CHAPTER 1

THE NEED FOR THE NEED FOR PAYROLL & PERSONNEL RECORDSPAYROLL & PERSONNEL RECORDS

Many Laws Affect Payroll

Fair Labor Standards Act of 1938 State minimum wage and maximum

hour laws Federal Insurance Contribution Act (FICA) Income tax withholding laws

Federal, state and local Unemployment tax acts Fair employment laws Other federal and state laws

Fair Labor Standards Act

Federal Wage & Hour Law of 1938 Minimum wage ($6.55/hour) plus overtime

Fair Minimum Wage Act of 2007 raises to $7.25 by July 24, 2009

Equal pay for equal work provisions Sets law for companies involved

in interstate commerce or in production of goods/services for

interstate commerce Requires payroll records be maintained

State Minimum Wage & Maximum Hours Laws

Established minimum wage rates for specific industries

Employees covered by both federal and state laws receive the higher hourly rates

State minimum rates and regulations vary

(www.dol.gov/esa/minwage/america.htm) to see minimum wage by state

Federal Insurance Contribution Act (FICA)

Comprised of two taxes paid by employers (ER) and employees (EE) OASDI (Old Age, Survivors & Disability)

6.2% with a cap that changes each year ER and EE pay

HI (Hospital Insurance, part of Medicare) 1.45% with no ceiling ER and EE pay

SECA (Self Employment Contributions Act) applies to self employed people

Income Tax Withholding Laws

Federal income tax Levied on earnings of employees Income tax is withheld from paychecks

State and local income tax Income tax is withheld from paychecks Different in each state

Unemployment Tax Acts

FUTA (Federal Unemployment Tax Act) ER tax –paid on $7,000 per EE per year Taxes used to pay state and federal

administrative expenses, not used to pay unemployment benefits

SUTA (State Unemployment Tax Act) Mandatory unemployment insurance - each

state has different laws SSA outlines what kinds of standards each

state’s unemployment compensation law must follow

Used to pay unemployment benefits

Fair Employment Laws

Title VII of the Civil Rights Act of 1964 EEO (Equal Employment Opportunity)

Can’t discriminate in hiring, firing, promotion or compensating based on color race religion national origin gender

Gender orientation added in certain statesSee http://www.eeoc.gov/ for more information

The Age Discrimination in Employment Act (ADEA)

ADEA states employers cannot use age to discriminate against hiring/firing/promoting Applies to employers with 20+ employees Exception to rule is

Executives aged 65 or over and Who hold key strategic decision-making

positions for prior two-year period Can face mandatory retirement if annual pension

from ER will be at least $44,000

Americans with Disabilities Act (ADA)

Prevents employers with 15 or more employees from discriminating against disabled employees and job candidates based upon disability

“Reasonable accommodation” must be provided This is a very vague term and subject to

court interpretation

Personal Responsibility & Work Opportunity Reconciliation Act

Requires employers to report all new hires within 20 days to state agency Records coordinated through Office of

Child Support Enforcement (OCSE) Fines levied for failure to report A few states now require same from

independent contractors

Immigration Reform and Control Act (IRCA)

Bars hiring and retaining aliens unauthorized to work in U.S.

Accomplished by employee completing I-9 within 3 business days of employment (or termination may result)

U.S. Citizenship & Immigration Services may audit and levy penalties Criminal penalties where discriminatory

practices are found

Family Medical Leave Act (FMLA)

Covers companies with 50+ employees within 75 mile radius

EE guaranteed 12 weeks unpaid leave for Birth, adoption, critical care Can use for child, spouse or parent

Leave may be used all at once or at separate times – but must be within 12 months of qualifying event

ER continues health care coverage Right to return to same/comparable job and

continue health coverage in absence

Uniformed Services Employment & Reemployment Rights Act

Military personnel given right to take leaves of absences from civilian jobs Right to return to prior jobs with seniority

intact Health benefits must be started without

a waiting period Doesn’t apply if dishonorably discharged

Employee Retirement Income Security Act (ERISA)

Trustees must monitor pension plans Vested 100% in 3-6 years

Example of a vesting plan Years of % Vested in Service Pension Plan

2 50%

4 75%

5 100% Provides for PBGC Pension Benefit Guaranty Corporation - a federal agency which guarantees benefits to employees

Stringent recordkeeping requirements

State Laws

Workers’ Compensation Most states require employers to pay

workers compensation premiums Can self insure if state approved Different premiums based upon job class

State Disability Benefit Laws A few states have established laws requiring

employers to provide disability benefits to employees that become disabled

This applies even if the disability did not arise due to employment!

Human Resource System

FLSA requires stringent personnel record- keeping

Pre-hire inquiries like application/screening document design and retention also critical No questions alluding to religion, gender, race,

age or national origin Unless implicates ability to perform job (for

example, bilingual capabilities) If application asks age/birth date, should

contain ADEA language notifying candidate of anti-discriminatory provisions

Human Resource System (continued) Reference Checks

Due to amount of litigation in this area, respondents should only verify facts (not offer subjective information)

Really diminishes credibility of reference inquiries Prospective ER may require applicant to sign

“Employment Reference Release” Interview records should be written/retained Employee history record contains performance

evaluations, compensation adjustments, disciplinary issues, etc.

Critical area – employment related litigation is very expensive and often times avoidable

Payroll Accounting System Payroll Department documentation

Change in payroll rate form notifies proper departments of rate change

Payroll Register compiles data per paycheck EE Earnings Record outlines earnings per period,

quarter-to-date and year-to-date for each EE Paycheck

Paycheck or direct deposit Outsourcing Payroll

Many small to mid-sized businesses hire a payroll company to do their processing

This independent company responsible for compliance and can quickly and efficiently process payroll