Payroll

Travel Expenses
Travel Expenses: What You Need to Know 1024 577 LaDonna Kearney

Travel Expenses: What You Need to Know

Travel Expense Reports Are a Dreary Task

What is reasonable when it comes to expensing travel? Research from Certify, a company that tracks travel and expense claims, revealed some provocative items: One marketing department actually approved an employee renting a llama for $150 to accommodate a photographer’s request; one employee boarded a pet snake for $30 a day; and one salesperson transporting pungent garlic samples requested (but was denied) a separate $85 room for the samples. So, what’s considered reasonable?

What will and won’t raise eyebrows?

Employers can circumvent the issue of legitimate expenses by following a predetermined per diem amount for travel. It serves as an alternative to expense reports or can be used in combination with them. Short-term temps or substitutes, like teachers, may also file expense reports.

Companies follow different guidelines for establishing their per diem allowances. Private firms can structure them in line with federal mandates for government employees — typically, the General Services Administration for domestic rates and the U.S. Department of State for international travel. Per diem rates consider varying costs among locations; for example, it is more expensive to eat out in San Francisco than in Wichita, Kansas. Also, industries have varying expectations for business expenses. The time of year is another factor, as seasonal rates range widely.

Whether included in a per diem allowance or charged separately, the following expenses are normally acceptable, within reason:

  • Lodging (hotels, Airbnbs, private rentals, short-term apartments).
  • Gas and tolls for driving.
  • Taxis to and from airports, stations, conferences, lunches or client offices.
  • Internet access on flights or in hotels.
  • Printing and copying services when away from home.
  • Laundry and dry cleaning.
  • Checking luggage.
  • Meals, including room service.
  • Tips.
  • Visa fees.
  • Travel accident or travel medical insurance.

The following are generally out of bounds:

  • Museums and personal entertainment.
  • Alcohol (unless entertaining clients).
  • Flight upgrades.
  • Child care or pet sitting.
  • Parking tickets.
  • Lost luggage.
  • Late/cancellation fees.

There is a key distinction between an employee’s daily commute and a journey to a different city. Business travel may include meeting clients or partners, attending events or conferences, visiting the company’s other offices, conducting research or making presentations.

When expenses do not fit into standard formats, companies may resort to out-of-pocket reimbursements.

Per diems versus itemized expenses

Per diems make life easier for companies and employees. Busy workers are thankful not to have to sort out receipts and document each outlay. They also offer predictability and flexibility, as employees themselves make spending choices. Plus, a generous expense account creates loyalty and attracts talent.

On the company’s side, per diems simplify expense tracking, which consumes time and effort when vetting expenditures and requires paperwork. They may help control costs by encouraging employees to be more frugal than if using plastic — it is too easy to pull out a credit card. They are also usually tax deductible for the employer, but be sure to have your accountant review any questionable matters.

Sometimes partial per diems can apply when traveling workers spend some of the first or last day in the office. And this story has an important buried lead: Employees normally do not need to return unused per diems!

Specify the process

Spell out guidelines and procedures in a policy document for all employees. In addition, create an expense form for them to fill out.

You can tackle common concerns up front. For example, do executives travel in business class? How much luggage can they take? (One regular suitcase and one carry-on are customary.) Do employees need approval to book their own transportation? Can they use their own noncompany-issued credit cards? If possible, specify amounts appropriate for different destinations. Can they bring an extra person, like a spouse? (Often yes, if it incurs no extra expense.)

Address the company’s policy for group entertainment. Normally, the senior executive pays for meals. Be clear about deadlines for required reimbursement requests and submissions of receipts.

The goal is to strike a balance between paying what the company can afford and satisfying your employees’ expectations.

©2023

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W-2
HR Insight: Are Your W-2 Forms Correct? 1024 577 LaDonna Kearney

HR Insight: Are Your W-2 Forms Correct?

How To Avoid Incorrect W-2 Forms 

In addition to regular paychecks, employees receive another payroll document from the company they work for. That document is known as Form W-2. This important document provides a comprehensive overview of their income, including both gross income and taxable wages.

W-2s also display the total amount of money that was withheld from someone’s pay over the course of the relevant tax year. Money may be withheld for various reasons, including benefits, 401(k) contributions and a Health Savings Account.

The W-2 serves as a crucial and proof-oriented record for employees. It not only summarizes key financial information related to their employment, but it also must be submitted by both you and your employees come tax-filing season.

What’s the difference between payroll then and payroll now?

In the past, W-2s were typically required to be provided to employees by Jan. 31. This denoted the conclusion of the prior tax year. Paper filings were required to be submitted to the Social Security Administration by the end of February. On the other hand, electronic filings had a deadline of March 31. These rules have changed, however.

Nowadays, W-2s must be submitted to the SSA by Jan. 31. This aligns with the deadline by which employers must provide W-2s to employees. Additionally, penalties for failure to file a W-2 on time have changed. So have the deadlines for not providing the necessary and accurate information in order to account for inflation. These penalties now exceed $250 per return.

Some payroll issues that you must address

It is essential to rectify any instances of overwithholding of Social Security or Medicare taxes. You must promptly refund the excess amount to the employee. Also, if there has been an instance of underpayment, it is crucial to report and remit the accurate amount as soon as you are made aware of it.

Simultaneously, take into account both the employee’s and employer’s shares. In the event of underwithholding, you’ll have the option to recover the shortfall from future payments made to the employee.

However, it’s important to note that any overwithholding or underwithholding related to the additional Medicare tax cannot be corrected. When it comes to income tax withholding errors, it is not possible to make corrections once the taxes have already been deposited.

In such cases, employees are responsible for making up any shortfall or obtaining refunds by filing their tax returns accordingly. It is important to ensure accuracy in income tax withholding to minimize any potential discrepancies or issues that may arise for both the company and its employees.

The general rule of payroll

If there is an error in the amount shown on Form W-2, it is necessary to make a correction. While it is not possible to correct federal income tax withholding errors, it is crucial to rectify any discrepancies between the amount of withholding stated on the W-2 and the actual amount withheld.

In cases where the incorrect amount is within $100, no penalties are imposed for inadvertent errors. Ensuring that employees receive accurate Social Security credit for their earnings is ultimately what is of utmost importance.

Proper documentation of your employees’ earnings via Form W-2 will help maintain the integrity of their Social Security records. It will also ensure that they receive the appropriate credit for the income they have earned and received.

How to avoid common payroll errors

Did you know that the W-2 changes every year? Therefore, it’s important to make sure you purchase the appropriate form for each tax year. For this reason, you cannot use any leftover forms from years prior. Always print the current Form W-2 for each tax year. Not only will outdated W-2s not be accepted, neither will handwritten documents.

Formatting errors, according to the IRS

Be very mindful of formatting errors as defined by the IRS. When writing numbers, use decimal points and include cents rather than rounding up to the next dollar. Speaking of dollars, do not use dollar signs. And fill out W-2s only with black ink.

Make sure what you put in the boxes does not go outside the black lines. However, do not make the letters so small that they are illegible. Pay close attention to all the boxes, namely Box 13. This one is very important to pay attention to because there are three checkboxes included as part of Box 13.

Additionally, double-check that the boxes you fill in are applicable to the employee in question. Last but not least, if you find that you have made a mistake after filling out a W-2, know that it is not the end of the world. Simply fill out a Form W-2c and submit it as soon as possible. 

How to improve the effectiveness of a payroll management system

Make sure the human resources department has access to the proper tools for automating payroll processes. Ensure that HR is in compliance with all legal mandates, regulations and requirements. This can help your HR team not only accurately process W-2s but also increase the accuracy of the payroll management program overall.

Set up clear and well-defined payroll policies

Establish clear policies for payroll operations. Cover various aspects such as exceptions, review processes, approval procedures, records management and legal compliance. Clearly define the process for handling exceptions. Establish robust review and approval procedures.

Also, develop a comprehensive policy for records management and retention. Familiarize yourself with relevant legal requirements and ensure that your company complies with those requirements. Clear policies promote consistency, accuracy and compliance. Keep this in mind as you put together a guide for your payroll team.

Look closely at your payroll process and any relevant providers

Assess your payroll provider and current processes to identify any inefficiencies. Consider switching to a provider that better suits your needs if you come face-to-face with frequent errors or issues. Identify payroll priorities and specific requirements to guide your decision.

Facilitate a smooth transition by coordinating change with your provider. Then, transfer the necessary data, set up the proper systems and communicate the changes to your employees. Proper planning and execution minimize disruptions for a successful switch to a new payroll solution.

What makes a payroll system successful?

Implementing an integrated payroll system offers multiple benefits to nearly everyone involved in your company. It streamlines processes, eliminates manual data entry and enhances paper workflows. It also connects payroll activities with time tracking, scheduling and benefits-related features.

A unified system ensures accurate pay classifications, reduces errors and facilitates adjustments. Make sure you prioritize accuracy when creating W-2s for your employees. That way, you can avoid complications, penalties and additional work later on. Thoroughly review each W-2 before submitting it to the SSA. Also, send each W-2 to the appropriate employee so they can file on time and you can experience a smoother tax-filing process while complying with regulations.

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Direct Deposit
HR Insight: Direct Deposit 940 788 LaDonna Kearney

HR Insight: Direct Deposit

The Many Wonders of Direct Deposit

Are you unsure about how to set up direct deposit for your employees or contract workers? Though it may seem daunting at first, especially if you’re not familiar with the process, direct deposits can be set up rather quickly.

Let’s start by defining direct deposit. In essence, a direct deposit is an electronic payment of funds from one bank account to another. It’s that simple! You transfer the appropriate funds from your business bank account to your employees’ bank accounts, all without having to worry about physical checks or cash.

When the direct deposit goes through, your employees will receive the electronic payment equivalent to their salary, and the payment goes directly from your bank account to theirs. Direct deposits result in an automated clearing house, or ACH, payment. Ultimately, direct deposits eliminate the need to pay employees physically. Instead, all payments are processed digitally.

How do direct deposits work?

You’ll need to initiate direct deposit payments with your bank. As you strive to set up direct deposits, the ACH will receive the direct deposit orders and then allocate them to the appropriate bank accounts in accordance with each of your employees. From there, your employees’ banks will receive those orders and distribute the proper amounts to the accounts of your employees.

The process of directly depositing funds into your employees’ accounts generally takes between one and two days. There are also many rules in place to eliminate safety and privacy risks.

Now, the exact timing of the direct deposits will often depend on your bank, the banks of your employees, the payroll software that you use and national holidays that may affect bank operations. Your payroll software and your bank can usually help you plan out your payroll schedule and subsequently your direct deposit schedule.

Cost of setting up direct deposits

So how much will it cost you to set up direct deposits for your employees? The exact amount that you can expect to pay will depend on a few different factors; namely, which direct deposit provider you choose.

Alternatively, if you use a bank, the costs of setting up direct deposits will depend on your bank’s fees and regulations. Generally speaking, banks often charge a setup fee that usually ranges anywhere from $50 to $149, according to the National Federation of Independent Business.

Some banks charge ongoing monthly fees, though many do not implement this practice, and others charge transaction fees as well. These transaction fees might be charged per pay period or employee. Once again, it all depends on your specific bank’s procedures and requirements.

Likewise, the dollar amount of the fees will vary, depending on the bank, the size of your business and your direct deposit agreement. According to NFIB, the average dollar amount of transaction fees can vary from $1.50 to $1.90 per deposit.

If you utilize payroll software or some sort of technology that has payroll capabilities, the fees that you pay will depend on the individual software. Many software programs give you access to direct deposit services at no additional cost, but not all software options include the direct deposit service as part of the subscription price. So look into these details before deciding which software program to utilize.

Setting up direct deposits with your bank

If you set up direct deposits through a bank, be prepared to provide recent financial statements to verify that you have the necessary finances to set up direct deposits for your employees. If you opt for a payroll software instead, you’ll need to input your business’s bank account information and respond to a verification email to confirm that you are the administrator of the account.

Most setup processes will require a direct deposit test as well as a small withdrawal from your bank account. From there, you’ll verify that the transaction was successful to confirm that the direct deposit process is working as it should.

You’ll also need to receive a signed authorization form from each of your employees before you can transfer funds to them electronically. With the help of HR software that employees can log in to and monitor as they please, employees can give direct deposit authorization within seconds.

It can take anywhere from seven to 10 days to officially set up direct deposits. The pay schedule that you set up for your employees will be up to you, but make sure the schedule you impose is one you can stick to so that your employees can rely on consistent payments.

Communicate the payment schedule with your employees and payroll administrators so that everyone is on the same page. Finally, you’ll want to set up a cutoff date so employees know when they must submit their hours for review and timely processing as part of payroll.

The benefits of direct deposits

From an employee’s perspective, they can expect to receive their direct deposit every pay period. Direct deposits arrive in employees’ bank accounts on a regular basis, so they will always know when to expect their payment and how frequently they’ll be paid. The predictability factor will also help them plan their personal finances accordingly.

For you, the employer, direct deposits can provide you with much better control over your business finances because you’ll know when money is going to be withdrawn from your account every month. Additionally, you won’t have to worry about the possibility of payments being stolen or having important data about your business in the hands of thieves with ill intentions.

The drawbacks of direct deposits

A potential hassle that you may face when setting up direct deposits for you and your employees comes down to the maintenance involved in creating new accounts. There will likely be undesirable fees and security requirements.

But at the end of the day, direct deposits are worthwhile for everyone involved. For more information about setting up direct deposit payments for your employees, contact us.

©2023

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Employee Taxes
HR Insight: How to Deal with Employee Taxes 940 788 LaDonna Kearney

HR Insight: How to Deal with Employee Taxes

Employee Taxes – What You Need to Know.

Employers generally must withhold income tax from employees’ wages. To figure out how much employee taxes to withhold, you need to use the employee’s Form W-4, the appropriate method and the appropriate withholding table described in Publication 15-T, Federal Income Tax Withholding Methods. You’ll deposit your withholdings based on your business and the amount you withhold.

File returns four times a year, and at the end of the year, prepare and file Form W-2, Wage and Tax Statement, to report wages, tips and other compensation paid to employees. Each employee needs a copy. You will use Form W-3, Transmittal of Wage and Tax Statements, to transmit Form W-2 to the Social Security Administration.

Know the details

The situation can get complicated when both employee and employer have to contribute. For example, the current tax rate for Social Security is 6.2% for the company and 6.2% for the employee. For Medicare, the current rate is 1.45% for you and 1.45% for the employee. Also, an Additional Medicare Tax applies to an individual’s Medicare wages that exceed a threshold amount based on the taxpayer’s filing status. You’ll withhold an Additional Medicare Tax of 0.9% for single filers who make more than $200,000, and for married couples filing jointly, the threshold is $250,000, but if filing separately, $125,000. You don’t have to match this additional portion.

Employers report and pay Federal Unemployment Tax Act tax separately from federal income tax and Social Security and Medicare taxes. You pay FUTA tax only from your own funds. Employees don’t pay this tax or have it withheld from their pay.

Mark your calendar with key employee tax dates. The IRS has an Employment Tax Due Dates page with information on what you need to do and when you need to do it. The matching share of the Social Security and Medicare payroll taxes is collected as the Federal Insurance Contributions Act taxes, and your part is considered a business expense, not a liability. Because it’s a business expense, it can be written off at tax time.

Don’t forget the states

This is just the beginning of an employer’s responsibilities. You are likely subject to state withholding rules as well. It’s essential that employers be on top of the general rules and any annual rate changes. Understanding these tax issues is important since you bear the responsibility of fulfilling your tax obligations related to your employees. It’s important to send out payments on time to avoid penalties and late fees. Be sure to work closely with financial professionals to make sure you stay compliant.

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worker classification
How to classify your workers 1024 577 LaDonna Kearney

How to classify your workers

When you hire someone to work for you, the worker will likely be considered either an employee or an independent contractor. Usually, you will decide whether you want to onboard an employee or simply hire a contractor prior to advertising for the available position. That way, whoever comes across your job post will know whether they can expect employment or a contract job prior to applying for the position.

Properly classifying your workers is important because misclassification of those who work for you can lead to very impactful tax penalties. Thankfully, these are avoidable as long as you are in compliance with the rules and regulations. Furthermore, you absolutely must comply with requirements regarding tax contributions and how much you withhold in the context of employees, not contractors.

As you seek to accurately classify your workers, you will likely come across the terms exempt and nonexempt, but what do these words mean? And where do they fit into the conversation? Let’s explore the answers to these questions and more.

Exempt vs. nonexempt

Exempt employees are not required to be paid overtime. However, that said, you might decide to offer some form of compensation to exempt employees who work extra hours, which should be well defined within the employee’s benefits package.

On the other hand, nonexempt employees will either receive a predetermined hourly wage or earn an annual salary. From there, nonexempt employees will be entitled to a minimum wage, namely if they earn an hourly wage, as well as overtime pay in situations where they work more than 40 hours per week as determined by the Fair Labor Standards Act. The FLSA is a federal law that not only determines the federal minimum wage but also the requirements for overtime pay and standards.

Information from the FLSA and Department of Labor regarding classification of employees

In the words of the FLSA, all employers are required to pay their nonexempt employees time and a half for every hour the employees work beyond 40 hours per week. Time and a half is calculated based on the employee’s regular pay rate. For instance, if you earn an hourly wage of $15 per hour, then your overtime pay would be $22.50, which is calculated by dividing 15 by two and adding that value to $15.

If you have nonexempt employees who are not paid hourly, then the employee’s hourly rate can still be determined by taking the amount of money your employee earned and dividing it by the total number of hours the employee worked. However, do not include vacation time, official holidays or sick days when you are calculating the employee’s pay.

The DOL has official guidelines regarding who is and is not eligible to receive overtime pay. There are certain situations where employees can be considered exempt.

These include whether your employees are paid an annual salary, whether they earn $684 per week at a minimum, whether they earn at least $35,568 per year and whether they perform the job duties of someone who works in an administrative or executive role. Also, employees who are highly compensated, meaning they earn approximately $107,432 or more per year, are not eligible for overtime in the way that other employees are.

The amount of money an employee earns, whether on an annual or hourly basis, is not the only determining factor when it comes to whether an individual is considered exempt versus nonexempt. Even so, their pay rate can play a role in the context of workplace policies.

If your workers fail to meet the requirements of the FLSA duties test, earn no more than $684 weekly, make less than $35,568 annually or claim specific deductions in regard to their take-home pay, then those employees might be eligible for overtime pay. That said, certain industries, such as agricultural businesses, movie theaters and railroad companies, hire hourly workers who are not entitled to overtime pay.

All your employees, whether they work full or part time, must fill out an IRS-backed Form W-4 and then give it to you as their employer prior to working for you. Independent contractors, on the other hand, must fill out a different form, the W-9.

Now, if you are not sure how to classify any of your workers, take the time to fill out Form SS-8, which is the Determination of Worker Status for Purposes of Federal Employment Taxes and Income Tax Withholding. Once you fill it out, send it to the IRS for processing.

You might find it easier to pay your employees on a salaried basis because it ensures that the payroll process is simplified altogether while keeping things consistent. This is because salaried employees receive the same amount of money on a monthly basis no matter how many hours they work per week or month.

In order for an employee to be salaried, they must uphold the duties of their position while also adhering to the requirements set forth by the DOL. At the same time, paying employees an hourly wage instead of a salary can make more sense in certain situations, as hourly workers provide managers with greater flexibility when they sit down to make the schedules every week.

This can be significantly beneficial for job roles that do not necessarily come with the need for consistent schedules. Failing to properly identify exempt employees and classify them differently than your nonexempt employees can affect your business in drastic ways, as can the act of misclassifying workers, even if you do so by accident.

The misclassification of your workers can result in any of the following:

  • Enforcement of proper classification and disciplinary action.
  • Costly fines and business-related penalties.
  • Lawsuits from employees who worked overtime that went unpaid.
  • Responsibility of the costs for remedying the misclassification.

While misclassification is never acceptable, especially when it is intentional, there are instances in which reclassification is necessary. For example, a nonexempt employee might need to be reclassified as an exempt employee or vice versa.

Similarly, you might initially hire someone as a contractor, but as time goes on there might be a conversation about onboarding the contract worker as a long-term employee. Likewise, an exempt employee who is reclassified as a nonexempt employee might perceive the exempt-to-nonexempt transition as a demotion in terms of prestige.

Regardless of the specifics, make sure you explain the law to your employees, especially those who might feel slighted by changes in classification or employment status. Try to stress that the reclassification is in no way indicative of the employee’s performance or any work-related issues so that your employees do not take the change as a personal attack.

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