Should You Honor All W-4 Requests?

Form W-4 helps employers determine how much federal income tax to take out of their employees’ wages. On the form, employees state their withholding conditions, such as filing status, number of allowances and any additional amount they want withheld. It is the employee’s responsibility to fill out the form so that the right amount is withheld.

As the employer, you must honor all W-4 requests, except if the form is invalid or you’re notified to do otherwise by the IRS.

What is an invalid W-4?

If the employee alters or makes any additions to the IRS’s official W-4 — such as removing the IRS’s language and replacing it with his or her own — then the form is invalid. Further, the form is invalid if on the date that the employee submits the form, he or she clearly indicates that it is false.

A few more instances in which a W-4 is invalid:

  • The form is missing information, such as Social Security number, filing status and signature.
  • The form is illegible.
  • The employee claims both allowances and “exempt” (it must be one or the other).
  • The employee gives you a substitute W-4, developed by him or her.

In such cases, ask the employee to submit a valid W-4. Until the employee submits a valid form, withhold federal income tax from his or her wages based on single filing status and zero allowances. If you have prior valid W-4 on file for the employee, you can use that form instead of withholding at “Single-0.”

What if the employee’s withholding amount appears to be wrong?

From your vantage point, it may seem as though the employee’s withholding conditions are incorrect. For instance, he or she may appear to be claiming too many or too few allowances.

In that situation, withhold federal income tax according to the withholding conditions stated on the form; do not change anything. If the employee seems to have too little taxes coming out of his or her wages, explain to him or her that the IRS might assess the situation and order you to withhold at the appropriate rate. The IRS issues this directive via a lock-in letter.

Depending on the situation, the lock-in letter may state the maximum number of allowances the employee can claim, the permitted filing status or whether the employee is entitled to claim exemption from withholding. Give the employee his or her copy of the lock-in notice and implement the changes according to the instructions in the letter.

The employee cannot decrease his or her withholding once the lock-in letter goes into effect — only the IRS can change the terms of the letter. If you allow employees to make W-4 changes via an online system, make sure those subject to a lock-in letter do not have the ability to decrease their withholding online.

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4 Tips for Successful Absence Management

 SAVE

Absence management is a strategic weapon that employers leverage to help maximize employee productivity. It involves administering programs designed to reduce absenteeism and return employees to work as quickly and as safely as possible.

Employers are increasingly viewing absence management as a top priority. Per Guardian’s “2017 Absence Management Index and Study,” companies with 250 to 1,000 employees are starting to catch up with larger businesses in realizing the significance of a robust absence management strategy.

Absence management interventions should be tailored to meet the specific needs of the organization. Below are four tips to consider.

1. Develop “caring” leave policies.

According to the Society for Human Resource Management’s “2017 Employee Benefits” report, 96 percent of organizations offered paid vacation leave, 81 percent provided paid sick leave and 33 percent gave paid personal leave.

Employers offer paid time off because it matters greatly to job seekers and employees. But while it’s important to provide this benefit, it’s just as crucial to encourage employees to take time off when appropriate. Employees are likely to feel supported when they know that reasonable requests for time off will be graciously endorsed. If they don’t feel supported, they are more likely to become disengaged — a common reason for absenteeism.

Time off required by federal or state laws should be properly incorporated into your leave policies. Also, try to implement wellness programs that encourage healthy behaviors and less absenteeism.

2. Create a return-to-work program.

Workplace illnesses and injuries impact the bottom line and cause employees to lose wages. A return-to-work program can help reduce workers’ compensation costs while restoring employees’ earning power. Strategies for the program may include:

  • Switching the employee to part time.
  • Providing telecommuting opportunities.
  • Modifying work duties and schedules.
  • Instituting reasonable accommodations for disabled employees.

Though the goal is to bring employees back to work as early as possible, remember to demonstrate empathy towards those recovering from a sickness or injury.

3. Hire the right people.

Sometimes you just don’t see a bad hire coming, as the employee may start off on a promising note only to later disappoint. However, by recruiting candidates who appear to understand the importance of punctuality and showing up, you lower the chances of hiring people who are likely to miss work for no good reason.

4. Outsource absence management.

As leave-of-absence administration becomes more complex, more employers are turning to outsourcing. According to a 2018 article published by HR Dive, 40 percent of businesses with 1,000 or more workers plus 27 percent of businesses with 50 or more employees outsource leave administration.

Outsourcing absence management to an HR solutions firm can help you achieve compliance with leave of absence laws, cost savings stemming from fewer lost-time events and faster returns to work, and prevention via a road map built to thwart absenteeism.

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How to Handle Unemployment Claims

Unemployment benefits are provided through a federal-state unemployment program, which is funded largely by federal and state taxes imposed on employers. The Internal Revenue Service enforces federal unemployment tax laws. The state unemployment agency oversees state unemployment tax as well as the determination and disbursement of unemployment benefits.

When an employee files a claim for unemployment benefits with the state unemployment agency, the latter notifies the employer accordingly. It is then up to the employer to handle the issue appropriately. Consider the following suggestions.

Verify the Claim Notice

The claim notice from the unemployment agency contains information provided by the employee. For this reason, you should make sure the notice is correct. Verify whether—

  • the claimant is a former employee,
  • the wages and employment dates on the notice match your records, and
  • the notice’s description of the events surrounding the termination correlates with your documentation.

Determine Eligibility

Each state has its own guidelines regarding unemployment eligibility plus the amount of benefits eligible claimants will receive and for how long. Typically, claimants must have worked for at least a certain period of time, lost their job through no fault of their own, and met the minimum earnings requirement.

Employees who were laid off are eligible for unemployment benefits. Those who were let go because they were not a good fit may be eligible as well. However, employees who voluntarily left their job or were fired for misconduct generally do not qualify for unemployment.

Respond in a Timely and Adequate Manner

The Unemployment Insurance Integrity Act of 2011 says that employers must respond to requests by the state unemployment agency in a timely and adequate manner so that claimants will receive the benefits to which they’re entitled. Under the Act, if an employer fails to properly respond, the state unemployment agency will charge the company’s account for benefits, even if the claimant is later disqualified.

The Act allows states to make their own determination as to what constitutes a “timely” and “adequate” response. In addition, states can implement stricter standards, such as revoking the employer’s rights to appeal the claim in question.

Decide Whether to Contest the Claim

If, based on your evidence, you believe the employee is not entitled to unemployment benefits, you may dispute the claim by following the unemployment agency’s guidelines. The burden is on the employer to prove that the employee should not receive benefits, so make sure you have credible written evidence supporting your position, such as attendance, disciplinary, and termination records. The state unemployment agency will decide whether the employee should receive benefits.

Often, employers fight unemployment claims because they understand the effect of benefits on their state unemployment tax rate, which is influenced by the number of claims charged to the employer’s account. The more former employees who are receiving benefits, the higher the employer’s state unemployment tax rate. Therefore, it is in a company’s best interest to appeal unwarranted claims.

Contact us today for more information about handling unemployment claims.

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Top 5 Payroll Mistakes to Avoid

The ramifications of payroll mistakes emanate from external and internal sources. Externally, the government can levy fines and penalties for payroll noncompliance. Internally, employees tend to become seriously concerned when an error shows up on their paycheck. There are many possible reasons for these mistakes, but the following five are the most common.

1. Timekeeping Errors

A manual timekeeping system means that employee hours are recorded and computed by hand, increasing the chances of mistakes. Although a computerized or web-based timekeeping system can reduce mistakes, manual adjustments are still necessary at times with these systems—such as when employees take vacation, personal, or sick time. One wrong entry can snowball into an incorrect paycheck.

How to avoid the problem: Double-check employees’ hours and wages before distributing paychecks.

2. Improper Withholding

The complexity of payroll withholding makes the process highly susceptible to mistakes, which may stem from the following:

  • Inaccurately setting up employees’ W-4 and state tax information
  • Incorrectly withholding federal and state taxes
  • Erroneously calculating deductions for employee benefits
  • Improperly handling wage garnishments

How to avoid the problem: Use a payroll system that simplifies payroll processing, including withholding, to minimize data entry errors.

3. Misclassifying Employees

Employers who intentionally misclassify employees as independent contractors often do so to avoid paying their share of payroll taxes. Employee misclassification also may be a tactic to escape providing certain benefits, such as health insurance and unemployment.

The Internal Revenue Service (IRS) and Department of Labor take this issue seriously and may impose fines and penalties, including imprisonment, on employers who misclassify employees as independent contractors. The severity of the penalty depends on whether the misclassification was intentional.

How to avoid the problem: Follow all federal and state laws, including IRS guidelines, pertaining to classifying employees and independent contractors.

4. Incorrect Payroll Tax Reporting

Employers must report the taxes they withhold from employees’ wages plus their own share of taxes to the IRS and the respective state revenue agency. With so many reports to file at different times, it can be easy to miss deadlines or submit incorrect information.

How to avoid the problem: Hire a qualified onsite staff to handle payroll tax reporting or outsource it to a competent payroll service provider.

5. Violating Minimum Wage and Overtime Rules

The Department of Labor (DOL) says that it collected over $270 million in back wages for more than 240,000 workers in 2017. Claims for back wages are typically linked to violations of the Fair Labor Standards Act (FLSA), which establishes federal minimum wage and overtime laws.

A clear violation of the FLSA would be paying a nonexempt, hourly employee less than the required federal minimum wage or inaccurately classifying a nonexempt employee as exempt.

How to avoid the problem: Comply with the FLSA’s minimum wage and overtime requirements and be sure to consult state law, which may vary from the FLSA.

Honorable Mention: Inadequate Payroll Recordkeeping

Maintaining proper payroll records is essential to minimizing exposure to audits by the DOL, state labor department, IRS, and state revenue agency.

To ensure you avoid these and other common payroll mistakes, contact us today

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Know the Rules on Classifying Employees

The Fair Labor Standards Act (FLSA) sets guidelines for whether an employee is exempt or nonexempt under federal law. Exempt means that the employee is excluded from the Act’s overtime pay provisions and therefore does not have to be paid overtime for work hours exceeding 40 hours in a week. Nonexempt means that the employee is covered by the Act’s overtime pay provisions and must receive overtime pay for any hours worked over 40 in a week.

Federal Basis for Exemption

To qualify for exemption from overtime, the employee must perform specific duties equivalent to his or her position, as defined by the FLSA. In other words, exemption is based on job duties, not on job titles. For many jobs, exemption also depends on how much the employee is paid and how that payment is made.

  • Executive, administrative, and professional employees are exempt not only from overtime pay but also from receiving minimum wage, provided they meet the FLSA’s duties and earnings tests. In addition to passing the duties test, these so-called white-collar employees must receive at least $455 per week to qualify for the exemption.
  • Executive employees must be paid on a salary basis.
  • Administrative and professional employees may be paid on a salary or fee basis.
  • Certain computer professionals are exempt from minimum wage and overtime if they pass the duties test plus and also receive a salary or fee of at least $455 per week or a minimum hourly rate of $27.63.
  • Outside sales employees are exempt from minimum wage and overtime pay if they satisfy the duties test, which includes making sales and frequently working away from the employer’s place of business. Outside salespeople do not have to undergo an earnings test.
  • Some positions are exempt from only overtime, rather than both minimum wage and overtime. These jobs include those performed by airline employees, motion picture theater workers, and railroad employees.

A Simple Rule for Nonexemption

If an employee does not meet the qualifications for exempt status, then he or she is nonexempt. In addition to qualifying for overtime, nonexempt employees must receive no less than the federal or state minimum wage, whichever is higher. Blue-collar, clerical, construction, and semiskilled employees are typical examples of nonexempt workers.

A Trap to Avoid

Most salaried employees are exempt and most hourly employees are nonexempt. This general standard, however, should not be used as the definitive guidepost for determining exempt or nonexempt status. Employees can be salaried yet nonexempt, such as those who do not perform the duties required for exempt status despite meeting the minimum salary requirement—in which case, they are eligible for overtime. Similarly, employees can be hourly yet exempt, such as those who perform the FLSA-required duties for their role but are compensated on an hourly basis, as allowed by the FLSA.

An Eye on State Law

The state may have laws on overtime pay and exemption that differ from the FLSA. For instance, California has established job duties tests for executive, administrative, professional, and computer employees as well as tests for inside and outside salespeople. California also has its own minimum salary and overtime pay requirements. Be sure to check both federal law and your state’s rules on wages and overtime.

Contact us today for more assistance with correctly classifying your employees.

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Terminating Employees the Right Way

The process of terminating an employee should not be taken lightly, as improper handling can lead to unpleasant results, such as the employee suing the company. It’s therefore vital that you follow the law when firing or laying off an employee.

“At-Will” Employment

Employment is “at will” in most states—meaning, either the employer or the employee can end the employment relationship at any time, for any reason. The employer, however, cannot fire the employee for an illegal reason.

Unlawful Reasons to Fire an Employee

The following reasons constitute unlawful terminations:

  • Discrimination. Federal antidiscrimination laws protect employees from being fired because of their race, national origin, gender, religion, genetic information, disability, or age (if the employee is over 40 years old). Federal law also prohibits most employers from firing an employee because of pregnancy or a medical condition linked to pregnancy or childbirth. Many states have their own antidiscrimination laws, which, in some cases, provide broader protections for employees than federal law.
  • Retaliation. An employee cannot be fired for engaging in certain protected activities, such as reporting his or her employer’s illegal activity to a federal or state agency. The employee also cannot be fired for filing a discrimination claim against his or her employer.
  • OSHA Complaints. It is unlawful to fire employees for reporting noncompliant work conditions to the federal Occupational Safety and Health Act agency.
  • Alien Status. Employers cannot use an employee’s alien status as the basis for the firing—provided the employee has the legal right to work in the Unite States.
  • Other Reasons. Employers generally cannot fire an employee for refusing to take a lie detector test, and in many states, it is unlawful to fire an employee for reasons that are morally or ethically wrong to most people, such an employee’s refusal to commit an illegal act for the employer.

Layoffs

According to the Worker Adjustment and Retraining Notification (WARN) Act, applicable employers must provide at least 60 days’ written notice in cases of mass layoffs or plant closings affecting 50 or more employees at a single worksite.

Employment Contracts

Will the termination violate an employment contract? That’s the pivotal question here. Regardless of whether the contract is oral or written, make sure the termination will not result in you breaching the agreement.

Final Paychecks

As a general rule, employers cannot withhold an employee’s final pay. Most states have final paycheck laws that determine when terminated workers should be paid. In some cases, the timeframe depends on the employee’s industry and whether he or she was fired or laid off.

State law may dictate whether unused vacation or paid time off should be paid upon termination, the method for disbursing final wages, and the types of deductions that can be made from the last paycheck. Other potential areas of examination include employment contracts and company policies that address final or postemployment wages.

Employment termination is a sensitive process that can have long-lasting effects on both the employee and the organization. Therefore, you may need legal counsel along the way. Call us today for additional guidance on proper terminations.

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Understanding Your Payroll Tax Liabilities

On the federal level, employer-only taxes include Social Security tax, Medicare tax, and federal unemployment (or FUTA) tax, which are administered by the Internal Revenue Service (IRS). On the state level, employers are on the hook for state unemployment (or SUTA) tax, which is administered by the state workforce agency.

Although these employer payroll taxes may be commonly known, others, such as employment training tax and transit payroll tax, are less prevalent because they are based on location. Let’s take a closer look at what employers may be responsible for when it comes to their portion of payroll taxes.

Social Security and Medicare Taxes

Both employers and employees are subject to Social Security and Medicare taxes. For 2018, employers and employees pay Social Security tax at 6.2 percent, up to the annual wage limit of $128,400. They also pay Medicare tax at 1.45 percent, on all wages.

Employers remit their portion of Social Security and Medicare taxes plus their employees’ Social Security tax, Medicare tax, and federal income tax withholdings, together, to the IRS, either monthly or semiweekly. Most employers file quarterly wage and tax reports with the IRS on Form 941.

You might be allowed to file your reports annually, on Form 944, if your total tax liabilities equal $1,000 or less for the year. Total tax liabilities include your share of Social Security and Medicare taxes plus your employees’ federal withholdings.

Federal Unemployment Tax

Generally, employers are liable for FUTA tax if they paid $1,500 or more in wages for the calendar year. For 2018, employers pay FUTA tax at 6 percent on the first $7,000 paid to each employee. But, if you meet the requirements, you can take a maximum credit of 5.4 percent against your FUTA tax, which reduces your FUTA rate to 0.6 percent.

Employers typically must remit FUTA tax to the IRS by the final day of the first month that comes after the end of the quarter, plus file annual reports on Form 940 by January 31.

State Unemployment Tax

Employers pay SUTA tax on wages paid to each employee, up to the annual wage limit, at the rate determined by the state workforce agency. SUTA tax rates usually are based on whether the employer is new or experienced and on the employer’s industry. Most employers must file quarterly wage and tax reports with the state workforce agency. But, exceptions may exist. For example, domestic employers often are required to file annual, not quarterly, reports.

Other Employer Payroll Taxes

Although many employers are liable only for Social Security tax, Medicare tax, FUTA tax, and SUTA tax, others aren’t so lucky. Employers in California also must pay and report employment training tax—at 0.1 percent on the first $7,000 paid to each employee, for 2018—to the state’s Employment Development Department. Certain districts in Oregon require employers to pay and report transit payroll tax to the Oregon Department of Revenue.

When in doubt, contact the state revenue agency to determine which state or local payroll taxes are relevant to your business. For guidance on these and other payroll matters, contact us today.

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