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5 Biggest Payroll Mistakes to Avoid

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Mistakes often are chalked up to human frailty, but those affecting your company’s payroll aren’t so easily dismissed.

Failure to comply with payroll laws can cause increased scrutiny from government agencies, penalties, fines and – in extreme cases – imprisonment. Employee goodwill also could be lost, as workers quickly tend to become disillusioned by payroll mistakes.

Here are the five biggest mistakes employers make when processing payroll and how you can avoid them:

  1. Misclassification of Employees as Independent Contractors

Misclassifying employees as independent contractors leads to the employer avoiding its share of taxes and the employee’s portion not being withheld. The misclassified employee also loses out on vital benefits and protections, such as employer-sponsored health insurance, overtime and unemployment compensation.

Generally, if you control what type of work will be done and how it will be done by the worker, then the worker is an employee, not an independent contractor. But, determination isn’t always so simple, as there are other variables to consider, such as the type of relationship you have with the worker and how he or she is paid.

  1. Improper Classification of Nonexempt Employees

Nonexempt employees are entitled to overtime, but exempt workers are not. Therefore, when you misclassify nonexempt employees as exempt, they don’t get overtime pay, no matter how many hours they work per week. This practice can lead to a wage-and-hour lawsuit.

Example: A 2015 Department of Labor press release states that a Fargo-based hotel owner was ordered to pay more than $180,000 to 200 current and former employees because he failed to pay them overtime and misclassified some workers as exempt salaried.

Typically, an employee must perform specific job duties and receive an annual salary in excess of a specific amount to qualify as exempt. The rules are intricate, so consider using an HR management tool, if necessary.

  1. Withholding Blunders

Paycheck deductions can be mandatory or voluntary, making the withholding process a multi – faceted one with vast potential for slip-ups. The most common mistakes include:

  • failure to withhold federal and state taxes;
  • improperly setting up the employee’s tax information;
  • inaccurate calculation of pretax and post-tax deductions, such as cafeteria plan premiums and wage garnishments;
  • making incorrect deductions from exempt employees’ salaries;
  • excluding taxable fringe benefits – such as gift cards and certain awards and prizes – from the employee’s income;
  • excluding specific expense reimbursements from the employee’s taxable wages;
  • providing employees with a Form 1099-MISC instead of a W-2; and
  • issuing incorrect W-2s.
  1. Late Tax Payments and Filings

The IRS typically requires biweekly or monthly deposits of withholding taxes and the employer’s share of taxes. In addition, most employers must file W-2s along with quarterly and annual returns. Note that the implementation of the Affordable Care Act has made the filing process even more detailed for employers. What’s more, the state has its own deposit and filing criteria.

Penalties vary for failure to pay, make timely deposits and file. For instance, IRS late-deposit penalties range from 2 percent to 15 percent, depending on when you make the deposit.

You may be hard-pressed to remember all the different withholding, payment and filing procedures. Consider using checklists (or flowcharts) and calendars to keep you on track.

  1. Subpar Recordkeeping

Nothing prolongs a payroll audit more than shoddy recordkeeping. And nothing makes an audit go more smoothly than sufficient documentation. To accomplish the latter, follow the payroll recordkeeping laws required by the federal and state government. Payroll records include documentation relating to minimum wage, overtime, equal pay and child labor.

Under federal law, you must retain payroll records for at least three years except for those dealing with wage calculations, which you can keep for two years. You also must establish a complete and accurate timekeeping system for your nonexempt employees to use. On top of federal law, you must also observe state and local regulations when it comes to record keeping.

Many employers entrust their payroll to a competent provider, reducing the likelihood of errors even more. However, make sure you are going with a payroll provider with strong financials and one that has been in the business for at least 10 years.


Bryan Bagby

by Bryan Bagby


Author Bio: Bryan Bagby is a seasoned payroll and tax professional with over seven years of industry-related experience. During his time as tax manager, he created a development plan, empowering leaders to build on their skills, while also championing an inner-department communication strategy. Bagby's dedication to providing service excellence ultimately led to his new role as the director of Paycom service. Bagby is an expert on employer taxes, personnel development, customer service and leadership. Outside of work, he enjoys spending time with his wife and children as well as the occasional round of golf.

reverification

Best Practices for Utilizing Section 3 of the Form I-9

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Best Practices for Utilizing Section 3 of the Form I-9

Employers are used to filling out Section 1 and Section 2 of Form I-9 because it’s required for every employee. However, Section 3 – otherwise known as the reverification process– can be a bit mystifying.

Who should be reverified?

Employees with expiring employment authorization or documentation should be reverified to ensure continued authorization to work in the United States. The need for reverification is determined by looking at the List A and List C documents that were presented when the I-9 was initially completed. The work authorization expiration date entered by the employee in Section 1, if any, also should be taken into consideration.

When should the reverification process be completed?

The reverification process should be completed prior to the expiration date of the employee’s authorization or documentation. The expiration date is found in two places: the date provided by the employee in Section 1, and the date recorded under List A or List C in Section 2. If these dates conflict, employers should use the earlier date to determine when reverification is necessary.

The United States Citizenship and Immigration Services (USCIS) recommends reminding employees that their documentation will expire at least 90 days ahead of the expiration date. This gives them time to present a List A or List C document or receipt showing continued work authorization. Paycom’s Document and Task Management system helps to ease the burden on employers by providing reminders 90 days prior to an employee’s reverification date.

When should the reverification process NOT be used?

Knowing when you cannot reverify an employee is important, too. U.S. citizens and noncitizen nationals should not be reverified. Additionally, lawful permanent residents should not be reverified if they provide a Form I-551, Permanent Resident or Alien Registration Receipt card for Section 2. An employee’s citizenship status is found in Section 1, as well as at the top of Section 2. Also, List B documents – even if they expire – should not be reverified.

How do you complete Section 3?

To complete Section 3, simply examine the unexpired documents presented by your employee to determine if they appear to be authentic and relate to your employee. Then, record the document title, document number and expiration date, if there is one. Lastly, sign and date this section. You must use Section 3 from the most recent Form I-9, even if the employee’s original form is an older version.  Likewise, if you previously have completed Section 3 for the employee, you should use Section 3 on a new version of the form and attach it to the employee’s original I-9.

 Other instances in which you can use Section 3

Employers also may complete Section 3 when an employee is rehired within three years of the date that the Form I-9 was originally completed. To complete Section 3 for rehires:

  • Confirm that the original I-9 relates to the employee.
  • Determine if the employee is still authorized to work or if reverification is required by reviewing Section.
  • Enter the date of rehire in Section 3 if the employee’s work authorization is still valid.
  • If expired, request the employee’s valid List A or List C document and complete a Section 3 reverification.
  • Sign and date Section 3.

 

Name Changes

You also can use Section 3 to record when your employee has a legal name change. You are not required to update Form I-9 for name changes. However, the USCIS recommends maintaining correct information on an employee’s Form I-9. Similarly, you are not required to request documentation of a name change from an employee, but it is recommended in order to be reasonably assured of your employee’s identity if the government ever asks to audit the Form I-9.

Paycom’s Document and Task Management solution automates employment verification from within the Paycom system to help ensure compliance and reduce your exposure to audits and penalties from Form I-9 violations. Employees and employers can complete the Form I-9 online, including Section 3, utilize electronic signature verification, and securely store completed Form I-9s and supporting documentation within the Paycom system.

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Posted in Blog, Compliance, Document Management, Featured

Alyssa Looney

by Alyssa Looney


Author Bio: As a compliance attorney for Paycom, Alyssa Looney monitors laws, rules and regulations to ensure that the Paycom software is up to date, specifically regarding immigration law and state law developments in the Western United States. She holds a JD and an MBA from Pennsylvania State University, as well as a bachelor’s degree from Texas A&M University. Outside of work, Alyssa enjoys cooking, being active, playing with her puppy and exploring Oklahoma City.

May the 4th

Disturbance in Your Workforce? May the 4th Be With You

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A short time ago in an employee suggestion box not far, far away, this note from a disengaged employee was discovered.

Dear Management,

Being a real trooper, I’ve faithfully served this empire for many parsecs. But lately, morale here is in the trash compactor. I’m close to “storming” out of here! Here’s why:

  • We don’t feel valued. It’s challenging to work for someone who acts like a dictator. (The black cape? A bit much.)
  • We want a comfortable working environment. These uniforms don’t exactly help. (I have to plan bathroom breaks 30 minutes in advance.)
  • We want to contribute, but we’re afraid the boss will choke us from across the room if he doesn’t like what we say. A little two-way constructive feedback could make a death star-sized difference. 
  • I find our lack of training disturbing. With the literal universe at our fingertips, why do we not have an online learning management system?

A disengaged staff is a real phantom menace. Don’t let this happen; awaken your workforce today with our “What Employees Want” toolkit to help you keep the force in your workforce as strong as possible.

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Posted in Blog, Employee Engagement, Featured, HR Management, Learning Management, What Employees Want

Rod Lott

by Rod Lott


Author Bio: As Paycom’s Creative Services Manager, Rod Lott brings more than two decades of experience in marketing, advertising, branding and journalism. A published author and a graduate of the University of Oklahoma, he has worked with such brands as Blue Cross Blue Shield, Sonic Drive-In and OU.

Paid Family Leave Program

New York to Implement Nation’s Most Comprehensive Paid Family Leave Program

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New York to Implement Nation’s Most Comprehensive Paid Family Leave Program

Private employers in the state of New York will soon be required to provide up to 12 weeks of paid family leave. The new law will apply to all employees of employers covered by the state’s worker’s compensation law and will be completely employee-funded via payroll deductions. Public employers are permitted to participate by opting-in to the program.

Growing Trend

These types of “paid family leave” laws continue to gain momentum. Three other states (California, New Jersey and Rhode Island) provide workers with partial pay during parental leave. Some cities have even joined in on the trend. San Francisco passed a paid family leave program in 2016, and Washington, D.C. also recently approved one that will take effect in 2020.

New York lawmakers championed this law as a pivotal step in the pursuit of equality and dignity in both the workplace and home. “New York enacted the strongest paid family leave plan in the nation to ensure that no one has to choose between losing a job and missing the birth of a child, or being able to spend time with a loved one in their final days,” said New York Governor, Andrew Cuomo, upon passage of the law.

Employee Eligibility

The New York legislation originally passed in April of 2016, but the obligations for employers and employees were announced just recently.

Beginning January 1, 2018, the state’s paid family leave program will provide employees with employment protection and partial wage replacement if they spend time away from work to:

  1. bond with a child (including fostering or adopting)
  2. help relieve family pressures when someone is called to active military service
  3. care for a close relative with a serious health condition

A “close relative” as defined under the law includes a spouse, domestic partner, child, parent (including in-law), grandparent and grandchild. An employee must be employed full-time for 26 weeks, or part-time for 175 days to be eligible for a paid family leave benefit. An employer may permit an employee to use vacation or sick leave while on leave, but may not require its use.

 Employer Impact

The complete 12-week benefit will not be implemented fully until 2021. The amount of paid family leave and the percentage of the employee’s salary paid will be realized over four years:

 

Year Weeks
Available
Max % of
Employee Salary
Cap % of State
Average Weekly Wage
1/1/2018 8 50% 50%
1/1/2019 10 55% 55%
1/1/2020 10 60% 60%
1/1/2021 12 67% 67%

 

Employers will be required to purchase a paid family leave insurance policy or self-insure. The employee will pay the premiums of the policy via payroll deductions, beginning July 1, 2017.

For more information about the phase-in process, calculation of the Average Weekly Wage, or general information on the program, visit the New York paid family leave website.

Disclaimer: This blog includes general information about legal issues and developments in the law. Such materials are for informational purposes only and may not reflect the most current legal developments. These informational materials are not intended, and must not be taken, as legal advice on any particular set of facts or circumstances. You need to contact a lawyer licensed in your jurisdiction for advice on specific legal issues problems.

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Posted in Blog, Employment Law, Featured, Pre-Employment, Talent Acquisition, Talent Management

Jason Hines

by Jason Hines


Author Bio: Jason Hines is a Paycom compliance attorney. With more than five years’ experience in the legal field, he monitors developments in human resource laws, rules and regulations to ensure any changes are promptly updated in Paycom’s system for our clients. Previously, he was an attorney at the Oklahoma City law firm Elias, Books, Brown & Nelson. Hines earned a bachelor’s degree from the University of Central Oklahoma and his juris doctor degree from the Oklahoma City University School of Law, where he graduated cum laude. A fan of the Oklahoma City Thunder, Hines also enjoys exploring the great outdoors with his wife and daughter.

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