• May 24, 2013
• June 14, 201
• July 5, 2013
• July 22, 2013
• August 30, 2013

All 89,551 IRS employees from the Acting Commissioner down have been issued furlough notices.  All operations directed at the public, including toll-free help and Taxpayer Assistance Centers, will be closed.  There may be another two furlough days added in August and/or September as well.

On these dates, phone calls to the IRS will not be answered and Taxpayer Assistance Centers will be closed.  Payroll Departments beware!

A recent article, Tax Surprises Can Follow When Payroll Firm Explode, by the Wall Street Journal addresses some the issues that can arise from outsourcing your payroll.

The main concern addressed is payroll outsourcing providers stealing employment tax payments from their clients. This results in the employer owing the IRS the taxes plus any interest and penalties.

The article states that there is no special license required to become a payroll provider. Additionally, there is no regulation that forces these firms to confirm the tax payments to their clients after they have been sent. Even though the employer sends off all data to their outside provider, it is the employer (or even an individual) that is still considered responsible for the payment in taxes to the IRS.

In fact, if employee taxes are owed, the IRS will go directly to the employer to collect the money plus an interest or fees owed. The payroll provider does not even have to be notified.

With an in house HRIS software, like Optimum Solutions, you are in control. You know who pays your federal and state taxes, the exact amount that is deposited and on which day that deposit was made. The payroll process is in your hands, there is no lack of control and no complications.

The calculation for the first quarter is relatively simple, but determining the remaining 3 quarters can more difficult.  The formula is a bit complex and takes some thinking.  As a Payroll or Tax expert, it is your responsibility to confirm the amounts are separated on each quarter’s Form 941 and to confirm the accuracy. 

Use our Medicare Calculations Spreadsheet to figure out the remaining three quarters. The instructions on first worksheet and the built in formulas on the second.

To be considered a tip by the IRS, four conditions must exist:

1. the payment must be freely made without compulsion
2. a customer must have the unrestricted right to determine the amount
3. the payment should not be the subject of negotiation/dictated by employer policy
4. a customer generally has the right to determine who receives the payment A tip left on a table or included by a customer on the receipt tip line would be considered by the IRS as a tip because it meets these four conditions.

A fixed charge added to a bill by a restaurant is a service charge — not a tip — as it does not meet the four conditions above.  A bottle service charge, or room service charge, luggage service charge, pizza delivery charge, or other retail deliver charge is are not considered to be a tip.  Service charges should be treated as wages, and are therefore subject to the appropriate withholding taxes.  Therefore, they are not eligible for the tax code Section 45B general business tax credit that certain food or beverage employers can claim for social security and Medicare taxes paid or incurred by the employer on certain employees’ tips.

IRS has also issued guidance on employer and employee FICA obligations.  Tips received by an employee are considered paid by the employer for purposes of the employer’s and employee’s share of FICA taxes when a written statement that includes the amount of the employee’s tip income is provided to the employer by the 10th day of the following month.  If the employee fails to furnish a statement, remuneration is deemed to be paid on the date that notice and demand for the taxes is made to the employer by IRS.  An employee’s unreported tips are deemed to be paid to the employee when the employee actually receives them.

Section 1

The first modification includes new fields that were added in Section 1.  The new fields include;

• email address
• phone number (optional)
• alien authorized to work
• foreign passport and country of issuance

In addition,  the old data field for ‘Maiden Name’ has been replaced to read: ‘Other Names (if any)’.

Section 2

In Section 2, the employee’s name has been moved to the top of the form. The ‘List A’ document combinations has been expanded to includes new fields.  Additionally the space for recording documentation has been lengthened.

Section 3

The last field change is in Section 3, which now includes a space to print the name of the employer or authorized representative.

Format Changes

There have also been format changes that you should be aware of. The new form has grown to 2 pages and 6 pages of instructions which include links to additional resources, the 2012 I-9 form was 1 page with 3 pages of instructions.  The new 2013 form has a new online format that contains fillable drop down menus to select the date and country of issues.  Other changes include clearer data fields to assist in properly completing the form. 

Download the 2013 I-9 Form at the USCIS Website and begin using the new form as soon as possible. The USCIS also made an I-9 handbook available online.

Form 941 2013 Updates

The only changes are to Part 1 of the Form 941.

• Line 5a percentage is increased to .124 from .104 in 2012 due to the additional 2% increase in the Social Security percentage.
• A new line 5d was added for the additional .9% Medicare tax for taxable wages over $200,000.  Column 1 amount is the wages over $200,000, the multiplier is .009 and Column 2 is the extended tax withholding amount
• Line 5e was previously Line 5d
• Line 5f was previously Line 5e
• Line 6 was changed to reflect the appropriate lines (3, 5e and 5f) to total for the Total taxes before adjustments.
• Parts 2 – 5 and the Schedule B contain no additional changes.

Learn more about the old 2012 Form 941.

Forms of Risk

The first thing that needs to be considered when constructing policies is the environment of the workplace. There are certain types of jobs that present greater risk over others. This can refer to jobs that involve heavy lifting or manual labor, chemical or laboratory use, etc.

Although not as high of a risk, office jobs should also be taken into consideration when forming after-hour workplace policies. From small incidents like cutting a finger opening an envelope or more dangerous situations like tripping down the stairs, accidents in the office do happen.

Another area of concern is the physical location of the office. If the office is either high value (on-site cash, technology, jewelry, etc) or if the office is located in an unsafe area, safety procedures should also be specified.

Safety Policies and Procedures

There are no laws that require supervisors to be onsite when employees are working, therefore it is up to each company to make its own policies. Depending on the type and level of risk your company may fall under, there are various forms of rules you can implement to ensure your employees stay safe.

For lower risk occupations, having a security guard or an on-call security contact in case of emergency is an option. You can also put additional timekeeping practices by placing strict time restrictions on when employees are allowed to be working on site. This will also allow you to document all hours when employees are working to make sure they are following the policies in place.

Implementing a buddy system so two employees are always working together is a good way to ensure that, if an emergency occurs, there is someone to immediately respond and call for help. For higher risk operations, it may be necessary to take that one step further and require a supervisor to be onsite at all times an employee is working.

It is important to remember, accidents are unavoidable. However, the possibility can be lowered by taking the proper safety precautions and making sure your employees are informed and follow the policies in place.

National Payroll Information

Chief source of tax information is Canada Revenue Agency.
Currency is the Canadian dollar.
Tax year ends December 31.
Holidays include New Year’s Day, Labour Day, Good Friday, Thanksgiving, Victoria Day, Christmas, Canada Day, and Boxing Day.

Employee Workweek Calculations

Employees are only allowed to work up to 8 hours in a day, unless there is a written agreement that allows for a greater maximum number of worked hours in an established regular workday.  

The maximum number of hours in a workweek is 48, unless there is a written agreement that is approved by the Director of Employment Standards.  (If after 90 days, the Director has not replied to an employer’s application, the employer can require employees to start working more than 48 hours a week, but not more than 60 hours a week.)  Even with an agreement, the employer does is required to pay overtime for hours worked over 40 hours in a week.

Maternity Leave

Maternity leave includes up to 17 weeks of unpaid pregnancy leave for full-time, part-time, permanent, or contract employees. This includes employees who work for an employer covered by the Employment Standards Administration and was hired at least 13 weeks before her baby’s due date.  Pregnancy leave ends on the day the baby is born.  

Maternity leave also includes parental leave for both new parents.  They can take up to 35 or 37 weeks of unpaid time off.  Full-time, Part-time, permanent or contract employees are entitled to parental leave as long as the employer is covered by the Employment Standards Administration and the employee was employed for at 13 weeks before the parental leave began.  

Usually an employee who returns from pregnancy or parental leave is entitled to the same job the employee had before going out on leave, or a comparable job if their old job does not exist.  The employee also has the right to continue to participate in benefit plans and earn credit for length of service and seniority.  The employee must be paid at least as much as he or she was paid before going out on leave, and if the wage for the job increased when the employee was on leave, the employer must pay the higher wage when the employee returns from leave.  

Parental leave is separate from pregnancy leave, so a birth mother may take both pregnancy and parental leave.

Vacation Time

Two weeks of Vacation pay is granted to employees after each 12 month entitlement year (based on anniversary date), although collective bargaining agreements may provide for more than two weeks.  Typically, vacation must be taken within 10 months following the completion of the vacation entitlement year.

Retirement Plans

RRSP, or Registered Retirement Savings Plan, is a retirement savings plan established by an employee, registered by CRA, into which the employee and spouse contribute.  Deductible RRSP contributions can be used to reduce taxes.  Income earned in an RRSP is exempt from taxes until funds are withdrawn from the plan.  Employer contributions to an RRSP are taxable benefits to the employee.  

RRSP benefits are pensionable and insurable and subject to Canada Pension Plan (CPP) contributions and Employment Insurance (EI) and Quebec Pension Plan (QPP) premiums.  Employer contributions to an RRSP are not insurable as long as the employee cannot withdraw the amounts until they retire, or they can withdraw the RRSP funds under a Home Buyers Plan or a Lifelong Learning Plan only.  Although the benefit is taxable and must be reported on the T4/RL1, employers do not have to withhold income tax on contributions they make to RRSPs.

Health Care

The province of Ontario has an Employer Health Tax that employers must pay if employees work at a permanent establishment in Ontario, or if employees work elsewhere but are paid through a permanent establishment in Ontario.  The tax rate is between .98% and 1.95% based on total wages.

Canada Pension Plan (CPP) is a national social insurance plan in which all employees over 18 must participate.  Quebec has its own plan, the Quebec Pension Plan (QPP).  The rate and annual wage base can change each year and can be found at the CRA website.

Employment Insurance (EI) provides temporary financial assistance to unemployed Canadians who have lost their jobs through no fault of their own.  EI is funded by a payroll tax paid by both employers and employees.  Rates and wage limits can change each year and can be found at the CRA website.

Tax Rates

Provincial and Territorial Tax Rates are calculated the same way as federal taxes and change each year.  You can find the most current federal and provincial rates at the Canada Revenue Agency.

Wage Statements

Wage statements in Canada must be provided in writing or emailed as long as the employee has some method to produce a paper copy, and must include:

• the pay period dates
• the wage rate, if there is a wage rate
• gross wages and how they were calculated
• amount/purpose of each deduction
• amounts paid for room & board
• net wages

The employee must be able to keep this information separate from the paycheck.

Record of Employment

The Record of Employment (ROE) is created when an employee has a break in service due to termination, lay off, or leave of absence.  The ROE is filed with Services Canada and is a record of past pay periods’ payroll data used to substantiate payments of employee contributions of EI.  More information about ROE can be found at http://www.servicescanada.gc.ca  

If you mail paychecks to other office locations or remote workers for a Saturday delivery, you will need to change your schedule for a delivery date that falls between Monday through Friday.  Make sure you look into other payees, such as retirees, temporary agencies and contractors, who’s pay date may also need to be adjusted. 

Other Payment Options

If you are on a tight schedule and this is not feasible, it may be time to work with those employee’s to move to direct deposit or pay cards.  This would eliminate shipping costs and the concern of constructive receipt of pay for those employees.  As payroll specialists know, all employees must have access to their money on pay day, regardless of how that has to be achieved.

Electronic Delivery

Another documents to consider are tax payments, tax returns and Form W2’s, all of which have specific deadlines that must be met.  There are other options that can be used to send tax payments electronically and avoid all late payments.  Electronic payments can be made through an ACH debit or credit file or via telephone.  Most states accept electronic files for tax return information, however your company must apply. You also need to work directly with with your payroll provider for the correct format and processing information required to send the electronic file to the state.

For example, for Form W-2’s, most companies are sending their files to Social Security Administration (SSA) electronically using the EFW2 file format.  Another option for the employee Form W2, with the consent of the employee each year, is through an email with a PDF attachment or an Employee Self Service application.  Check with your vendor for electronic W2 options.

This article has focused on payroll, however, there may be other areas within your company that would fall in similar situations.  Get started early identifying what is mailed for Saturday deliver, options you can use and begin the implementation process now.

Most, not all, banks no longer require prenotification of bank account information for direct deposits.  However if you have the option, how do you make the decision on the direction your company needs to follow?

In the past, a penny prenote was sent therefore the direct deposit passed through the entire ACH process, including the RDFI (Receiving Destination Financial Institution). That means, any discrepancies were going to be returned for correction.  Today prenotes are sent as zero dollars so the full prenote process of the past no longer takes place. Now you may ask what exactly does this mean?

Why Should I Prenote?

Prenotes used to be required to be sent at least six banking days prior to the first live payroll for the employee’s direct deposit. The prenote needed to be for the zero amount. Basically, the direct deposit process was being confirmed. The account information needed to be ensured…ie, has a valid routing number, the bank account number is the correct length and starts with the correct digit for that bank. 

Since the prenote will not go through the RDFI until the live check is run there could still be accounts that are rejected.  For example the account may be invalid and does not belong to anyone, the account could be closed or the account name may not match the account number.

If you are using Employee Self Service, there are additional areas that need to be monitored. If your company is allowing the employees to change their banking information, that employee’s may not completely understand what numbers should be used.

Keep in mind there will be other keying errors or if they try to use direct deposit slips, they may use incorrect banking information.  The direct deposit slip is to be used between an individual and their bank and was not intended for payment or receipt use, therefore those numbers may be for another use to the bank.  Also, with the increased use of ATM cards, old personal checks may have outdated information. If your bank was bought out and the routing number changed, you could be pulling the information from checks with the old information.

Although no longer required, prenoting may still be a good route to take. It can save you from having to correct mistakes down the road…especially if employee’s are entering their own changes to their banking information.

So what will your decision be, to prenote, or not to prenote?

What are the benefits of using direct deposits?