Payroll, Benefits and Pensions

6 factors to consider in the evaluation of whether one is an employee or independent contractor

1. Opportunity for profit or loss, depending on managerial skill

2. Investments by the worker and the potential employer

3. Degree of permanence of the relationship

4. Nature and degree of control

5. Extent of which the work performed is an integral part of the potential employers business

6. Skill and initiative

168

A workweek is a fixed period of ________ consecutive hours that recur on a consistent basis.

Fair Labor Standards Act (FLSA)

was designed to mitigate excessive work hours and to regulate overtime and child labor by requiring all employers to pay a minimum wage and overtime for all work in excess of 40 hours per workweek.

FLSA

did not apply to state and local governments until April 15, 1986

exempt employees

are those who meet certain criteria that permit their exclusion from certain provisions of the act- the overtime pay provisions, or both the minimum wage and overtime pay provisions.

1. Salary Level Test

2. Salary Basis Test

3. The Duties Test

An exempt employee must meet all 3 requirements of what is commonly referred to as the 3 prong test

The Salary Level Test

The employee must be paid at or above the current threshold of $684 per week, ( or a minimum of $35,568 a year) in salary.

The Salary Basis Test

The employee is paid a “guaranteed minimum” amount of pay that is a predetermined and fixed salary not subject to reduction because of variations in the quality or quantity of work performed

The Duties Test

The employee’s job duties must primarily involve executive, administrative, or professional (EAP) duties as defined by the regulations

work period basis

Fire fighters and police are non-exempt, regulations state that the employees engaged in fire protection and law enforcement may be paid on a ____________. If a municipality pays overtime on a work period basis, the overtime will be calculated on a different schedule.

Full Time Employee

40 hours a week and are entitled to receive the benefits offered by the municipality.

(50) or more full time or full time equivalent (FTE employees)

Health care legislation has made 30 hours per week the threshold for offering healthcare benefits for employers with

Part Time Employees

can provide several advantages the municipality such as flexibility in staffing levels, decreased costs in benefits, and efficiency in handling workload fluctuations. They typically work fewer than 30 hours per week and may not be entitled to the same benefits as full-time employees.

Seasonal or Temporary Employees

Workers hired for a limited period, often during peak seasons or for specific projects. They may receive different benefits and employment protections compared to full-time staff. Worker who works less than 120 days in a calendar year.

Receipt of records request

Upon___________, the custodian of records should create a duplicate file for public and employee access that does not include statutory exemptions or confidential information.

Confidential records that cannot be released

1. employee assistance program records that apply to counseling or referrals for mental health, marriage, alcoholism, and similar personal problems

2. personal cell and home phone numbers

3. bank account information

4. social security numbers

5. drivers license information

6. emergency contact information

7. residential street address

8. personal non government issued email addresses of applicants and immediate family members

9. city hospital records and medical records

Tennessee New Hire Reporting Program

Federal and state law requires all employers to report certain information on all new and rehired employees to the___________. Employers may submit via online/ electronic reporting, mail or fax.

20 days from date of hire or rehire

Paper reports to The Tennessee New Hire Reporting Program must be sent _____________.

Electronic Reports

made to the Tennessee New Hire Reporting Program must be submitted in 2 monthly transmissions, but no more that 16 days apart.

The employer

shall be subject to a penalty of $20 per employee not filed, and if there is intentional withholding of employee information a $500 fine may be assessed on the employer.

Form W-4

Form I-9

When setting up a new employee, the following federal forms should be completed before and employee is added to the payroll.

Form W-4

Every employee must complete IRS _______ so that the correct amount of federal income tax can be withheld from their wages. Employees may choose to have additional taxes deducted, depending on their circumstances. Employees should submit a new form anytime their personal or financial situation changes (ex. marriage, divorce, additional compensation)

Each Year

Sometimes an employee may claim exemption from federal income taxes and have none deducted. If so, the employee must submit a new Form W-4 ________to maintain their exemption status. IF a new form is not completed, the finance officer is requited to initiate income tax withholdings based on the assumption that the employee is single with zero allowances.

Form I-9

used to verify the identity of employment eligibility of any individual hired. The new employee must sign section 1 of the form I-9. The Employer completes section 2 of the form.

Form I-9

must be completed within 3 business days of the employee’s first day of work. The employee must present documentation that verifies their identity and eligibility to work.

List A- Identity and employment authorization

List B- Identity Only

List C- Employment authorization only

3 categories of documents that employees can provide to satisfy the Form I-9 verification requirements, enabling employers to confirm both identity and work eligibility.

an employer must examine

one document from List A, or one from List B, and one from List C to verify an employee's identity and eligibility for employment.

3 years

Employers must retain completed I-9 forms for all employees for ______ form their hire date or one year after their termination, whichever is later.

E-Verify

electronic verification system operated by the US Citizenship and Immigration Services (USCIS) agency, free to employers and provides an automated link to federal databases to verify employment eligibility of employees. Under the Tennessee Lawful Employment Act employers who use this system will have limited liability involving cases dealing with immigration issues.

Direct Deposit

records are preserved, the cost and exposure of printing manual checks is reduced, less time and effort and typically greater level of oversight associated. Also has internal control benefits that manual check preparation does not provide.

Pay Period

is the number of days that employees are paid for and determines the frequency of paychecks.

Weekly

Paychecks are issued once every week commonly used for hourly employees

Bi-Weekly

Paychecks are issued once every 2 weeks commonly used for salaried employees

Semi Monthly

Paychecks are issued twice every month 1st and 15th or 15th and last working day of the month, commonly used for salaried employees

Monthly

Paychecks are issued once every month, commonly used for exempt employees

Exception Basis

simplest method to record time, employees are assumed to work their set number of hours per week, and report to payroll only leave taken and overtime worked. this method is normally used for salaried and or exempt employees

Employees can be paid salary based on a variety of work periods

• Fixed workweek of 40 hours

• Fixed workweek of less than 40 hours

• Fixed workweek of more than 40 hours

• Salary for all hours worked

• Fixed monthly or semi- monthly salary

Overtime

Employees who are not exempt under the provisions of the Fair Labor Standards Act must be paid at at rate of not less than 1 ½ times their regular rate of pay for each hour worked in a workweek in excess of 40 hours

Regular Rate of Pay

is the rate at which overtime is calculated, it includes more than just the employees normal salary or hourly rate.

240 hours comp (160 hours worked)

Employees may accrue up to

480 hours comp (320 hours worked)

Public safety employees may accumulate

Non Exempt

When ______ employees are separated from employment, they must be paid for unused comp time

Comp Time must be calculated with the non exempt employee paid the higher of

1. The employees average regular rate of pay for the last 3 years of employment,

2. The employees final rate of pay

Compensated Absences

an employees time off which they will be paid. Includes sick leave, vacation, and holiday time, personal.

GASB Statement 101 defines a compensated absence as leave for which employees may receive one or more:

1. Cash payments when leave is used for time off

2. Other cash payments ( unused leave upon termination of employment)

3. Non-cash settlements ( conversion to a defined post-employment benefit)

A Liability should be recognized for leave that has not been used if:

1. The leave is attributable to services already rendered

2. The leave accumulates ( spreads across multiple fiscal years)

3. The leave is more likely than not to be used for time off or otherwise paid in cash or settled through non cash means- this does not include parental leave or military leave, as this would not be recognized until the leave commences

Vacation Leave

most common type of leave that must be accrued, it has been earned for services performed and it is probable that it will be paid. The accrued amount should include payments that are directly and incrementally related to the employees salary such as Social Security and Medicare taxes. The accrued amount should not include municipalities contribution to TCRS

Sick Leave

should only be accrued if employees are paid for unused sick leave upon termination, the liability amount can be calculated by using the termination payments method or the vesting method.

Fringe Benefit

is a form of indirect compensation that an employee receives other than cash wages.

3 basic types of fringe benefits

• Working conditions fringe benefits

• De Minimis fringe benefits

• Taxable fringe benefits

Working condition fringe benefits

those provided to an employee to do their job, they are not taxable to the employee

To qualify as a working condition fringe benefit all 3 of the following must apply:

1. the benefit must be related to the employers business

2. the employee would have been entitled to an income tax deduction if they had bought it

3. the business use must be verified with records

Examples of working condition fringe benefits are:

• Employees use of a company vehicle for business purposes

• Job related education or training provided to an employee

Employer provided cell phone

may be treated as a non taxable fringe benefit if they are primarily for non compensatory business purposes. it is excludable from an employees income as de minimis fringe benefit

Substantial business reasons for providing a cell phone include the following:

• Need to contact the employee at all times for work related emergencies

• requirement that the employee be available to speak with clients when the employee is away from the office

• Need to speak with clients located in other time zones at times outside of the employees normal work day

De Minimis Fringe Benefits

Latin for minimal are those benefits that are provided to an employee with such a small value that accounting for it is unreasonable or administratively impractical. The value of the benefit is determined by how often it is provided to the employee. Not Taxable to the Employee

Taxable

Cash in any amount including gift cards and certificates do not qualify as De Minimis fringe benefit and are_______.

Examples of De Minimis Fringe Benefits

• Use of company photocopier

• Thanksgiving Ham or Turkey

• Local Phone Calls

• Birthday or Holiday Gifts ( not cash, gift cards or certificates) with a low value

• Group Meals/ Employee picnics

• Employee Awards/ plaques

Taxable Fringe Benefits

must be included in employees wages and reported on Form W-2, generally subject to Federal income tax witholding, social security tax, and medicare tax.

Examples of Taxable Fringe Benefits

• Employer provided vehicle

• Uniforms and clothing allowances

Qualified non personal use vehicle is excluded even for commuting and is not taxable to the employee

• Clearly marked police and fire vehicles

• Unmarked vehicles used by law enforcement officers it the use is officially authorized

• school buses

• qualified specialty utility repair truck

Uniforms and clothing allowances

not a taxable benefit in both the following apply:

• specifically required as a condition of employment\

• they are not worn or adaptable to general usage as ordinary clothing

If clothing qualifies as untaxable

then the associated cleaning costs are also non taxable

Voluntary Payroll Deductions

• Insurance premiums (health, life, dental)

• Retirement (403B, 401k, 457h- non mandatory contributions)

• Union dues

• Uniforms

• Charitable contributions ( United Way)

Mandatory Contributions

• applicable federal and state taxes

• court ordered deductions

• child support

• wage garnishments

• spousal support

A liability

must be created for each type of payroll deduction. monthly or quarterly reconciliations should be done to ensure that all payroll deductions have been paid to the appropriate vendor.

Cafeteria Plan

payroll deductions may be offered to employees on a pre tax basis. they must meet the specifications of Sed 125 of the Internal Revenue Code. Participants are allowed to choose between certain taxable and non taxable benefits

Cafeteria Plan qualified benefits are

• Health and accident insurance

• adoption assistance

• Dependent care assistance

• group term life insurance

• health savings accounts

• flexible spending accounts

Federal Income Tax, Social Security Tax, Medicare Tax

Employee payroll deductions for qualified cafeteria plan benefits are not subject to____________________. These deductions reduce an employee’s taxable wages and reduce the tax liabilities for both the employee and the employer.

The federal income tax system requires employers to withhold payroll taxes from employees gross wages which affects the employer in several ways:

• reduces the cash amount paid to employees

• creates a current liability for the employer

• requires the employer to remit the withheld taxes tot he appropriate government agency by specific deadlines

Failure to remit payroll taxes in a timely manner results in

interest and penalties levied on the employer

Federal payroll deductions / payments and employer taxes include:

• Social Security Tax

• Medicare Tax

• Federal Income Tax

• Unemployment Tax

HR administation

• Employee vs independent contactor

• Exempt vs non-exempt

• full time, part time, and seasonal employees

Employee Vs Independent contractor

• Both are hired to perform a service

• Critical to properly classify the employment relationship

Employee

• Ongoing services

• Routine method of payment

• Receives fringe benefits

Independent contractors

Issues written contract outlining

• scope of services

• length of time

• compensation

Independent contractor vs employee

1. Opportunity for profit or loss depends on managerial skill

2. investments by the worker and the potential employer

3. degree of permanence of the work relationship

4. nature and degree of control

5. extent to which the work performed is an integral part of the potential employer’s business

6. skill and initiative

Fair Labor Standards Act (FSLA)

Designed to:

• mitigate excessive work hours

• regulate OT

• regulate child labor

• applies to most but not all public sector employees

• covered employees are exempt and non- exempt

Exempt Employees

• Exempt from overtime exemptions

• or minimum wage overtime provisions

Non-exempt employees

• entitled to at least federal minimum wage for all hours worked in a work period

  • entitled to 1.5 times regular rate for hours worked in excess of 40 hours ( or 207k) threshold for public safety

Three Prong Test

1. Salary Level

2. Salary basis

3. Duties

Full Time

generally works 40 hrs week

Part time

employee works less than full time (30 hrs week) is eligible for health benefits or employers with 50 or more employees under ACA

Seasonal or Temporary

• works for a limited period of time

• ACA affordable care act defines seasonal as 120 days or fewer in a calendar year

Work Week

This is a fixed period of 168 consecutive hours that recur on a consistent basis

Legal Advisors

These people are not covered under FLSA

Personnel files should be

secure and have restricted access

Redacted

Open records requests for personnel files for certain information must be ___.

Tennessee New Hire Reporting Program

New and Rehired Employees

Paper reports within 20 days of hire or rehire

Electronic reports- twice monthly, no more than 16 days apart

IRS W-4 Form

• Required for every employee

• Correct amount of federal income tax withholding

  • New W-4 when Personal or Financial Condition Changes

Form I -9

• Employers must identify Identity and Employment Eligiblility

• Section 1- employee completes on 1st day of work

• Section 2- employer completes with in 3 business days of first day of work

Establishing Identity

• Original Documents must be presented

  • Document categories

    • List A- Identity and Employment

    • List B- Identity only

    • List C- Employment Only

      • Everify

The City

Who Owns the personnel records of a city?

What form is filed by the employee that does not want any federal income tax?

W-4

Direct Deposit Advantages

• Records preservation

• reduced costs and exposure

• increased efficiency

• increased oversight

  • Manual checks- Never issue early!

Pay Period

Number of days employees are paid

determines the frequency of paychecks

Weekly

every week. 52 checks per year

Bi weekly

Every 2 weeks, 26 checks per year

Semi Monthly

Twice a month, 24 checks per year.

Monthly

once a month, 12 checks per year