Payroll Departments, look out (again)

The phishing scam that affected payroll last year has made a comeback.  You’ll remember that last year we warned of a scam targeting us, those who have access to sensitive information.  An email was sent, supposedly from the CEO, asking for copies of W-2 Forms for the C-suite executives, or for all the employees.

Read more here.  Our thanks to Debera Salam for the update.

Year End Facts for You, part 3

In Indiana, HEA 1485-2015 combined county adjusted gross income tax, county option income tax, and county economic development income taxes into one combined local income tax. The new local income tax goes into effect January 1, 2017.

Effective January 1, 2017, the Indiana Department of Revenue will publish one local income tax rate in Departmental Notice #1 and in its return instructions for tax years starting in 2017. That rate will be applicable to both resident and nonresident taxpayers. Any changes to local income tax rates for withholding will be published by the department in Departmental Notice #1, which is published on the department’s website twice a year and is effective January 1 and October 1 each year. Other than listing one rate as opposed to two, no changes in the publication dates or location of publication on the department’s website will occur.

Do any of your employees claim “Exempt” on their W-4 Forms? If so, remember that the form expires annually.  If your employee wants to continue to claim “Exempt” from withholding in 2017, he or she will need to fill out a new W-4 Form for 2017.  Your system should allow you to create a report listing all the employees who are set up in payroll as “exempt from withholding”.  Make sure to send out a reminder memo to all employees regarding withholding – both those claiming exempt and those who don’t.  January is a good time to fill out new forms.  Based on changes in their tax situations in 2016, some employees may want to make changes to their withholding.




Navigating California’s New $15 Minimum Wage — Zenefits Blog

Navigating state law changes can be tricky and often results in employers not being in compliance with new regulations. Small businesses can unknowingly be out of compliance if they fail to understand all aspects of newly enacted laws. This could be the case with California’s Senate Bill (“SB”) 3. Signed by Governor Brown on April…

via Navigating California’s New $15 Minimum Wage — Zenefits Blog

Written Payroll Procedures

Written Payroll Procedures

Payroll processing may be tedious and repetitious, but it is also crucial to the success of any organization.  Why?  Because everyone wants to be paid, and no one wants an incorrect paycheck.  Even if an error occurs, the team and the company both want to ensure that it isn’t repeated.  One way to ensure that errors don’t occur or occur very rarely is to have and follow written procedures.

Why is this so important?  Just like with any successful business, it’s crucial to remember what works – and what doesn’t.  I’ve listed below some reasons for documenting your process and procedures; I’m you’ll be able to supply more:

  • Compliance – Your company needs to ensure compliance with Federal, state and local tax, occupational health and consumer laws.  Knowing what you do and how you do it helps you to verify your adherence to the myriad of laws that affect payroll.
  • Transparency – Clarity and availability of your procedure documents prove your team has nothing to hide and that you do the right thing in all cases.
  • Sarbanes-Oxley adherence – Whether or not you are publicly traded, your procedure documents are a road map to your work as well as your compliance with the law.
  • Training/Cross-Training – Having set written procedures and guidelines allow you to ensure that all team members learn the correct way to handle each scenario of your payroll.  Cross-training is important to ensure that all team members can handle multiple payroll responsibilities in case of illness, injury, weather-related absence or office closings.
  • Knowledge transfer – When a new employee is hired or an employee is going on leave or leaving the company, it’s important that consistency be maintained.  The written document ensures this.
  • Consistency – Each team member should handle the same task the same way.  For example, processing a new hire into the payroll system should always consist of a certain flow and a certain pattern of steps.  Each associate will process the same way if taught the same process.
  • Outsourced functions – Do you outsource your benefits, pension, or payroll tax administration?  Include your links to and from these organizations in order to clarify your workflow.
  • Pain points – review to see where problems, errors and delays arise.  Take steps to document and create solutions.  Identify areas for improvement.
  • Process improvement – creating work flows and reviewing steps allow you to step back and look at the process while not actually performing it.  This may give you an idea for streamlining the step.  You may also find that you question a particular part of a process and can possibly find a shorter way to complete the task.
  • Reducing the complexity of the process – putting the documentation “on paper” makes it easier to use and preserve, as well as providing a physical location for your documentation that can be given to your team as well as to management upon request.  Also, the very act of writing procedures allows you to simplify and clarify your thoughts and what you do.
  • Enabling emergency operations – unfortunately, we never know when something major will happen that will keep many employees from getting to the office.  Having documentation allows substitutes or managers to help with disaster recovery.  Disaster may mean anything from a flood to an emergency shutdown of a facility to a blizzard, so it is important to be prepared.  Payroll usually can’t be put off.

How do you create these documents?

Gather a team of your payroll associates and supervisors.  Have a meeting or series of meetings to lay out your processes.  The group effort will bring out more nuance and detail than using just one person’s thoughts.

  • Begin by making a survey of all your team’s responsibilities.  Time collection, funding requests, report generation, employee/customer service requests, and employment verifications – this is a sample list of responsibilities that may fall under payroll’s umbrella.
  • Gather up relevant illustrations – payroll schedules, company information (crucial if you pay under multiple FEIN’s), copies of forms, sample registers (redact where necessary), new hire packages, enrollment forms.  Use these as a map to begin the process of capturing all the steps to completion.
  • Brainstorm with the team and begin making outlines.  If you like, assign each process or procedure to a person or group.  However, don’t let go of them altogether.  Keep a firm meeting schedule with the team until the tasks are completed.
  • Once you have begun, make sure that the team tests the written processes.  Do they actually work the way they are written?  Is a step missing?  Does something need to be deleted?  This is a good exercise in procedure.
  • Identify the look you want for your manual.  A uniform look is best, utilizing the company logo, fonts, etc.
  • Is your payroll outsourced, or SAAS?  Use your system’s documentation for additional material.  Screen shots, tables and other materials will help clarify the meaning of a specific task.
  • Decide the best way to save and distribute your manual – paper, shared drive, email, etc.  You may want to keep a hard copy just in case.
  • Develop a mechanism for change control.  This may entail putting one person in charge of keeping the manual updated, as well as developing version numbers and dating.  This will allow all team members to know that they have the latest version available.
  • This is an important deliverable for your team.  If no one is able to create these documents, try to identify an outside resource – a knowledgeable consultant or simply an experienced writer.  That resource can assist you from beginning to end.

No matter which option you choose, get started today!

Caveat Emptor!

The State of Maryland is scrutinizing all PSP’s (Payroll Service Providers) as the result of a recent case involving a provider, AccuPay, that allegedly mishandled client funds.  The principals, husband and wife Kevin and Beverly Carden, were sentenced to prison terms for wire and mail fraud respectively, in connection with accepting clients’ money for periodic tax filings without actually paying the entire amounts over to the respective Federal and state entities.  Read more about the case here.

“When customers realized that the money they entrusted to AccuPay was not being used as intended to pay their taxes, Kevin Carden misled them with false cover stories,” said U.S. Attorney Rod J. Rosenstein. “What really happened was that Kevin and Beverly Carden took money intended for the IRS and spent it themselves, causing millions of dollars in losses to their customers.”

“It is unacceptable to help yourself to other people’s money and violate their trust,” said Thomas Jankowski, Special Agent in Charge, IRS Criminal Investigation, Washington D.C. Field Office.  “Today’s sentencings serve as reminders that this criminal behavior was inexcusable and IRS-CI is committed to bringing culpable individuals to justice.”

.This case should serve as a reminder to all clients of PSP’s that they are ultimately responsible for their tax filings and payments.  Even if you use a service to outsource your payroll and/or tax filing, you must have procedures in place to verify that your deposits and tax returns have been deposited and filed timely.

Your internal audit and compliance teams must have procedures in place to verify deposits and reconcile them to your bank accounts, as well as to your general ledger.  Its no one’s responsibility except yours.


Escheatment, Abandoned Property and Payroll

The common law principle governing unclaimed property is called “escheat.” Under English common law, it was a rule that returned, or surrendered, property to a lord or to the Crown if no lawful heir could inherit it. The concept of escheatment and abandoned property doesn’t naturally come to mind when dealing with payroll operations.  By definition, though, payroll can have unclaimed and abandoned property.

What it Means for Payroll With the advent of paycards and the long-term use of direct deposit, payroll unclaimed wages are a relatively small problem for many employers.  However, many employers, particularly small business owners, don’t have the wherewithal to offer alternatives to paper checks.  Also, many workers opt out of alternative methods if they don’t have bank accounts.  Paper paychecks are the main source of unclaimed wages for escheatment.

State laws govern unclaimed property, so you’ll need to call or visit the website for each state in which you do business.  Unclaimed property, in this case paychecks, must be held by the employer for a certain period of time and then turned over to the state.  There are many parts to the compliance here, so let’s go through some steps.

  • Keep your payroll bank account reconciliation up to date. This will help you recognize, and flag, outstanding payroll checks.  In the real world, very few paychecks remain outstanding for a long time because most people need their pay.  You can begin contact and inquiry with employees as soon as you see a check older than 1-2 months.  Set up a follow-up system so that you have information at your fingertips when you need it.
  • Understand that the check, once issued, is the property of the recipient – your employee. The employer has no rights to the funds after the check is produced.  Don’t forget – the check is part of the employee’s wages once validated.  You can’t void or reverse it simply because it’s been outstanding for a while.
  • Verify what your bank’s procedures are for paychecks. The checks may be “stale” after two or three months, but many banks will still cash a legitimate paycheck for someone with proper identification.  You’ll probably need to process Stop Payment requests before replacing any of the checks.  This is a best practice in any case; make a habit of processing a stop payment request and receiving verification from the bank before replacing any check.
  • Review your state laws for unclaimed property. Read the rules and know when you can turn funds over to the state.  Once the unclaimed check has passed the timeline of your state’s escheatment law, it then becomes property of the state. Remember: The state to which you should remit the unclaimed wages is the employee’s last state of residence, not necessarily the state in which the employer is located.  The state will then hold the funds until the owner (employee) or legal heirs claim possession of it. Because escheatment laws vary from state to state, you’ll need to contact your local agency to ensure that you’re in full compliance.
  • Know what your communication responsibilities are.  You’ll be required to send written notification to the employee or former employees that they have outstanding checks.  Give the person a chance to contact you and then you can make arrangements to replace the payment.  Keep records of each employee’s residence so you can follow that state’s escheatment laws.  A written procedure guide is the best option, so that anyone can follow the steps for compliance.



Wage Theft Lawsuit – Domino’s

The Attorney General of New York, Eric Schneiderman, has filed a wage-theft lawsuit against Domino’s Pizza.  The suit alleges that the computer system used by the franchiser consistently undercounted hours worked by employees, thereby cheating employees of earned pay.

Since 2011, Mr. Schneiderman has secured more than $26 million for almost 20,000 workers who were bilked of wages.  But unlike past cases, this one directly targets the corporate franchiser. If the state wins, Mr. Schneiderman hopes the case sets a precedent that makes it harder for corporations that run franchise businesses to avoid responsibility for the actions taken by the stores under their corporate umbrella.

“Wage theft is an epidemic causing harm to low-wage workers struggling to support their families every single day,” Mr. Schneiderman said in a statement.

A new twist in this case is that Attorney General Schneiderman has sued Domino’s Pizza L.L.C., instead of individual franchise owners.  The suit alleges that the franchisees were forced to use the accounting system even though they were aware that it was flawed.