% = 2.2%. Wages of $140,000 times 2.2% = $3080, ytd paid is $140,000 times .6 = $840. Subtract $840 from $3080 = $2,240 this amount is due for fourth quarter.
Government, nonprofit religious and educational organizations are exempt. EE'S exempt are F,J,M & Q vis, newspaper under 18, life insurance--commission only, working for spouse or parents.
Exempt wages are disability 6 + months, workers comp., deferred comp.cafeteria plans, education, dependent care reimbursement, GTL., qualified moving expenses, meals and lodging, tips not reported, etc.
Penalty for late payment of taxes is .5% of unpaid tax up to 25 %. Penalty for late deposits same as Federal.
State unemployment--Reserve ratio--U/E taxes paid less benefits paid divided by average taxable payroll, majority of states use. Benefit ratio--benefits charged divided by total taxable payroll. Benefit wage ratio--benefit wages paid divided by total taxable payroll. Payroll stabilization--ER's tax rate is determined by fluctuations in it's payroll Alaska only. The minimum wage base for states is $7000. Voluntary contributions may be made in 26 states which will reduce the unemployment rate. Can collect unemployment for 26 weeks, may request an extension for 13 additional weeks.
Is work localized, base of operations, place or direction, state of residence are looked at in determining where to allocate unemployment. To be eligible for unemployment must have wages earned during base period, laid off, involuntary term, register and file, able to work, reduced hours. Base period is the first four quarters of the last 5 prior to filing.
Disability Insurance--CA, HI, NJ, NY and RI have employee paid deductions for disability insurance.
2. Social Security and Medicare taxes
Maximum taxable wage is $118,500for Social Security--rate is 6.2 % for ER and 6.2% for EE.
Maximum taxable wage is $7,347.00 for ER and EE.
No maximum wage or tax for Medicare--rate is 1.45 %.
Pretax medical, dental exempt from tax.
401k, 403B, etc. included for taxable purposes.
FICA--Federal Insurance Contributions Act--both SS/Med.
OASDI--Old Age Survivors Disability Insurance(Social Security) 6.2 % for ER and 6.2% for EE.
HI--Health Insurance (Medicare) 1.45 %
Self employment tax is 12.4 SS and 2.9 Med = 15.3 %.
2015 once an employee goes over $200,000 an additional .9% is taken from the employee pay for medicare.
If employee works for more than one employer and has more than $7,347.00 withheld, may apply for a credit on personal income tax return, it become federal income tax.
3. Federal income tax
Back up withholding is 28 %. Fails to provide a TIN. W-9. If IRS sends payor a "B" notice, ER must send to payee with a copy of notice and a W-9 within 15 days.
Wages subject to tax--regular, OT, bonuses, commission, Tips, gifts, GTL over $50,000, severance pay, etc. (World wide income: All items paid by ER except where you can find an IRC excluding that amount under the IRC.
Pensions--W-4P file to claim exemptions, additional amounts or decline altogether. If no form is completed withhold as if Married claiming three allowances.
Taxes advanced by ER on EE's behalf must be recovered by April 1st.
- Employee Benefits………………………………………………….PS Section 3
1. IRS-defined (i.e., company automobiles; company aircraft; vacations provided; discounts on property and services; professional memberships; entertainment tickets)
Personal Use of ER provided Vehicles--General valuation--the FMV of a company provided vehicle is the price an individual would pay to lease the same vehicle in an arm's length transaction. Special valuation--Cents per mile--Multiply personal use miles times $.575 per mile. If the EE pays for the fuel subtract $.055 cents per mile. The FMV cannot exceed $16,000 and the expectation must be business travel of at least 10,000 miles. Commuting valuation--$1.50 one way or $3.00 round trip for EE's personal commuting use. Annuallease valuation--FMV of EE's personal use is determined by multiplying the annual lease value amount from the IRS Table times percent of personal miles.Track mileage, travel dates and business purpose to substantiate expenses. Whatever method is used--it must be used by both EE/ER. Considered a working condition fringe.
Company aircraft--general valuation is amount you would pay in an arm's length transaction. Non-commercial valuation--Standard Industry Fare Level(SIFL) times mileage times aircraft multiple plus terminal charge = value. If the airline is at least 50 % full of EE's flying on business the value for an EE for personal use is zero. Commercial flightvaluation method is 25 % of the highest unrestricted coach fare in includable in income.
Discounts on property or services--real estate, stocks, discounts through company store, another ER's discounts are includable as income. Club memberships--only exclude to the extent they are business related--like trade associations, professional organizations, chambers of commerce. Entertainment tickets--work de minimis.
2. Qualified and nonqualified plans
Pensions
401(a)Pension--benefit that is determinable when the EE retires and is payable over a number of years. Profit sharing--EE allowed to participate in the companies profits, ER contributions based on a formula.
EE-funded Plans 501(c)(18)(D)--pension plans created before 6/25/59 that are funded solely by EE contributions. Box 12 Code H(highest)
Deferred compensation
Qualified plans include profit-sharing, defined contribution or defined benefit plans. The plan must be in writing, communicated to EE's, not discriminate in favor of highly compensated EE's and meet eligibility requirements. Ex. 401(k) and 403(b).
Nonqualified plans can be discriminatory. Ex. Is Section 457 for public sector EE's.
All plans qualified or nonqualified have a $18,000 contribution and a catch up of $6000 if over age 50(except a Simple 401(k) or Simple 408(p) $12,500--catchup is $3000. If an early withdrawal is taken subject to a 10 % penalty unless over age 59 1/2. If paid directly to EE withhold federal at 20 % (10% penalty and 10% withholding).
EGTRRA--Economic Growth and Tax Relief Reconciliation Act of 2001. Expand the opportunities for retirement savings for employees.
Subject to Social Security and Medicare and FUTA tax, not federal or state.
Defined Benefit Pension Plan--generally based on EE's age, pay and length of service. Provides a certain level of benefits during retirement.
Defined Contribution Pension Plan--individual accounts for each EE, with a set amount being contributed by the ER. Benefit depends on amount in the account at retirement based on contributions and earnings gains or losses. (Profit Sharing Plan)
ADP--actual deferral percentage.
401(k)Cash or deferred arrangement(CODA) Salary reduction plan max $18,000 ($24,000 if age 50 or older). Box 12 Code D(deferral 401k)
403(b)Tax sheltered annuities. Government, Education, Public schools, tax exempt charities, religious and education organizations. Box 12 Code E(education 403B)
Sep 408K--for ER's that don't have the means to sponsor a pension or profit sharing plan. Box 12 Code F(Sep 408k).
Simple 408P--Savings Incentive Match Plans for Employees of Small Employers. It can be either an IRA or part of a 401(k) plan. No more than 100 EE's.Box 12 Code S(SIMPLE).
457--Deferred compensation plans for the Public sector and Tax-exempt Groups--State and local government ER's and tax exempt organizations other than churches. Box 12 Code G(government 457)
501(c)-- Employee-Funded Plans Max $7,000
IRA--individual retirement accounts--maximum contribution is lesser of $5500 or 100 % of salary. Catch-up contribution for 2015 is $1,000