Get a Handle on Internal Payroll Controls

Because payroll involves sensitive data, including employees’ Social Security numbers and direct deposit details, employers must take measures to protect this information against payroll fraud. In a 2017 report by Hiscox Inc., payroll fraud was listed as one of the most common types of embezzlement suffered by U.S. companies. The report also stated that employee theft cost these companies $1.13 million in 2016.

No matter your business size, it’s important to establish robust internal controls that not only safeguard against payroll fraud but also allow you to meet the fundamental objectives of payroll, such as paying employees accurately and on time. Following are some suggestions.

Ensure Separation of Duties and Provide Oversight

Separation of duties means assigning different payroll duties to different individuals to minimize the risk of payroll fraud. For example, separation of duties makes it harder for payroll employees to engage in “ghost employee” fraud, such as setting up fake payroll accounts or fraudulently paying employees who no longer work for the company.

Large businesses usually have a more sophisticated separation of duties structure than small businesses. In a large business, you may find multiple payroll specialists and payroll supervisors plus a payroll director or payroll manager. Payroll system access is given to each of these employees based on their job duties, with the payroll director or payroll manager having the highest level of access.

A small business may have only one payroll employee, who’s responsible for reviewing timecards, making timecard edits, and processing and distributing paychecks. Your lone payroll employee should be closely supervised to ensure that payroll funds are appropriately distributed. Also, he or she should not be unilaterally responsible for issuing stop payments and manual checks.

Establish General Internal Controls

In addition to separating payroll duties, general internal controls can help your business establish important safeguards. Your business should do the following:

  • Hire a qualified onsite employee to act as a liaison, if you outsource payroll to a service provider. The liaison double-checks the service provider’s work and performs the necessary oversight while serving as a go-between between the employer and the service provider.
  • Have your payroll employees sign a confidentiality agreement that forbids them from disclosing payroll-related information to unauthorized individuals.
  • Maintain physical payroll records in a secure storage space that is accessible only to authorized personnel.
  • Restrict payroll activities to a private area. Payroll should not be processed in the open, such as from a cubicle that makes it easy for nonpayroll employees to see the payroll processor’s computer screen.
  • Require that payroll change authorizations—such as changes to employees’ withholding allowances, direct deposit, and pay rates—are made in writing. With written authorizations, you have a paper trail for the requests.
  • Reconcile payroll at the end of each pay period to ensure employees’ paychecks and your financial reports are accurate.
  • Perform internal payroll audits at least once or twice per year. Periodic audits can help you detect compliance issues and internal payroll problems.
  • Document your internal payroll controls and train your payroll staff on how to use them.

Whatever the size of your business, if you need help establishing internal controls and safeguarding against fraud, contact our specialists today.

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FSAs: The Missing Piece of the Benefits Puzzle

Millions of workers have access to flexible spending accounts (FSAs) — tax-saving vehicles that let your employees set money from paychecks aside on a pretax basis to cover anticipated health care or dependent care expenses.

The Tax Cuts and Jobs Act that overhauls the tax code makes no changes to the tax treatment of health dependent care FSAs. The key change for FSAs in 2018 affects those who use them for health care costs: The annual limit is tied to the inflation rate, and price increases over the past year will lift the contribution limit over 2017 by $50 to a total of $2,650. The limits for dependent care FSAs are holding steady at $5,000 for single-tax filers and married couples filing jointly, and $2,500 for married couples filing separately.

No health insurance policy covers everything, and that’s where FSAs come in. They are reserved to pay for your workers’ out-of-pocket health care costs — and what’s special is the workers don’t have to pay taxes on the money put into the account.

Used correctly, FSAs can produce huge tax savings. Yet a surprising number of employees don’t take advantage of FSAs. One reason: They typically work on a use-it-or-lose-it basis.

Employees contribute a specific amount to their accounts, rack up eligible expenses and then get reimbursed or get the amount debited from a prepaid account.

The amount committed during enrollment is the amount they have to work with during their plan year. Employees can’t change their minds later to add more or reduce the contribution. The only exceptions are for qualifying life events, such as getting married or divorced, or having a child.

Health care FSAs are used to pay for expenses on medications, doctor’s office visits and medical equipment such as blood sugar monitors. Over-the-counter medications also are eligible for FSA reimbursement, but they need a prescription to qualify.

Dependent care FSAs are used to pay for such child care expenses as day care, preschool or summer camp.

You as an employer can help make FSAs more attractive: FSA rules have evolved to protect employees from large losses. You can allow workers to preserve unused FSA funds or give participants more flexibility via one of the following options:

  • A $500 carryover, which allows participants to roll that much money into the upcoming plan year without that sum counting toward the total contribution.
  • A two-and-a-half-month grace period — until March 15 of the following year — which allows participants to incur eligible expenses for roughly another 10 weeks once the plan year comes to a close.

Employers do not have to offer either option, and they are not allowed to offer both.

If you offer one of the protections above, your employees will see FSAs as offering less risk. FSAs can benefit every employee — individuals, families and soon-to-be retirees. By setting aside pretax dollars, your workers pay fewer taxes and increase their take-home pay.

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Pregnant Pauses: Knowing All About Maternity and Paternity Leave

Mothers and fathers have been navigating maternity and paternity leave policies for decades. Unfortunately, the U.S. has one of the least impressive frameworks for this time off in place. But with knowledge and planning, you can make this time work for you and your employees.

You as an employer are legally mandated to offer very little in the way of maternity and paternity leave. The requirements fall under the Family Medical Leave Act. Beyond this narrow scope of mandatory unpaid leave, you can offer employees more if they use a combination of paid parental leave benefits and vacation time, sick leave, and short-term disability as add-ons.

You will probably want your human resources representative to go over leave options with your employees. HR can explain how much time is allotted, so workers can get a clearer picture of how many weeks they can spend at home and think about how the leave will affect household finances.

A terrific suggestion is to have employees talk with co-workers who’ve taken leave before. HR can give the technical aspects, but a parent who’s actually put the company’s policies into practice may offer employees unique insights.

Employees obviously would love to spend those precious first months with their new arrival and get paid to boot, but only 39 percent of full-time American workers have access to family leave. A few states have taken the initiative to mandate paid family leave, but in most cases, workers generally rely on their employers to provide any paid maternity and paternity leave.

Expectant parents and those waiting to adopt can often bank on their sick leave and vacation time to prepare for the new baby. Employer policies regarding this use of paid leave vary. New mothers should be able to use sick time for the final weeks of pregnancy and the days after giving birth because they may be physically incapable of working. Some firms are flexible in the use of sick leave, allowing it throughout the first months of the baby’s life and after adoption. Vacation time is easier to access.

Babies get sick, but workers may not want to exhaust sick leave, so they can save some for inevitable doctor visits and future illnesses.

An estimated 40 percent of employees have access to short-term disability insurance. This is largely limited to the date of delivery through the six weeks after, when mom is considered disabled due to a medical condition. High-risk pregnancies and complications after delivery can increase the time workers are eligible for these benefits.

Know the FMLA Details

The Family Medical Leave Act requires some employers to provide up to 12 weeks of unpaid leave for employees with serious health conditions or those welcoming a new child through birth or adoption. Workers don’t have to worry about losing their job because of time away.

Your workers are eligible for coverage and protection under FMLA if they meet the following requirements:

  • Have worked for the company for at least one year and have put in 1,250 hours during that 12-month period.
  • Work for a company with 50 or more employees.
  • Live within a 75-mile radius of their workplace.

These are not the only rules, however, and it pays for employers to familiarize themselves with the details, as outlined by the Department of Labor.

Finally, although parental leave is traditionally thought of as something for mothers, fathers may want to use vacation time and sick leave right after the child’s birth — or even short-term disability, especially if caring for a spouse or a partner’s recovery. The FMLA applies to men and women. In addition, if you offer maternity benefits to women above and beyond what the FMLA requires, you will likely have to offer equivalent paternity benefits as well. Also note that many employers allow leave for new adoptions too, and this may make sense for your business.

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Wage Garnishments: What You Need to Do

There’s an official-looking letter on your desk: a court has informed you that a debtor is employed at your firm and you will have to start withholding the employee’s pay accordingly. There are instructions for handling this, and a notice that you will be held in contempt if you don’t respond.

You will most likely have to determine the amount of garnishable wages for each pay period and withhold those wages as directed by the court order until the judgment is satisfied, or until the court orders you to stop withholding.

You will need to report and distribute the total amount of wages withheld to the creditor or the creditor’s attorney, usually within 15 days after the close of the employee’s last pay period in the month. If another garnishment is received, you have to follow the same procedure but, of course, that payment goes to a second creditor and cannot be paid until the first garnishment has been paid in full.

In return, you should receive a statement listing the payments that were received and how they are going to be applied to the judgment principal, costs, interest and fees.

Going forward, you will need to tell the court and all related parties if the employee stops working or is fired. The garnishment will typically terminate 90 days after the end of employment, unless you hire the employee back.

You should know that federal law limits the amount of earnings that can be garnished to 25 percent of disposable income or the amount that income exceeds 30 times the federal minimum wage, whichever is less.

If there are problems complying, you may oppose the garnishment by filing a motion in court, and will need a lawyer for that. For example, you may claim that the garnishment sought by the creditor amounts to exempt earnings that belong to the employee. Basically, however, you want to comply and move on, although you are not required to turn over property that’s not in your possession or to collect from your employee any tips that were paid directly to the employee by your customers.

This is just an introduction to a complex subject, and state laws may affect some of these rules. The best you can do is read any court orders promptly, follow the instructions, and consult with a professional if you have any questions.

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How OSHA Can Affect Your Business

The Occupational Safety and Health Administration was established within the Department of Labor and authorized to regulate health and safety conditions for all employers. (Similar state agencies may augment or supplant OSHA.)

OSHA was created to:

  • Encourage you and your employees to reduce workplace hazards and implement or improve existing safety and health standards.
  • Provide research in occupational safety and health, and develop innovative ways of dealing with such issues.
  • Establish “separate but dependent responsibilities and rights” for you and your employees for the achievement of better safety and health conditions.
  • Maintain a reporting and record-keeping system to monitor job-related injuries and illnesses.
  • Establish training programs to increase the number and competence of occupational safety and health personnel.
  • Develop mandatory job safety and health standards and enforce them effectively.

And here’s the “general duty clause” that says if there aren’t specific standards to address a given situation, you are responsible for following the intent of the act. It states: “each employer shall furnish to each of his employees employment and a place of employment which is free from recognized hazards that are causing or are likely to cause death or serious physical harm to his employees.” It is this clause that allows OSHA to issue citations and fines.

Although all companies have to consider safety rules, in some businesses where injuries are common, like restaurants, it’s especially important.

You are responsible for keeping employees informed about OSHA regulations and the various safety and health matters that involve them. One thing you can do: Post materials from OSHA concerning employees’ rights and responsibilities, with copies of OSHA citations for violations of standards so employees can see that the violations were abated.

Sometimes, OSHA or NIOSH — the National Institute for Occupational Safety and Health — research activities require you to measure and record employee exposure to potentially harmful substances. Other times, you can expect workplace inspections that OSHA conducts to enforce its standards, focusing on imminent danger, catastrophic or fatal accidents, employee complaints, programmed high hazards and re-inspections.

OSHA fines for those who violate its rules can start at over $12,000 per incident and rise for willful or repeated violation.

Practical Help

If OSHA inspectors come to your place of business, here are some suggestions for working smoothly with them:

  • Answer questions truthfully without directly admitting guilt.
  • Don’t offer information unless it is asked for.
  • Be courteous.
  • Don’t discuss political views regarding OSHA or the federal government.

Before an OSHA compliance officer arrives for an inspection, he or she will conduct an opening conference. The officer will explain why he or she is there and what will happen next. You can ask the officer to wait while you assemble the appropriate people for the opening conference. A walk-through inspection will follow, with a discussion of the outcome and a plan for action if needed.

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Employee Leave Eligibility and Natural Disasters


The aftermath of a hurricane raises questions about employers’ obligations under such laws as the Family and Medical Leave Act and the Americans with Disabilities Act when a natural disaster is involved.

The FMLA doesn’t require employers to give their workers time off to attend to personal matters arising out of a natural disaster — cleaning a flood-damaged basement, salvaging belongings or searching for missing relatives, for instance.

However, an employee would qualify for FMLA leave when, as a result of a natural disaster, the employee suffers a physical or mental illness or injury that meets the definition of a serious health condition, rendering the worker unable to perform their job. FMLA is in effect as well if an employee is required to care for a spouse, child or parent with a serious health condition affected by the natural disaster.

Here are two examples:

  • A hurricane causes your employee’s blood pressure to soar, rendering him unable to perform his job. If medical certification supports the need for leave, then FMLA leave kicks in.
  • A worker’s family member develops a serious health condition related to the natural disaster. Say an employee’s parent suffers from diabetes and the power goes out in the parent’s home. The employee may need to help administer the parent’s medication, which must be refrigerated. Again, that may trigger a mandated leave.

While employees who are physically or emotionally injured as a result of a natural disaster may be entitled to FMLA leave, if the impairments rise to the level of disability, then potential employer obligations kick in under the ADA. Sometimes, a medical condition may arise several weeks or even months after the natural disaster hits. You need to be vigilant in watching for signs of an employee scarred by a natural disaster.

If you’re thinking post-traumatic stress disorder, you’re right — it can arise from a natural disaster. You’d have to consider FMLA and ADA obligations: You may need to provide FMLA leave as well as reasonable accommodations for employees — an option to telecommute or work from home or provide leave so they can attend counseling or receive medical treatment.

You need to obtain as much information as possible from the employee to determine whether the absence qualifies as protected leave. When in doubt, provide the requisite FMLA paperwork and allow your worker to provide the necessary information to support the FMLA leave.

Also, make sure that medical certification is sufficient to cover the absence. Where more information is required, employers must follow up with a worker to get information necessary to designate the absence as FMLA leave. You have a right to seek a second opinion to ensure FMLA leave is appropriate.

Finally, keep in mind this is just a general introduction and summary to a complex series of laws and regulations. Call us to discuss your particular situation.

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5 Steps to the Successful Multi-Office Business

Each new office seems deserving of all your time, but there are still your existing offices, whose need for attention hasn’t diminished. Building, disseminating and maintaining a cohesive business strategy across multiple sites is a challenge, but you need to get it right to continue to be successful.

Step one: Information needs to be shared.

This means that no one is behind on information, and you create a sense of community. Technology makes this happen because it allows immediate, widespread communication. You must ensure that there is one main method of digital communication — inconsistently used initiatives quickly become difficult to manage effectively. Use the one tool that works well and commit to communicating relatively frequently through it. You may want to send a brief weekly email newsletter to all staff. The tricky part is working across time zones, so if possible, send official communications when all offices are open.

Step two: Your leadership team is your greatest asset.

Employing an excellent senior management team to undertake communication on the company’s behalf is as important as digital communications. Have a senior management team member assist in running the firm, coordinating each office to provide local leadership. It’s wise to have a strong chain of command and a team that integrates as much as possible with each other to keep everyone informed about work across the company. Strong departmental management complements the businesswide strategic vision.

Step three: Timing is everything.

It’s essential to maintain a top-level presence across all offices and to be a recognizable face to all employees. If your company is based in one region, try to visit each office every month. If your firm is spread across the country, visit every two or three months. Time your visits within a week of each other and give a little more attention in your weekly email newsletter to any office that hasn’t been visited in a timely manner.

It makes sense to prioritize visits according to the size of the office, while maintaining a high level of inclusion in digital communications to show staff that they are highly valued.

Step four: Integrate wherever possible.

Encourage cross-office collaboration to develop a wider understanding of the business as a whole. It’s healthy to work with a number of different people and conducive to caring about the business beyond each office’s four walls. One means of doing this is to give staff opportunities to shape the company’s image, such as by participating in brand workshops or to be personally involved in company improvements.

Step five: Don’t be afraid to try something new.

Always try new things and commit to change. What suits one business may not suit another. Be prepared to innovate to find what works for you. That’s why building a personal relationship with as many employees as possible works — you’re giving people a chance to mix with others they would never normally work with.

Don’t forget the value of old-fashioned face time among and across teams. By encouraging this, you will contribute to successful integration and a corporate culture across geographies. Local offices need to be held accountable for quality control, scheduling and improving systems, and such efficiencies may work companywide.

All of this can seem like a lot of hard work, but splitting time between offices and building a system of shared information is crucial to the overall success of multi-office businesses. By trying to achieve equilibrium, you create a happy workforce that delivers the best results.


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