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.
A federal judge in Texas has issued a nationwide order preventing the U.S. Department of Labor from increasing the “white collar” exemption salary minimum to $913 per week December 1. This order remains in effect until the court case filed by multiple states and jurisdictions goes to trial.
In New Jersey, the Governor has eliminated the earlier action on Pennsylvania residents. You’ll remember that we previously reported on the cancellation of one portion of the reciprocal agreement between the states.
The Governor’s action resumes the current practice of allowing cross-state withholding. Pennsylvania residents working in New Jersey can continue to have Pennsylvania income tax withheld from their pay, while New Jersey residents working in Pennsylvania can continue to have New Jersey tax withheld from their Pennsylvania income.
The reason for the about face? New Jersey was able to negotiate a better pharmacy plan for their health care plans, thereby saving enough money to allow the reciprocity to continue.
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.
California EITC (Earned Income Tax Credit)
The state of California requires that a separate notice be sent to employees advising them to file for the Federal Earned Income Tax Credit if they are eligible. Effective with this year end, California employers must also advise their employees that they may be eligible for the California Earned Income Tax Credit. This credit is offered in addition to the Federal Earned Income Tax Credit. Form FTB-3514 plus a California Income Tax return will assist any eligible taxpayer. See more about this credit here.
Ohio FUA Repayment
The state of Ohio has repaid its FUA (Federal Unemployment Account) loan balance. These loans are available to states that have depleted their unemployment account balances. As long as Ohio does not borrow any more money from the fund before the deadline of November 10, 2016, Ohio can avoid being a FUTA credit reduction state for the 2016 reporting year. This would mean that Ohio employers would be able to take the full FUTA credit of 5.4% as long as all of their state unemployment returns were filed and paid timely during 2016.
If you’re an employer, you’ll need to be looking out for changes, new rules, and any other compliance measures for year-end 2016. We’ll be supplying a round-up of these in our blog posts over the next few weeks.
Social Security Wage Base for 2017
The Social Security Administration has released the wage base for 2017. Please see the fact sheet here.
The wage base will be $127,200, an increase of $8,700 from the 2016 base of $118,500. The total amount withheld from employees will be $7,886.40, an increase of $539.40 from $7,347 in 2016. As in previous years, all Social Security deductions are matched by you, as the employer. This year again, there is no cap on Medicare withholding for employees or employers.
W-2 Filing Deadline – are you prepared?
REMINDER: The due date for filing 2016 W-2 Forms is January 31, 2017. We discussed earlier this year the fact that the Federal government and many state governments have accelerated the W-2 filing deadlines in an attempt to stem tax return fraud. Here’s a link to a useful fact sheet that will put this information at your fingertips.
Make sure your calendar is updated. See you soon.
Governor Christie of New Jersey has eliminated the reciprocal agreement between the states. What this means is that the Pennsylvania residents who work in New Jersey will no longer have Pennsylvania income tax withheld from their paychecks, unless it is an additional courtesy by their employers.
Effective in 2017, Pennsylvania residents working in New Jersey will need to pay any Pennsylvania income taxes individually, either on a quarterly basis or at year end.
There is much talk of this being purely a politically-motivated change. Payroll practitioners will not discuss those issues, but have to gear up for a change in their withholding routines for 2017. New withholding forms will be required from the over 40,000 Pennsylvania residents working in New Jersey.
The income tax rates differ between the two states; a flat income tax of 3.07% is now in force in Pennsylvania, while a graduated tax ranging up to almost 9% is in effect in New Jersey. The reciprocal agreement dates back to 1977.
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!