FRAUD ALERT!

I have webinar companies who are stealing my webinars and presenting them as if I were doing it live.  I want my blog followers to be aware of this so they don’t get ripped off.  The latest is ComplainceWorld (that’s how they spell it).  They are advertising a live  6-hour boot camp with me as the instructor on July 1st. I do not work with this company and I am not leading this webinar.  I only found out about it via a spam email I received.  Please do not use this company for your training needs!  One of the other speakers they list has also never heard of them and his webinar was also stolen.  If you see a webinar with my name on it, feel free to contact me via my email, vicki@thepayrolladvisor.com to confirm it is genuine.  I don’t want any of my followers to get ripped off.

Opining on Regular Rate of Pay

The U.S. Department of Labor (DOL) has issued three new opinion letters that address compliance issues related to the Fair Labor Standards Act (FLSA).  As a reminder to my readers, an opinion letter is an official, written opinion by the DOL’s Wage and Hour Division (WHD) on how a particular law applies in specific circumstances presented by the employer that requested the letter.  The current group of letters issued include:

 

FLSA2020-3: Addresses excludability of longevity payments from the regular rate of pay. This opinion rules that longevity payments made to employees that clearly “must or shall” be paid cannot be excluded and must be used to calculate the regular rate of pay.  However, if the longevity payment is worded as that it may or may not be awarded, up to the discretion of the employer, then it would not need to be included in the calculation for regular rate of pay.

FLSA2020-4: Addresses excludability of referral bonuses from the regular rate of pay. The employer is offering a referral bonus to employees not involved in recruiting or human resources and would be issued in two parts, one immediately and one if the employee is still employed after a year and so is the employee who was referred.  The opinion states that the first portion of the bonus would not be included in the regular rate of pay calculations as it is not remuneration for employment as it is a voluntary program.  However, the second installment of the bonus would be included as it would be considered the same as a longevity bonus. If the employee received the bonus whether they were still employed or not, it would not be includable.

FLSA2020-5: Addresses excludability of an employer’s contributions to a group-term life insurance policy from the regular rate of pay.  In essence, the opinion states that just because a wage paid is subject to federal taxes under the Internal Revenue Code, does not make the same payment includable in the regular rate of pay.

For more information on opinion letters, see the WHD website.

COVID-19 Update

The IRS (including the Social Security Administration) holds a monthly payroll profession phone meeting.  Usually on the first Thursday of the month, it was delayed this month due to the COVID-19 pandemic.  It was held yesterday.  As expected, the call centered around the latest updates for the pandemic on the new legislation. Here’s the recap for you:

1. There was a brief discussion on the updates the IRS has released, which include:

  • Notice 2020-21: discusses tax credits
  • Notice 2020-62: retention credits and FAQs
  • Notice 2020-54: HSA adjustments for the pandemic

2. It also discussed the latest forms to be released.  This includes the Form 7200 and its instructions.  This form is used to request tax credits in advance for the Families First Act and the CARES Act.

3. The Form 941 was discussed.  It is in the drafting stage and this draft version should be released by the end of next week.  This will be the form to use for the second quarter and beyond. It is being redesigned to allow for lines to report the various COVID-19 tax credits.  The form will go from two pages to three.  It is still unclear whether or not the Schedule B will be revamped as well.

4. Social Security Administration reminded the attendees that they are also on limited staffing so the employer 800# is not being staffed as it is not able to be accessed remotely by employees.  Employers are urged, instead, to use the email employers@ssa.gov  for any questions they may have.  This can be staffed from home by SSA staff members.  If you have questions on using the Business Services Online (BSO) you should email bso.support@ssa.gov.

The meeting for May will be on schedule and I will have any news from it posted by Friday of the same week.

Wage and Hour Laws–They Are Here, There and Everywhere Part 3

In my previous blog, October 23, 2019, I discussed the complexities of compliance with wage and hour laws.  Which apply…federal or state?  What areas are covered?  When these questions do arise, where do you find the answers? Can a payroll professional simply check the Fair Labor Standards Act (FLSA) to find the answer with a quick verification of any state requirement? Or is the state the main source to go to first with the FLSA as the fall back? The answer is not simple.  In this blog series I will be discussing areas where payroll professionals need to ensure compliance by researching wage and hour laws. In Part 2, I covered the first six areas. This time I am reviewing the next set of four areas that may require research to ensure compliance: which includes on call or stand by pay, providing holiday/sick/vacation benefits, statements and payday notices and what is hours worked.

7. Hours Worked-General

The definition of hours worked under the FLSA was is quite broad. By statutory definition the term “employ” includes “to suffer or permit to work.” The workweek ordinarily includes all time during which an employee is necessarily required to be on the employer’s premises, on duty or at a prescribed workplace. What is the state’s definition on what is an hour worked?  Most follow the FLSA. The difficult task is applying the rules to a specific type of hour. One example that comes up frequently is travel time.  If an employee travels for business is it hours worked?  Can a different wage be paid to employee traveling?  If a nonexempt employee travels out of town on business overnight is the entire time considered hours worked including sleeping or just the employee’s normal day?  Compliance here requires that each type of “hour worked” an employee performs must be researched to determine the proper payment.

8. On Call or Stand by Pay

The FLSA and court cases address the issue of on call pay on the federal level.  An employee who is required to remain on call on the employer’s premises is working while “on call.” An employee who is required to remain on call at home, or who is allowed to leave a message where he/she can be reached, is not working (in most cases) while on call. Additional constraints on the employee’s freedom could require this time to be compensated. However, the states may view it differently.  In most states the degree of control the employer has over the employee’s time and whether the employee is free to use his or her time for his or her own purposes is the guiding factor in whether or not the time is compensable.

9. Holiday/Sick Leave/Vacation Pay

The federal government does not require an employer to provide benefits such as these to the employee and does not count them towards hours worked for overtime.  But the state, county or even city could have a different rule in that area. More and more states or local governments are now requiring paid sick leave or paid leave.  The most recent is Nevada. Massachusetts and Rhode Island both have rules concerning mandated holidays. However, none require that it be included in regular rate of pay.

10.Statements and Payday Notices

The FLSA does not require that an employee be given any type of notification upon hire or when being paid.  But the states generally do have such requirements. These requirements could include giving the employee or posting certain notices regarding benefits and wages.  It may require that the date and time of distribution of paychecks be posted.  One common requirement in 42 states is the employee receive a statement or “paystub” with each payment explaining the breakdown of the check. This statement requirement may be as simple as listing only the deductions made from the check as in Idaho or listing everything including the gross to net wages and all rates and dates. The latest area of compliance concern for payroll is providing electronic pay stubs. Most states with this regulation require a written pay stub to be provided and have not yet allowed “written” to be by electronic means.

 

In Part 4 I will be covering the next four areas that may require research including posting requirements, frequency of payments, methods of payments, and termination requirements.

Our subscribers to Payroll 24/7 E-Alert received the news of the 2020 wage base the same day it was released by the SSA. Don’t wait for important payroll news, subscribe today for only $149 per year.  That’s hundreds of dollars less than our nearest competitor.  And our news is strictly payroll related. 

Reminder:  The early pricing for our next payroll lecture ends on December 3rd.  Register for our lecture on the Ringing in the New Year.  If you are a current Payroll 24/7 subscriber you will receive a 20% discount (use coupon code NY20%).  If you are not a Payroll 24/7 current subscriber you will receive a 60-day free subscription to Payroll 24/7.  A $37 value free with your registration.  And just in time for all the latest year end news.

Wage and Hour Laws–They are Here, There and Everywhere Part 1

Knowing the wage and hour laws and applying them is one of the basic tasks of employers in general and the payroll department in specific. But if payroll must apply the laws then the question must arise—what are the laws, and which one applies? Payroll chat rooms, blogs and classrooms constantly discuss this question.  How do I know I am in compliance if I don’t know all the laws to follow? We all know there are laws governing the minimum wage and overtime but what else is out there?  Are the employees entitled to a break or meal period? Is vacation pay required?   How is on call pay handled?  Can an employer demand an employee use direct deposit?  And when these questions do arise, where do you find the answers. Can a payroll professional simply check the Fair Labor Standards Act (FLSA) to find the answer with a quick verification of any state requirement? Or is the state the main source to go to first with the FLSA as the fall back? The answer is not simple.  In this blog series I will be discussing areas where payroll professionals need to ensure compliance by researching wage and hour laws.

The Fair Labor Standards Act of 1938 (FLSA) sets the federal standards for minimum wage, overtime, equal pay, recordkeeping and child labor.  But it does not address all the issues that arise when paying an employee.  It is silent (gives no information or requirements) on such items as when an employee must be paid or the method that needs to be used.  It explains what is considered hours worked concerning meal periods but does not actually require that an employee be given a meal period. States on the other hand are autonomous when it comes to wage and hour laws within their own borders.  The state may mirror a federal law, exceed it, have a version of the same law with lesser requirements or no law governing an area at all. In addition, the state may have a requirement in an area that the FLSA is silent on such as paystubs or rest periods.

For a payroll department to ensure that it is in full compliance with the wage and hour laws it needs to first verify every facet of its payroll process and then verify what laws govern it.  It must start with what are hours worked and how that relates to calculating the gross pay for its employees and follow that through to the rules that governing paycheck distribution and timing. Both federal and state laws need to be included.  In this blog series we will review 23 general areas that could be covered under a wage and hour law on the federal side, the state side or both. We will start with the more common areas known such as white-collar exemptions and move into lesser known regulations such as paystubs and payday notices. Some areas on the list are strictly a state function and requirement while others are both federal and state.  If a conflict exists between a federal and state law the law establishing the higher standard applies.  In other words, the law that gives more money or more time or more benefit to the employee is the winner. It is also important to remember that not only should the labor code be verified but in some states wage orders must also be consulted.  Wage orders are a set of wage and hour regulations issued by the state that apply to only a certain industry or group of workers.

In Part 2 of this blog series I will discuss the first six areas to research.

Our subscribers to Payroll 24/7 E-Alert received the news of the 2020 wage base the same day it was released by the SSA. Don’t wait for important payroll news, subscribe today for only $149 per year.  That’s hundreds of dollars less than our nearest competitor.  And our news is strictly payroll related. 

Reminder:  The early pricing for our next payroll lecture ends on October 23rd.  Register for our lecture on the 2020 Form W-4 and receive a 60 day free subscription to Payroll 24/7.  A $37 value free with your registration.  And just in time for all the latest year end news.

Handling Disaster Relief Payments…Taxwise

Disaster occurs without warning.  Your employees may be affected by wildfires, earthquakes, hurricanes, ice storms and/or tornados.  When a disaster occurs, personal lives can be upended. Loss of homes and property is a common occurrence when a disaster strikes.  And employers may want to help their individual employees recover. But what if an employer gives money to an employee to help rebuild after a disaster. How would that money be treated taxwise? We have to look at section 139 of the Internal Revenue Code (IRC) to discover the answer.

The Victims of Terrorism Tax Relief Act of 2001 added section 139 to the IRC.  Section 139 provides that gross income does not include any amount received by an individual as a qualified disaster relief payment.  A “qualified disaster relief payment” means any amount paid to or for the benefit of an individual:

  • To reimburse or pay reasonable and necessary personal, family, living, or funeral expenses incurred as a result of a qualified disaster;
  • To reimburse or pay reasonable and necessary expenses incurred for the repair or rehabilitation of a personal residence or repair or replacement of its contents to the extent that the need for such repair, rehabilitation, or replacement is attributable to a qualified disaster;
  • By a Federal, State, or local government, agency or instrumentality thereof, in connection with a qualified disaster in order to promote the general welfare.

The term “qualified disaster” means:

  • A disaster that results from a terroristic or military action;
  • A Presidentially declared disaster;
  • A disaster resulting from any event that the Secretary determines to be of a catastrophic nature; or
  • A disaster that is determined by an applicable federal, State, or local authority to warrant assistance from the Federal, State, or local government or an agency thereof.

 

Taxable Wages?

So, are payments made by an employer to its employees for disaster relief as listed above taxable wages?  The IRS provides a hypothetical scenario to explain how the above rules would apply to an employer’s payments made for disaster relief to an employee.  Basis for the scenario is as follows:  An area within state “ST” was affected by a flood that was a Presidentially declared disaster as defined in the IRC. Acme, an employer in that state, makes grants to its employees who are affected by this flood.  The grants will pay or reimburse employee for medical, temporary housing, and transportation expenses they incur as a result of the flood that are not compensated for by insurance or otherwise. Acme does not require its employee to provide proof of actual expenses to receive the grant payments.  Acme’s program, however, contains requirements to ensure that the grant amounts are reasonable expected to be commensurate with the amount of unreimbursed reasonable and necessary medical, temporary housing, and transportation expenses that its employees incur as a result of the flood. The grants are not intended to indemnify all flood-related losses or to reimburse the cost of nonessential, luxury or decorative items and services.  The grants are available to all of Acme’s employees regardless of how long they have been with the company or the type of service they perform for the company.

The payments made by Acme to its employees in the above scenario, first of all, cannot be excluded from income because it is considered simply a gift from Acme to the employee.  This type of payment made to an employee does not qualify as a gift under IRC §102.  The payments cannot be excluded from income by being considered a type of general welfare payment.  Acme, as an employer, is a non-governmental agency and cannot issue welfare payments.

The grants, however, are reasonably expected to be commensurate with the unreimbursed reasonable and necessary personal, living, or family expenses that Acme’s employees incur as a result of a flood that is a qualified disaster. Moreover, they are paid to compensate individuals for expenses that are not compensated for by insurance or otherwise.  Therefore, Acme’s grants are qualified disaster relief payments that are excluded from the gross income of Acme’s employees under § 139. As such, the grants are not subject to federal income tax, social security, Medicare, or FUTA tax.  In addition, they do not need to be reported on the Form W-2 nor any other reporting form such as a 1099-MISC.

The states may have a different view and the appropriate state tax code would need to be consulted to determine state taxable income. For example, in California, the disaster relief payment would not be subject to Personal Income Tax (PIT) withholding. However, the payment would be subject to state unemployment insurance (SUI), Employment Training Tax (ETT) and state disability insurance (SDI). The payment would only be excluded under Section 938 of the California Unemployment Insurance Code (CUIC) if paid as a result of the employee’s death.

DOL Issues Three New Opinion Letters

The U.S. Department of Labor announced that it issued three new opinion letters that address compliance issues related to the Fair Labor Standards Act (FLSA) the Family and Medical Leave Act (FMLA), and the Consumer Credit Protection Act (CCPA). An opinion letter is an official, written opinion by the Department’s Wage and Hour Division on how a particular law applies in specific circumstances presented by the individual or entity that requested the letter.

The opinion letters issued are:

FMLA2019-3-A: Addressing whether an employer may delay designating paid leave as FMLA leave due to a collective bargaining agreement;

FLSA2019-13: Addressing the ordinary meaning of the phrase “not less than one month” for purposes of FLSA section 7(i)’s representative period requirement; and

CCPA2019-1: Addressing whether employers’ contributions to employees’ health savings accounts are earnings under the CCPA.

Our subscribers to Payroll 24/7 E-Alert received the news of the 2020 wage base the same day it was released by the SSA. Don’t wait for important payroll news, subscribe today for only $149 per year.  That’s hundreds of dollars less than our nearest competitor.  And our news is strictly payroll related. 

Reminder:  The early pricing for our next payroll lecture ends on October 23rd.  Register for our lecture on the 2020 Form W-4 and receive a 60 day free subscription to Payroll 24/7.  A $37 value free with your registration.  And just in time for all the latest year end news.

SSA Announces 2020 Social Security Wage Base

The Social Security Administration (SSA) has released the 2020 Social Security changes.  The social security (or Old Age, Survivors and Disability Insurance (OASDI)) wage base for 2020 will be $137,700. The rates will remain the same at 6.2% for social security and 1.45% for Medicare.  There will continue to be no limit on Medicare.  The Additional Medicare Tax, started under President Obama, will continue with the same wage base, $200,000 and the same rate, 0.9% with no employer matching.

 

Back on May 8th we posted the social security wage base projects that were issued by the Social Security Administration in their 2019 Annual Report of the Board of Trustees of the Federal Old-Age and Survivors Insurance and Disability Insurance Trust Fund.  There were three estimates, low, medium and high.  The rates ranged from $136,800 to $137,100.  So the final wage base coming in at $137,700 was not too far off.

Our subscribers to Payroll 24/7 E-Alert received the news of the 2020 wage base the same day it was released by the SSA. Don’t wait for important payroll news, subscribe today for only $149 per year.  That’s hundreds of dollars less than our nearest competitor.  And our news is strictly payroll related. 

Reminder:  The early pricing for our next payroll lecture ends on October 23rd.  Register for our lecture on the 2020 Form W-4 and receive a 60 day free subscription to Payroll 24/7.  A $37 value free with your registration.  And just in time for all the latest year end news.

Not a Great Milestone to Reach

2019 is the year of a milestone concerning the minimum wage on the federal level.  This past June marked the longest period in our history (since 1938 when the minimum wage was established) that has not seen an increase in the federal minimum wage.  The last time Congress passed an increase was in May 2007 that was effective July 24, 2009.  That marks 10 years!  The impact of this lack of increase actually decreases the purchasing power according to the Economic Policy Institute (EPI). The EPI explains that when the minimum wage remains unchanged for any length of time, inflation erodes its buying power.  When the minimum wage was last raised to $7.25 in July 2009, it had a purchasing power equivalent to $8.70 in today’s dollars. Over the last 10 years, as the minimum wage has remained at $7.25, its purchasing power has declined by 17 percent. And, since its historical peak in February 1968, the federal minimum wage has lost 31 percent in purchasing power—meaning that full-time, year-round minimum wage workers today have annual earnings worth $6,800 less than what their counterparts earned five decades ago, EPI said.

The current session of the House of Representatives has grappled with this issue but there is little hope, at this time, of it coming out of committee in the Senate.  But this 10-year drought has not gone unnoticed in most states.

As of 2019, 29 states, plus the District of Columbia have a higher minimum wage than the federal.  14 states are equal, 2 states are lower, and 5 states still have not enacted a minimum wage. In addition, many “high cost” cities or counties have enacted their own minimum wage different from the state level. This includes at least 27 cities in California; New York City; Chicago, IL; Minneapolis, MN; four counties/cities in New Mexico; three entities in Washington state; two counties in Maryland; and Portland, ME among others.

The growing trend among the states is to link the minimum wage to the Consumer Price Index. At least 12 states, including AZ, CO and NV, have used this method to ensure that the level of the minimum wage keep up with inflation in their own state.

With 2020 just around the corner, the states are already announcing increasing to the minimum wage. These include South Dakota, Vermont, Montana, Ohio and Connecticut. New cities or entities are also adding a minimum wage for the first time, including Houston airport area in Texas and the city of Novato, California. (Be sure to subscribe to our payroll update news service, Payroll 24/7 to keep up with the latest minimum wage increases for 2020).

But how does the United States stack up against the other industrialized countries. Well taking currency adjustments into account, we are quite a bit lower on the national level.  Even with higher costs of living most cities or countries come in higher than we do. They generally range from $10 an hour to $13 an hour in U.S. dollars. However, this does not take into account that citizens in those countries also have paid for medical care and do not have to pay for health insurance out of that minimum wage in most cases.

Upcoming payroll lectures:  Our next payroll lecture is on the 2020 Form W-4.  Be sure to join us on October 30, 2019 as we review the massive changes to this form in decades. Get a free 60 day subscription to Payroll 24/7 if you register before October 23rd.