Tag: payroll penalties

Posted on Mar 30, 2018

Every company or organization will have different needs for payroll administration based on business and compensation structures, benefit offerings, the specific industry and the state and local tax laws. While determining a good fit for outsourced payroll, anticipate how much time the set-up of such services could take. A long set-up time and possible mistakes could have a significant impact on business management and employee morale. Rather than having our clients input all of their data, we walk them through the data collection process. We also provide consultation on areas where the company has had questions or problems, such as garnishment deductions or shareholder compensation. We alert them to any changes in wage and hour laws or multi-state laws that could affect them.

Our goal is to limit client exposure to penalties as we manage payroll. Common questions include:

  • Structure of the payroll
  • How often employees are paid
  • Direct deposit or by check (or both!)
  • Structure of the company and number of offices and employees
  • Location of offices (multi-state?)
  • Types of benefits
  • Unusual deductions
  • Unusual compensation

Collecting this information up front allows us to help clients design an outsourced model that makes sense for them, and doesn’t leave them trying to figure it out for themselves. We find that some clients like to manage parts of the payroll and benefits process themselves, while other parts are best handled through outsourcing.

The Outsourced Payroll Onboarding Process

As a CPA firm dedicated to payroll administration and consulting, Cornwell Jackson has onboarded new clients in less than a month depending on the level of payroll complexity. Our goal is always onboarding within 30 to 45 days. We typically recommend that companies convert at the beginning of a new quarter or pay period — or at year-end — to make the transition align with financial reporting deadlines. A typical onboarding process with our firm looks like this:

  • Client consultation to design the outsourced model
  • Client data gathering
  • Buildout of the payroll account
  • Payroll set-up checklist to cover all items

Once your company has an efficient model for payroll administration, it is much easier to adjust items as needed through the year. For example, we run across a lot of questions regarding personal use of a company-owned vehicle as a benefit. The ratio of personal use must be calculated for the employees’ W-2s and the benefit run properly through payroll. New hires and promotions also bring with them a wealth of payroll questions, but are more easily handled with an efficient system.

When your CPA is in touch with daily business realities through payroll administration, the long-term value extends beyond payroll accuracy. A dedicated team can consult with you on decisions such as when to hire more employees, when to adjust tax planning and cash flow strategies and timing of bonuses. Payroll efficiency even ties into business valuations as a consideration of overall processes and systems in place to run the business.

Payroll is the most up-to-date KPI in a business — and the most expensive.  Business owners we talked to are more than happy to find ways to save money in this area. Are you ready to consider an alternative to your current system of payroll administration? Call the payroll team at Cornwell Jackson.

Download the Whitepaper: With Payroll Outsourcing, Don’t Go it Alone

Scott Bates, CPA, is a partner in the audit practice and leads the firm’s business services practice, which includes a dedicated team for outsourced accounting, bookkeeping and payroll services. He provides consulting to clients in healthcare, real estate, auto, transportation, technology, service, dealerships and manufacturing and distribution. Contact Scott at scott.bates@cornwelljackson.com or 972-202-8000.

Blog originally published May 13, 2016. Updated on March 30, 2018. 

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Posted on Mar 20, 2018

Payroll Outsourcing

For many small businesses, payroll may be handled in-house. And yet, the laws and regulations surrounding employee compensation and benefits can challenge owners and back office staff to stay efficient and compliant. Payroll ties directly into individual and company tax reporting as well as employee benefit compliance. If and when companies choose payroll outsourcing, they must weigh the potential benefits against the ability of the payroll provider to deliver a high level of customer service and communication. Companies and industries differ on how they structure payroll and benefits. Laws and regulations also vary state by state. Consulting on payroll structure, schedules, regulatory changes and reporting, therefore, should be part of the relationship while still being cost effective for the company. It’s helpful to start this discussion with your CPA.

What to Ask your CPA about Payroll Outsourcing

Some CPA firms offer payroll administration as part of basic or strategic Payroll Outsourcing WP Downloadaccounting services. The level of administration and services vary widely. The potential benefit of having your CPA firm handle payroll administration, however, is that the team understands the world of taxes and accounting. They can streamline payroll reporting, deposits and filing schedules into the audit or tax deadlines they already handle for the business.

However, not every CPA firm offers payroll administration. Due to its complexity, it’s also important that the firm has a staff of professionals dedicated to this area of your business. If, in fact, the firm offers a focused niche in payroll administration and consulting, there are several benefits to the arrangement:

  • Expanded resources to monitor new compliance issues
  • Reduced overhead costs (assuming a packaged engagement with other services)
  • Multi-state payroll experience
  • Corrected instances of overpayment or underpayment
  • Managed filing and payment schedules with IRS, state and local tax authorities
  • Limited client exposure to potential penalties
  • Consulting on software options and efficient payroll structures
  • Streamlined communication with other tax, audit and business needs

At Cornwell Jackson, we offer payroll administration and consulting services to our clients. We have invested in software and training for a team dedicated to this service, including certification as a CPP through the American Payroll Association.

The need was evident after too many instances of misclassification 1099 errors as well as W2 mistakes at tax time. We also noted mistakes in HSA and life insurance reporting and general improper reporting of cash and non-cash benefits. Our clients were paying for payroll administration, and then paying our firm to fix mistakes. We realized that our experience could help reduce or prevent problems before they even happen — and reduce our clients’ expenses.

After investigating the value our firm could provide in this area, we learned about many differences between payroll providers. When discussing payroll administration with your CPA firm or an outsourced service, there are several questions you should ask:

  • How much experience does the provider have in payroll administration — and is there a dedicated team?
  • Will the team walk you through data collection and set-up or are you on your own?
  • Who is your go-to contact to ask questions about liabilities or deadlines?
  • Is the provider NACHA compliant for ACH direct deposits?
  • Can you arrange for payroll tax payments on a schedule that supports cash flow along with compliance?

This last question is an important business consideration that most companies don’t know about. Some payroll services withdraw all funds from the business account for payroll transfers and taxes all at once, even if taxes aren’t due for a few weeks. If your receivables come in the first week of the month and payroll taxes are due on the 15th of the month, you can schedule payments in a way that supports cash flow while still being compliant. In addition, payroll services may not provide guidance on industry-specific issues like auto dealer comps or law firm shareholder bonuses, for example. Business owners must carefully consider the level of expertise a provider has in your industry.

Payroll is the most up-to-date KPI in a business — and the most expensive.  Business owners we talked to are more than happy to find ways to save money in this area. Are you ready to consider an alternative to your current system of payroll administration? Call the payroll team at Cornwell Jackson.

Continue Reading: Outsourced Payroll Onboarding: Build in time for transition and results

SB HeadshotScott Bates, CPA, is a partner in the audit practice and leads the firm’s business services practice, which includes a dedicated team for outsourced accounting, bookkeeping and payroll services. He provides consulting to clients in healthcare, real estate, auto, transportation, technology, service, dealerships and manufacturing and distribution. Contact Scott at scott.bates@cornwelljackson.com or 972-202-8000.

Blog originally published April  18, 2016. Updated on March 20, 2018. 

 

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Posted on Mar 8, 2018

Payroll Outsourcing and Payroll Administration

There is a common story we see across small businesses of all sizes. Owners and operators of the company are focused on top line growth, hitting the pavement to bring in new business. They add employees to support the new business growth. They add benefits to keep those great employees. Before realizing it, the owners and small bookkeeping staff are overwhelmed with benefit and payroll administration. Is the company doing it right? Do owners and employees know what they don’t know?

At this point, the owners seek advice from other business owners and their CPA. Would outsourcing payroll make sense or should they add in-house staff to manage it better? After reviewing a few payroll services, the company is understandably faced with more questions about which service provides the best options — not to mention price.

Once decided on a payroll service, the real education begins. The company is still providing a lot of information to the payroll service to set up the structure and system, such as personnel information, their employment status, types of benefits and how each employee wants those wages and benefits managed through payroll. Later, staff also must reach out when there are new hires, promotions and changes to benefits. Depending on the payroll service, owners and operators might not get a lot of help understanding everything. They are also on their own to figure out internal processes that make information gathering and sharing simpler.

Let’s say the business expands even more to another state. Then the owner is faced with multi-state payroll complications. Although the solution to a well-managed payroll and benefits system takes time and strategy, the opportunity to address payroll complexity first lies with your CPA. This relationship can either simplify or increase complexity, so let’s look at some of the payroll pitfalls and questions every business owner should consider.

Pitfalls of Poorly Managed Payroll Administration

Businesses can face serious fines and penalties from the Internal Revenue Payroll Outsourcing WP DownloadService and other tax authorities for failing to comply with timely payments and reporting. At a minimum, employers must account for federal income tax, federal and state unemployment tax, Social Security and Medicare. Many companies have run into trouble in the areas of paying unemployment taxes, making late payroll deposits, incorrectly classifying employees as independent contractors on 1099s and assuming that depositing payroll is the same as reporting.

Penalties can be classified and pursued as “failure to deposit,” “failure to pay” or “failure to file.” Worst-case scenarios if payroll issues aren’t resolved could include losing the business and/or being charged with a federal crime. Individual shareholders and even corporate officers can be pursued and assessed penalties under certain circumstances.

The Department of Labor’s impending changes to overtime exemption rules are creating even more angst in the area of wage and hour compliance. Employees previously exempt from overtime rules may now be considered non-exempt, leading to the need to track overtime hours and communicate possible changes in benefits. It may even require employers to dictate how employees can take time off or how they work outside of normal business hours. These changes tie directly into payroll administration and tax planning.

On the benefits side, employers can offer a variety of things to compete for talent as well as help employees work efficiently. Properly classifying these benefits and properly withholding for pre-tax or taxable benefits simply adds to the complexity. Handle something wrong, and you will have compliance problems as well as upset employees.

It is fair to say that payroll administration and compliance is a big deal, and the decision on whether or not to outsource should not be taken lightly.

Payroll is the most up-to-date KPI in a business — and the most expensive.  Business owners we talked to are more than happy to find ways to save money in this area. Are you ready to consider an alternative to your current system of payroll administration? Call the payroll team at Cornwell Jackson.

Continue Reading: Things to Ask your CPA about Payroll Outsourcing

SB HeadshotScott Bates, CPA, is a partner in the audit practice and leads the firm’s business services practice, which includes a dedicated team for outsourced accounting, bookkeeping and payroll services. He provides consulting to clients in healthcare, real estate, auto, transportation, technology, service, dealerships and manufacturing and distribution. Contact Scott at scott.bates@cornwelljackson.com or 972-202-8000.

Blog originally published April 6, 2016. Updated on March 8, 2018. 

 

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Posted on May 25, 2016

Retaining Payroll Records

As if payroll record retention and recordkeeping wasn’t already difficult enough, another layer of complexity has been added by the Affordable Care Act (ACA).

Now that the ACA rules are firmly in place, here’s a brief rundown of several areas of concern for record retention. This list is based on information provided by the IRS, the Social Security Administration (SSA) and the Department of Labor (DOL).

ACA Requirements

The IRS administers health insurance coverage requirements under the ACA. The law currently requires employers with 50 or more full-time employees or full-time equivalents to provide at least minimum essential coverage. For the IRS, employers must file these informational forms:

  • 1094-B, Transmittal of Health Coverage Information Returns,
  • 1099-B, Health Coverage,
  • 1094-C, Transmittal of Employer-Provided Health Insurance Offer and Coverage Information Returns, and
  • 1095-C, Employer-Provided Health Insurance Offer and Coverage.

Employers should retain copies for at least three years or be able to reconstruct the data for that time period.

Federal Income Tax and FICA Requirements

Wages are subject to both federal withholding and Federal Insurance Contributions Act (FICA) taxes. The Social Security tax portion of FICA is equal to 6.2% of the first $118,500 of wages in 2016. The Medicare tax portion is equal to 1.45% on all wages.

Generally, employers must retain income tax and FICA tax records for at least four years from the date of the employee’s tax return due date. They must also keep information regarding wage continuation payments that the employer or a third party makes under an accident or health plan. This information should include the start and end dates of the time off from work and the amount and weekly rate of each payment.

Copies of documents filed on paper or electronically must be kept for at least four years after the tax return due date or, if later, the date the tax is paid. This includes the entire Forms 941 series and any W-2 forms sent but returned as undeliverable. It is permissible to destroy original W-2 forms if they can be electronically reproduced.

Employers filing claims for refunds, credits or abatements on income and FICA taxes, must hold on to related documents for at least four years. Companies with health insurance, cafeteria, educational assistance, adoption assistance or a dependent care assistance plan providing tax-free benefits must keep records establishing that the plans meet statutory requirements.

Finally, employers in businesses that require tip reporting must keep records substantiating any information returns or employer statements on tip allocations for at least three years after the return or statement is due.

FUTA Requirements

Under the Federal Unemployment Tax Act (FUTA), employers must withhold amounts for unemployment payments. The FUTA rate is 6% on the first $7,000 of wages, but can be reduced by as much as 5.4% for credits on contributions to state unemployment programs.

Employers must retain records for four years from the later of either the date they file Form 940, Employer’s Annual Federal Unemployment (FUTA) Tax Return or the date they pay the tax. The records should include:

  • Compensation paid to employees during the year,
  • Compensation subject to FUTA tax,
  • State unemployment payments (separating out any employee contributions),
  • All information on Form 940, and
  • Any difference between total compensation and the taxable amount.

Note: Currently, only Alaska, New Jersey and Pennsylvania require employee contributions.

FLSA Requirements

The Fair Labor Standards Act (FLSA) governs minimum wage and overtime pay rules. Employees must be paid at least the minimum wage and one and one-half times their regular rates of pay for overtime unless they are exempt.

Every covered employer must keep certain records for each non-exempt worker. Generally, these records should include the employee’s full name, Social Security number, address, birth date if younger than 19, sex and occupation, as well as:

  • Time and day workweek begins,
  • Hours worked each day,
  • Hours worked each week,
  • Basis on which wages are paid,
  • Regular hourly pay rate,
  • Total daily or weekly straight-time earnings,
  • Total overtime earnings for the week,
  • Additions to or deductions from wages,
  • Total wages paid each pay period, and
  • Date of payment and pay period covered

Records on which wage computations are based, such as time cards and piecework tickets, wage rate tables, work and time schedules and records of additions to or deductions from wages need to be kept for only two years. The remaining records should be held for at least three years.

Your CJ Payroll adviser can help ensure that you follow all the rules for retaining payroll records.

The Annual Payroll Tax Forum

The American Payroll Association (APA) is touting its mid-year Payroll Tax Forum.

This is a one-day course the not-for-profit group is offering in 18 cities from June 13 to June 24. The forum will focus on the latest payroll-related changes from Congress and various federal agencies.

Scheduled topics include:

  • Health insurance data reporting required by the Affordable Care Act (ACA),
  • Taxation and reporting of executive employee compensation,
  • Preparation for a proposed increase to the white collar exemption minimum salary requirement, and
  • Planning for the accelerated W-2 and 1099 filing dates.

The program will also include reviews of recent legislative and regulatory changes, the annually adjusted wage bases and benefit limits, as well as a discussion of revisions to IRS forms and publications. The forum is open to anyone involved in an organization’s payroll. More information is available at the APA website.

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