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Overview
• Pay Frequency
• Payment on Separation
• Payment Methods
• Pay Statements
• Escheat Laws
• Deceased Employees
Pay Frequency
• Annual, Monthly, Semi-Monthly,
Bi-Weekly, Weekly, and Daily
• May pay more frequent than state requires
• Lag time equals time after period end date until pay date
Payment on Separation
• Type of separation matters
– Lay-off, resignation, discharge
• Think of Voluntary or Involuntary
–Who had the choice
Direct Deposit
• Terms you will need to know– ODFI– RDFI– NACHA– Prenote
• Process Flow– Authorization from Employee to Payroll Department– Payroll to ODFI– ODFI to ACH Operator– ACH Operator to RDFI– RDFI to Employee
Company’sCompany’s Bank Bank Employee’s
Bank
ODFI
ACH
RDFI
EmployeePayroll
The flow chart for an EFT
I want Direct
Deposit
Federal
Reserve
Electronic Paycards
• How Do They Work
• Branded vs Nonbranded
• Benefits for Employer
• Benefits for Employee
• Compliance Issue
• Implementation Issues
Pay Statements• Check Stubs
– May need to include:• Name and/or part of the SSN, Address• Hours worked• Pay Period Dates• Total Earnings• Itemized Deductions• Net Pay• Employer name and Address• Benefits• Gross and Net
Wages Owed to Deceased Employees
• Who may you pay?
• Is there a maximum payment allowed?
• Are there any special conditions or requirements?
Extra Pay Period
• Only effects Weekly and Bi-Weekly frequencies
• Salary Reduction is allowed
– Agreed rate is annual rate
What are taxes? What you need in order to withhold correctly Withholding Taxes
FICA Social Security Medicare
Federal Income TaxState and Local
How to Withhold
Constructive Payment
• When are wages actually paid
• Checks in the Mail
• Postdating or Backdating
• Why is it important
Social Security Numbers
9 digit number XXX-XX-XXXX Can be verified by contacting the Social
Security Administration – refer to Section 1 Invalid SSN formats Form SS-5, Application for a Social Security
Card
Employee Withholding Allowance Certificates
Form W-4 - PayrollForm W-4P - Pension and Annuity
PaymentsForm W-4S - Third Party Sick PayState Withholding Certificates
Social Security & Medicare
Social Security Tax Rate = 6.2% (there was a special rate of 4.2% for 2010, 2011 and 2012)
Social Security Wage Base = $117,100 for 2014
Medicare Tax Rate = 1.45% (no wage limit)
Total FICA Tax Rate = 7.65%
Wages Exempt from FICA
Worker Compensation Payments
Deferred Compensation Payments
Flex 125 Payments
Qualified Moving Expenses
More complete list available on Pg 6-48
Statutory Employeesand Statutory Non-
Employees
Statutory Employees – Withhold SSEC and MEDCR Do not withhold FIT
Statutory Non-employees – Do not withhold taxes Issue 1099-MISC
Federal Income Tax(FIT)
Based on Employee Income Must withhold when liability is incurred
Liability incurred when wages are paid or constructively received by the employee
How to withhold Federal Income
TaxBased on:Estimated Annual IncomeMarital Status*Personal Allowances*Additional Withholding (if applicable)*
*Information submitted by employee on Form W-4
Federal Income TaxWithholding Rates
Available in IRS Publication 15, Circular E, Employer’s Tax Guide (revised each calendar year)
Also Available in your Payroll Source and Payroll Source Answer Key and Appendix
Different Method of Withholding
Wage Bracket Method (see Pg 6-20)Percentage Method (see Pg 6-23)Alternative Withholding Methods
Annualized Wages (see Pg 6-23) Average Estimated Wages (see Pg 6-23) Cumulative Wages (see Pg 6-24,25) Part-Year Employment (see Pg 6-25,26)
Supplemental Wage Payments
Wages not part of ordinary wagesFlat rate of 25% if accumulated
supplemental wages are under $1,000,000 per year
Flat rate of 39.6% of amount over $1,000,000
Combined payment Regular withholding rate (Aggregate
Method)
Advanced Earned Income Credit
Reduction of taxes owed for qualified employees
Amount included in employee’s net payMust file Form W-5 annually with employer
to qualify
Practice Problem #1
Wage Bracket Method – Employee Jane is married and is paid $1,790 by her employer on a biweekly basis. Jane claims 6 withholding allowances on her Form W-4. How much is deducted for federal income tax each pay period?
Practice Problem #2
Employee Bill received a $2,000 bonus in addition to his regular wages and has received $50,000 in wages so far during the year. Using the flat rate withholding method for supplemental wages, calculate Bill’s federal income tax withholding on the bonus.
Practice Problem #2 Answer
Employee Bill received a $2,000 bonus in addition to his regular wages and has received $50,000 in wages so far during the year. Using the flat rate withholding method for supplemental wages, calculate Bill’s federal income tax withholding on the bonus.
$2,000 x 25% = $500
Practice Problem #3
Employee Karen received a $20,000 bonus in addition to her regular wages and has received $990,000 in regular wages so far during the year. Using the flat rate withholding method for supplemental wages, calculate Karen’s federal income tax withholding on the bonus.
Practice Problem #3 Answer Employee Karen received a $20,000 bonus in
addition to her regular wages and has received $990,000 in bonuses so far during the year. Using the flat rate withholding method for supplemental wages, calculate Karen’s federal income tax withholding on the bonus.
$10,000 x 25% = $2,500
$10,000 x 39.6% = $3960.00
$2,500 + $3,500 = $6,460 Withheld