MBA News - Deductions

Figure payroll withholding taxes

MBAHRO — Wed, 11 Aug 2010 18:39:00 GMT

Figure payroll withholding taxes

To figure payroll withholding taxes, just follow this guide of steps to take and links to resources.

Employees’s Gross Pay
Minus Required Payroll Tax deductions (including any voluntary deductions)
What’s left is the net pay.

Required Payroll Tax Deductions

Since the payroll taxes have to be withheld from your employees’ paychecks, it’s important to understand the different kinds of mandatory withholdings:

Federal Income Tax (based on the withholding tables based on the Fed’s Publication 15)
Social Security tax withholding (6.2%, up to the annual maximum for that employee)
Medicare Tax (1.45%)
Any applicable state income tax
Any applicable local tax withholdings (like state unemployment insurance, city, county, state disability)

Voluntary Payroll Deductions

Voluntary payroll deductions are ones where the employee has previously agreed to the deduction. These include health insurance premiums, life insurance, retirement contributions, union dues and other expenses related to the work.

Note that the voluntary deduction may be pre-tax dollars, or after-tax, depending on the benefit being paid for. You’ll need professional advice to understanding the distinctions and correct way to calculate these.

Don’t forget to reserve monies to cover the employer payroll tax responsibilities. As the employer, you are responsible for paying the employer’s share of the payroll taxes.

Of course, you’ll also need to plan for the employer’s portion for payroll taxes.

Modern Business Associates is an HR company that focuses on payroll and HR outsourcing. We routinely work with clients to figure payroll withholding taxes. As a Professional Payroll and HR outsource organization, our clients rely on us to help them effectively deal with these kinds of topics.

Employer’s portion for payroll taxes

MBAHRO — Thu, 05 Aug 2010 18:37:00 GMT

Employer’s portion for payroll taxes

After paychecks are sent to employees, your work is only half done. Here’s and explanation of, and how to calculate, the employer’s portion for payroll taxes. These employer taxes are above and beyond your employees’ gross pay.

The employer’s portion for payroll taxes includes these elements:

Social Security (6.2% up to the annual maximum per employee)
Medicare Taxes (1.45% of wages)
Federal unemployment taxes (FUTA)
State unemployment taxes (SUTA)

Note: Social Security and Medicare Taxes are commonly referred to as FICA taxes (Federal Insurance Contributions Act). These are paid for by both the employers and the employees in identical contribution amounts.

In addition to covering the employer’s portion for payroll taxes, read our other article to figure payroll withholding taxes.

Modern Business Associates is an HR company that focuses on payroll and HR outsourcing. As a Professional Payroll and HR outsource organization, our clients rely on us to help them effectively deal with these kinds of topics.

Introduction to pay deductions covered by the Fair Labor Standards Act (FLSA)

MBAHRO — Mon, 19 Apr 2010 17:07:00 GMT

Introduction to pay deductions covered by the Fair Labor Standards Act (FLSA)

The Fair Labor Standards Act (FLSA) establishes, among other things, federal standards for minimum wages and overtime pay that employers are required to follow.
Unless a specific minimum wage and overtime exemption applies, employees must be paid at least the applicable minimum wage for each hour worked and overtime for any hours in excess of 40 hours worked in the workweek.

Employees who do not qualify for an exemption are commonly referred to as "nonexempt employees" and those employees who do qualify are referred to as "exempt employees."

Risks

The issue of improper deductions applies to all employees, both nonexempt and exempt. An improper deduction from either is a violation of the FLSA law and such violations can result in investigations by the United States Department of Labor (DOL) and/or expensive and time-consuming litigation.
As an employer considering taking deductions from any employee's wages, you should be careful to ensure that taking the deduction will not violate the FLSA law.

Conclusion

It is essential that employers exercise care when making deductions from employee pay. For nonexempt employees, deductions may never cause the employee to earn less than the minimum wage and may never cut into pay for overtime hours. For exempt employees, unless a deduction is specifically listed in the CFR, making such a deduction will likely result in a violation of the FLSA and could result in loss of the minimum wage and overtime exemptions. With so much at risk, you should not hesitate to contact employment counsel in making deduction decisions.

Modern Business Associates frequently deals with payrol issues. As a Professional Employee Organization, our clients rely on us to help them effectively deal with these kinds of topics including the FLSA law.

Pay Deductions Quiz: Uniforms for a minimum wage employee.

MBAHRO — Fri, 16 Apr 2010 17:09:00 GMT

Pay Deductions Quiz: Uniforms for a minimum wage employee.

You hire a minimum wage employee to work as a cashier at your auto parts store. The employee signs an agreement to have $20.00 deducted from her first check to cover the cost of a uniform. You then, as agreed upon, deduct $20.00 from the employee's first check to cover the cost of the uniform.

Have you violated any Fair Labor Standards Act (FLSA) requirements?

Here, you have violated the FLSA's requirement that a nonexempt employee be paid the minimum wage for each hour worked. It makes no difference that the employee agreed to the deduction. Because the employee is a minimum wage employee, there was nothing that could legally be deducted from the employee's wage to cover the cost of the uniform. Any deduction puts the employee below the minimum wage level.

Modern Business Associates frequently deals with payroll issues. As a Professional Employee Organization, our clients rely on us to help them effectively deal with these kinds of topics including deductions and minimum wage laws.

Pay Deductions Quiz: Hourly employee drops the computer! Can you get them to pay up?

MBAHRO — Tue, 13 Apr 2010 17:13:00 GMT

Pay Deductions Quiz: Hourly employee drops the computer! Can you get them to pay up?

Your new hourly front desk staff employee is paid $1.00 per hour in excess of the required minimum wage and works 40 hours in the workweek. The employee drops his laptop and breaks a piece off. Your existing policies require employee responsibility, so you deduct $50.00 from the employee's weekly paycheck.

Have you violated any Fair Labor Standards Act (FLSA) requirements?

Yes. Under the FLSA, the employer could theoretically deduct up to $40.00 to cover some of the loss because the employee has earned $40.00 in excess of the required minimum wage during the workweek. However, once the employer has deducted any earnings in excess of the minimum wage, no further deduction can be made without violating the FLSA.

Pay Deduction Quiz: Aprons for the hardworking cook.

MBAHRO — Tue, 06 Apr 2010 17:16:00 GMT

Pay Deduction Quiz: Aprons for the hardworking cook.

A cook earns $10.00 per hour and works 45 hours in the workweek. Therefore the cook will have wages of $400.00 in regular pay and $75.00 in overtime pay. The employer reasons that the cook earns well above minimum wage and decides to deduct $5.00 from the cook's weekly paycheck for a replacement apron and hat although the cook has not agreed in advance to the deduction.

Have you violated any FLSA requirements?

Probably. Note that the deductions may not cut into any pay for overtime hours. Deductions made during weeks when overtime is worked will be particularly scrutinized to ensure that the employer is not attempting to evade the overtime requirements of the FLSA.

Pay Deductions Quiz: Uniforms for a minimum wage employee.

MBAHRO — Sun, 28 Mar 2010 18:30:00 GMT

Pay Deductions Quiz: Uniforms for a minimum wage employee.

Have you violated any Fair Labor Standards Act (FLSA) requirements?

Tax credits mean good news for employers!

MBAHRO — Tue, 23 Mar 2010 22:47:00 GMT

Tax credits mean good news for employers!

On March 18, 2010 President Obama signed into law the Hiring Incentives to Restore Employment Act (HIRE Act). The HIRE Act carries two significant tax incentive components for employers: a Social Security tax forgiveness and a retention tax credit. The first starts immediately for employers hiring qualified employees through the remainder of 2010 and the second can be earned by employers who retain qualified employees for a minimum of 52 consecutive weeks. The following is an overview of how both incentives work.

Social Security Tax Forgiveness:

Employers will receive a 6.2% Employer Social Security Tax Exemption on wages paid to “qualified employees” after March 18, 2010 and before January 1, 2011, up to the Social Security maximum of $106,800. The maximum credit per qualified employee is $6,621. To be a qualified employee the new employee must:

· Start work after February 3, 2010 and before January 1, 2011.

· Be previously unemployed and not have worked more than 40 hours within the 60 days prior to the employee’s start date.

· Not replace current employees unless former employees were terminated for cause or left employment voluntarily.

· Not be related to the employer

Qualified employees may work less than full time hours, and under certain circumstances, may be rehired from a previous lay off. To obtain maximum tax savings per employee it is in the best interest of the employer to hire qualified employees as early in the year as possible as the exemption stops on wages paid after January 1, 2011. As an example, if an employee earning $40,000 annually is hired on April 1, 2010, the Social Security tax savings to the employer would be approximately $1,900. If the same employee was not hired until August 15, 2010, the savings would be cut approximately in half to $950. Social Security tax forgiveness can be used to offset scheduled tax deposit liabilities beginning April 1, 2010 and accrue with each payroll processed. Although the details on documenting qualified employees are still being worked out we wanted to provide an overview of this legislation now. We will continue to monitor and provide updates as additional information becomes available.

Retention Tax Credit:

As another benefit for retaining employees who qualify for Social Security tax forgiveness, the HIRE Act provides up to a maximum $1,000 tax credit to employers for each qualified retained employee as a Section 38(b) business tax credit. The credit is the lesser of 6.2% of wages or $1,000. To be eligible for the credit the qualified retained employee must:

Be employed for 52 consecutive weeks. There is no provision for prorating the credit.
Earn wages during the last 26 week period that are at least 80% of the wages for the first 26 week period.

These tax credits will be available to be taken on employers’ 2011 income tax returns. The HIRE Act does not allow carry back of any unused Section 38 business tax credits that are attributable to the provision for retaining workers. Finally, the Congressional Record makes clear that a PEO client is entitled to the retention credit.

Modern Business Associates appreciates your business and is available to assist as you navigate through these significant legislative changes. We look forward to continuing to support your organization’s payroll, employment tax, workers’ compensation and human resources needs. While we focus on these areas, you can concentrate on your core business needs and goals.

Should you have any questions, please do not hesitate to contact us.

Payroll deductions should include state income tax and payroll insurance deductions

MBAHRO — Wed, 17 Mar 2010 22:52:00 GMT

Payroll deductions should include state income tax and payroll insurance deductions

As a Professional Employee Organization, our clients ask us to handle their payroll responsibilities including two of the most talked about deductions: their state income tax and payroll insurance deductions.

The state income tax is part of the statutory payroll tax deductions.

As required by law, statutory Payroll Tax Deductions are payroll taxes that must be withheld from your employees paycheck. You must hand these withholdings over to the multitude of tax agencies on all levels of government.

Local tax withholdings (city, county, or school district taxes, state disability or unemployment insurance).
State income tax withholding
Federal income tax withholding
Social Security tax withholding
Medicare tax withholding

The payroll insurance deductions are part of the Voluntary Payroll Deductions

Voluntary deductions pay for various benefits which the employee has chosen to participate in. Voluntary payroll deductions are withheld from an employee's paycheck only if the employee has agreed to the deduction.
Voluntary payroll deductions include the following:

Retirement plan contributions (such as a 401k plan)
Health insurance premiums (medical, dental, and eyecare)
Life insurance premiums
Meals, uniforms, union dues and other job-related expenses
Employee stock purchase plans (ESPP and ESOP plans)

Voluntary deductions can be paid with pre-tax dollars or after-tax dollars, depending on the type of benefit being paid for.

As a business owner, decisions you make about state income tax and payroll insurance deductions issues are important ones to make correctly. Always consult with your HR advisors when these issues come up.

At Modern Business Associates, we deal with state income tax and payroll insurance deductions as a daily part or our business. Our clients outsource their payroll processing to us. We take pride in working with our St. Petersburg and Tampa clients, as well as clients from across the nation. Please contact us for more information about utilizing an HR company and any specific questions about our services. Our goal is for you to make the best informed decision for your St. Petersburg or Tampa-based company.

You make the call: Is this gas station employee non exempt, vs exempt?

MBAHRO — Thu, 11 Mar 2010 23:00:00 GMT

You make the call: Is this gas station employee non exempt, vs exempt?

Two decisions from different federal appellate courts illustrate the potential uncertainty in classifying an employee as an exempt employee. You make the call: Is this gas station employee non exempt, vs exempt?

In Thomas v. Speedway SuperAmerica, LLC1, the court pondered whether the store manager of a chain of gas station-convenience stores was properly classified as an exempt employee.

The key issue in the case was whether the employee's primary duty was management.

She spent approximately 60 percent of her time on non-managerial tasks such as stocking merchandise, sweeping floors, cleaning bathrooms, operating the register and clerical duties.
However, she also hired, trained, disciplined, scheduled and evaluated employees.
She recommended increases, most of which were approved, and terminated some employees without prior approval from her district manager.

Is this gas station employee exempt?
Based on these facts, the court concluded that the employee's primary duty was management and that she qualified as an exempt-executive employee.

In Rodriguez v. Farm Stores Grocery, Inc., the court considered whether managers for a drive-through grocery store chain were non-exempt employees.

The issue in this case turned on whether the employees' primary duty was management.

One store manager testified that in a typical week, he spent an average of 30 percent of his time cleaning, 50 percent on customer attention or service, 10 percent on merchandise receiving and 10 percent on stocking merchandise.
Other managers conceded that they spent some time each week on managerial tasks, but all insisted it was not the majority of their work.
The store managers further testified that they lacked authority and discretion over their stores and employees. For example, evaluation forms they signed were actually completed by district managers and they had to seek permission from a district manager before making management decisions.

Is this gas station employee exempt?

Based on these facts, the appellate court found that the jury reasonably concluded that the store managers' primary duty was not management. Therefore, these employees were entitled to overtime pay.

Whether a given employee is properly classified as exempt is a factual determination. Effective Aug. 23, 2004, the DOL issued new regulations governing the white-collar exemptions. While the cases outlined here apply the older regulations (because few appellate court cases have been decided under the new regulations), the issue of whether management is the primary duty of an exempt employee remains crucial under the new regulations. In both cases, however, the courts refused to adopt an across-the-board rule that any employee who is responsible for a store location must come within the executive exemption.

Modern Business Associates deals with the non exempt vs exempt employee issues including keeping updated on recent statues and case law. As a Professional Employee Organization, our clients rely on us to help them effectively deal with these kinds of labor standards act issues.

Employer Payroll Taxes – How to stay out of trouble

MBAHRO — Wed, 10 Mar 2010 23:03:00 GMT

Employer Payroll Taxes – How to stay out of trouble

Many growing companies have questions like, “How do employer payroll taxes work?” At Modern Business Associates, many of our small clients come onboard with our payroll processing to let us handle their entire payroll processing burden, which includes payroll taxes. Our systems are set up to ensure your business does not get into trouble by missing withholdings or taking the wrong amounts.

As background, you should know that employer payroll taxes are the state and federal taxes that you, as an employer, are required to withhold and/or to pay on behalf of your employees.

After having each new employee complete their IRS form W-4, we’ll use this information to calculate the amount of federal income tax to withhold from the employee’s wages. Most all of the states have income tax structures that are based on the federal blueprint, so you will use the same W-4 to calculate the amount of state income tax to withhold as well.

You are also required to withhold social security and Medicare taxes from your employees' wages.

Social security and Medicare taxes (FICA taxes) must be withheld from your employees' wages.

You are required to withhold the social security taxes from the employee’s wages, and to pay a matching amount in social security taxes until the employee reaches the wage base for the year. At higher salary levels, there is a cap on the total amount of social security tax per year that must be paid per employee.

You will withhold the Medicare portion of the FICA tax and pay a matching amount. There is no cap for the Medicare portion of the FICA tax. Both the employer and the employee continue to pay Medicare tax, no matter how much is earned.

Employer payroll taxes also include State and Federal unemployment tax.

The employer also must pay State and Federal Unemployment Taxes (SUTA and FUTA). There may be some tax credits available for some businesses for the FUTA amounts.

Generally, your SUTA tax rate is based on the amount of unemployment claims that are filed by employees that you have terminated. Generally, when your business is brand new, your SUTA tax rate is at its most, and declines as you build a history of few unemployment claims.

Modern Business Associates is an outsource company that deals with payroll processing and employer payroll taxes all the time. If you are considering a payroll company, why not call us to help answer your questions and offer important information for making this kind of decision?