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FICA Tip Credit: Serving Up Savings

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Owning a restaurant seems like a glamorous idea, or at least it did to me, but there’s more to running a restaurant than cooking good food and mingling with customers. In order to be a successful restaurateur you have to have a good grasp on the fundamentals on running your establishment. You have to meet customer demands, maintain inventory as well as staff and manage expenses. Ensuring that expenses are recorded properly and issued appropriately might be one of the most daunting tasks, especially with the ever-changing regulations under the Federal Insurance Contributions Act (FICA). Going into 2014, new modifications have been prompted yet again and should be noted.

By law employers must pay taxes on these tips earned, as they are seen as income. Fortunately, there is a loophole known as a tax credit that allows restaurant owners to recover most of the money taken from tips. Those that choose to leverage this credit have the opportunity to save significant amounts of money.

What is FICA Tip Credit?

Food and beverage establishments accustomed to tipping, are entitled to a 45(B) credit for part of the taxes paid on tips earned by employees. An amount of 7.65% can be taken as a business credit on your corporate tax return.

What’s Changed?

According to the Revenue Ruling for 2012-18, service charges can no longer be included in the FICA  Tip Credit Report. Rather, service charges are determined as wages not tips and must be filed differently. The IRS guidance issued four criteria for determining whether amounts paid by patrons should be regarded as service charges or tips.

Criteria to be considered a tip:

  • The payment must be made free from compulsion.
  • The customer must have the unrestricted right to determine the amount.
  • The payment should not by the subject of negotiation or dictated by the employer.
  • The customer has the right to determine who receives the payment.

It is important to note that tip pooling, tip sharing and gratuities are no longer applicable for the FICA Tip Credit and are subject to taxes.

Benefits of Applying

Aside from the tax credits scarce identity among restaurant owners, it must be formally requested, which may also indicate why many are not taking advantage of it. However, owners using FICA tip credit potentially save hundreds for every employee that correctly reports their tip earnings. If you consider all servers and staff, the savings are substantial. Eligible applicants, it would behoove you to familiarize yourself with FICA tip credit and determine the best plan for your business. With regards to eligibility, there are two established criteria for the FICA tax credit:

  • Businesses have employees who were given tips for providing, delivering and serving food or beverage for consumption.
  • Businesses paid or those that incurred employer social security and Medicare taxes on these tips.

How to Calculate a FICA Tip Credit

On average a server makes $2.13 an hour plus tips. With FICA tip credit, a server makes $5.15 an hour (based on the old minimum wage). After tips, a server ends up making roughly 11 dollars. With FICA, the employer pays taxes on the 11 dollars earned, but is entitled to credit at the end of the year on the difference between minimum wage and the actual amount earned by the employee.

Take for example, Billy. Billy worked 40 hours a week making $2.13 an hour. Billy reported $300 in tips for the entire week. The Federal wage rate is $5.15 an hour for the purpose of FICA tip credit. In this case, a restaurant owner would save over $713.44 annually for this one employee. Here’s how it looks all spelled out.

Weekly Wages = Hours Worked X Hourly Rate + Reported tips

40 x $2.13 + $300 = $385.20

Wages Paid at Minimum Wage = Hours Worked x Federal Wage Rate

40 x $5.15 = $206.00

Tax Credit = Weekly Wages – Wages Paid at Minimum Wage x FICA

$385.20 – $206.00 x 7.65% = $13.72

Annual Savings per Employee = Tax Credit x Payroll Frequency

$13.72 x 52 weeks = $713.44 annually

The Paycom Solution

The savings allotted to restaurant owners from FICA are significant but the process in which to keep track with expenses can be a mess. However, Paycom can help by automatically producing a FICA Tip Credit Report that can be generated every pay period. No more hassle and confusion, everything is done for you. And with the ease of a single application and capability to alleviate compliance risks, Paycom allows you to focus on what really matters, your customers.

 



Author Bio: Lauren is an enthusiastic writer who is passionate about numerous topics surrounding the HCM industry including talent management and acquisition, technology, document management and leadership, just to name a few. Lauren has been with Paycom for over a year and has taken on roles as a blogger, social strategist and community relations coordinator. In her spare time she enjoys DIY“ing,” exploring the city and keeping up with her two dogs, Deacon and Cookie.

ACA Awaits Repeal or Repair

ACA Awaits Repeal or Repair

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ACA Awaits Repeal or Repair

After his electoral win in November, President Donald Trump, buoyed by Republican majorities in the House and the Senate, vowed to act quickly to repeal and replace the Affordable Care Act (ACA). Pres. Trump has now been in office for a month, and Republicans have not yet voted to repeal the ACA, and have not agreed upon a potential replacement, leaving the date of “repeal and replace” somewhere in the uncertain future. stethoscope

Early strategies

When the current Congress convened in January, it moved quickly to begin the “repeal” portion of “repeal and replace” by passing a budget resolution. Because the GOP does not have a filibuster-proof majority in the Senate and cannot count on votes from Democrats to repeal the ACA, Republicans have decided to utilize a procedure known as budget reconciliation to dismantle it.

By using this procedure, Congress can pass a bill to repeal the ACA with a simple majority in the Senate. The reconciliation instructions in the budget resolution directed various committees to come up with proposals to repeal the ACA and submit them to the budget committees of the House and Senate. The reconciliation proposals would then be crafted into a bill by the budget committees, and the reconciliation bill would then need to pass both the House and the Senate before being signed by the President.

Potential outcomes

However, the provisions of the bill passed this way must target elements of the ACA that have a federal budgetary effect. Therefore, the ACA provisions that allow children to stay on their parents’ insurance through age 26 and the requirement that insurers cover preexisting conditions could not be eliminated using this procedure. Nor could the individual and employer mandates be eliminated in this way, but the amounts of the penalties could be reduced to zero, eliminating them in all but name.

Repeal or repair?

Republicans originally called for reconciliation proposals to be submitted to the budget committees by January 27, but that date has come and gone. Congressional Republicans continue to work on “repeal and replace,” but many of them have begun talking about “repair” of the ACA, rather than repeal, as they recognize the difficulty of legislating in this area.

In an interview with Fox News’ Bill O’Reilly on February 5, President Trump said that replacement could take until 2018.

O’Reilly asked “Can Americans in 2017 expect a new health care plan rolled out by the Trump administration this year?”

Trump responded, “We’re going to be putting it [the new healthcare plan] in fairly soon, I think that … by the end of the year at least the rudiments but we should have something within the year and the following year.”

Employer mandates remain in place

One thing that has become clear during the first month of the Trump presidency is that repealing the ACA is a much tougher prospect than many had thought. Despite the uncertainty with regard to the long-term future of the ACA, the current reality is that the ACA and the employer mandate remain the law of the land, and employers should continue to comply with the law’s requirements. Applicable Large Employers should file IRS Forms 1094 and 1095 no later than the March 31 if filing electronically, or February 28, if filing paper forms. Forms 1095-C must be furnished to employees no later than March 2. Large employers should continue to comply with the employer mandate, measure their full-time employees, and offer minimum essential coverage providing minimum value to those employees and their dependents.

Paycom will continue to monitor executive and Congressional action regarding the ACA closely and stands ready to help our clients maintain compliance.

 

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Posted in ACA, Blog, Compliance, Featured

Erin Maxwell

by Erin Maxwell


Author Bio: As a compliance attorney for Paycom, Erin Maxwell monitors legal and regulatory changes at the state and federal level, focusing on health and employee benefits laws, to ensure the Paycom system is updated accordingly. She previously served as assistant general counsel at Asset Servicing Group in Oklahoma City. She holds a bachelor’s degree from the University of Central Oklahoma and a J.D. from the University of Oklahoma. Outside of work, Maxwell enjoys politics, historical mysteries and spending time with her family.

Learning Management Systems 101: Rethinking Your Approach to Employee Training

Learning Management Systems 101: Rethinking Your Approach to Employee Training

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Learning Management Systems 101: Rethinking Your Approach to Employee Training

Learning Management Systems 101 is a weekly blog series exploring how employers can rethink traditional employee training and move toward e-learning solutions, which are faster, easier to access, and more cost effective. Rethinking Your Approach to Employee Training is the second post of the series.

 Rethinking Your Approach to Employee Training

Employers who understand that training is a vital contributor to organizational growth are continuously challenged to deliver training that is practical for the company and beneficial to employees. Consequently, there is a need for employers to rethink how knowledge is delivered, accessed and shared across the organization. Here are six factors to consider.

  1. Training Should Align with a Direct Business Need

Training will not solve job performance problems if the real issue lies elsewhere – such as employee motivation, compensation systems or job design. For training to work, there needs to be an association between the training itself and the reason for the training.

Learn more about how to propel your business growth through employee learning.

For example, a banking sales representative may have superb selling skills but poor product knowledge. Through appropriate product knowledge training, he or she may achieve a good balance of product knowledge and selling skills.

Therefore, it is important to perform a detailed analysis of the issue before leveraging training as the solution.

  1. Organizations Are Progressively Adopting Online Training

Classroom-based (traditional) training can be impractical and expensive for employers to implement. Among other things, there are instructor costs, venue costs and course material costs to consider with traditional training. For these reasons, more and more employers are turning to e-learning (online learning) solutions.

Workflow Friendly

According to a study by Brandon Hall Group, it typically takes employees 40 to 60 percent less time to study a particular material via e-learning than in a traditional classroom setting. This is due to employees being able to access training online whenever they need it, without interrupting their workflow.

Boosts Retention

The Research Institute of America concluded that e-learning boosts retention rates by 25 to 60 percent, compared to retention rates of 8 to 10 percent with traditional training. This is because e-learning employees have more control over the learning process and are able to revisit training as needed.

The University of the Potomac stated that 67 percent of college instructors believe online media – such as blogs, video and podcasts – are necessary teaching tools.

  1. On-Demand and Mobile Learning is Growing

On-demand training does not include an instructor. Instead, employees access training on their own, any time, from any device with an internet connection – such as a desktop computer, laptop, smartphone or tablet. According to Chief Learning Officer magazine, most organizations (58 percent) prefer to use on-demand learning for compliance training, compared to 12 percent who prefer in-person, instructor-led training. In addition, one out of three chief learning officers use mobile devices to deliver compliance training.

Globally, the mobile learning market is expected to increase at a compound annual growth rate of over 36 percent from 2015 to 2020 – and in 2014, the U.S. remained the leading purchaser of mobile learning technology.

  1. Blended Training May Be More Fitting

Depending on your industry and employees’ roles, online training alone may not be sufficient. In this case, a blended approach, which combines traditional face-to-face learning with e-learning, may be ideal. According to a study published by the Journal of Medical Internet Research, blended learning for health professionals appears to be more effective than (or at least as effective as) traditional instruction.

  1. Modern Learners are Visual with Short Attention Spans

Learners today tend to have packed schedules, short attention spans and an attachment to their mobile device. The majority are also visual learners. Studies estimate that visual learners make up approximately 65 percent of the U.S. population. These pupils need to see what they are absorbing, preferring bite-sized training – such as videos requiring no more than two to five minutes each – over lengthy training sessions.

  1. Company-Wide Information Efficiently Disseminated

Dispersing information to employees across different departments and locations via the traditional training method can be time consuming and financially strenuous. A more feasible option may be an e-learning platform, such as a learning management system, capable of quickly delivering company-wide information to relevant employees, thereby keeping them on the same page while lowering training costs.

Be sure to check out the first Learning Management Systems 101 blog post about the evolution of corporate learning

 

 

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Posted in Blog, Featured, HR Management, Learning Management, Talent Management

Stacey Pezold

by Stacey Pezold


Author Bio: Mrs. Pezold has served as Paycom’s Chief Operating Officer since March 2015 and previously served as Paycom’s Executive Vice President of Operations after joining Paycom in 2005. In the last eight years, Mrs. Pezold has served as Paycom’s Executive Vice President, Director of Corporate Training and Regional Manager. Mrs. Pezold has over 11 years of leadership and training experience. Mrs. Pezold earned her Bachelor’s degree from Oklahoma State University.

How to Find Your (HR Tech) Soul Mate

How to Find Your (HR Tech) Soul Mate

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How to Find Your (HR Tech) Soul Mate


Shopping for the right HR software for your business is not unlike dating. But with no apps or online match sites for human capital management (HCM), how do you compare and sort through all those vendors vying to win your company’s heart?

How do you sort through the suitors courting your company for the vendor of your dreams? Learn more with this free webinar. 

According to a Bersin by Deloitte study, 61 percent of HR professionals plan to replace their HR software within the next 18 months. If you are one of those professionals getting back on the market, here are three tips to get you started:

Tip 1: Find the total package.

Are you unsatisfied with your current HR processes? If your existing provider is unable to meet all your needs, it’s time to trade in that zero for a hero.

Your dream HCM vendor should be able to meet all of your desires … as related to the employee life cycle, that is, which includes payroll, talent acquisition, time and labor management, HR information management, talent management and benefits administration.

Before committing to a vendor, be sure to understand the difference between a single-source solution, aka Boris, and a single-application solution, aka Jeff. Only one truly can be the total package.

Boris, the single-source solution, provides your company a set of multiple programs integrated together, which Boris may or may not have developed himself. Integrating multiple, third-party programs can lead to your employees entering information, usernames and passwords over and over again. Not to mention, Boris has given you the challenge of products and programs not syncing correctly and the never-ending present of frustrating reporting limitations.

Jeff, on the other hand, offers a single application. This means employees only enter information one time. Repeat: one time. All data updates in real time across all products and programs. Reporting is comprehensive and consistent. The data workflow? Seamless.

 

Who would you rather see again? Boris or Jeff? No matter who you choose, don’t settle too early; you only want to implement or switch technology vendors if it’s going to make life better. And we have two more tips to consider.

Tip 2: Good manners are essential.

Are Boris and Jeff thoughtful, insightful, self-reliant, analytical and compliant with the ever-changing state and federal employer regulations? During your vendor comparisons, be sure to remember that the best HR tech provides one database of employee records to help you:

  • be more efficient with process automations that reduces paperwork and manual data entry
  • produce insightful analytics that track and report on your company’s unique workforce trends and performance catalysts critical to managing labor costs and implementing growth
  • empower employees with the ability to self-manage transactions and find answers to questions, which reduce the demand on payroll and HR staff
  • reduce exposure by automating compliance processes and accurately tracking and reporting on data critical to meeting government-required regulations

If the vendor courting you seems to be the total package and has impeccable manners, then congratulations! It sounds like you’re on the path to true love. But how well do you really know this vendor?

Tip 3: Perform a background check.

Why be in a relationship if not to be cherished and made to feel special, safe and secure? In this day and age, you can’t be too careful about who you have dinner with or with which vendor you decide to share highly sensitive confidential records.

Even though one may have caught your eye, do your due diligence. In the past few years, federal officials have prosecuted at least two dozen payroll firms that allegedly pocketed more than $300 million in taxes from their clients. Just as you wouldn’t get into a car with someone you don’t know, only share your payroll records with a vendor that has a solid reputation, financial stability and staying power.

Consider this due diligence checklist:

  • audited financials
  • long history of profitability
  • bonded for a minimum of $100 million
  • SSAE 16/SOC 1 audit report
  • ISO 9001 certification
  • proprietary software

If your Jeff or Boris has passed these three checkpoints, then you are on your way to finding your HCM soul mate. At this point, we hope to have steered you away from any shady characters who are only after your money, not your best interests.

Want four more tips? Then sign up for our free webinar on “Finding Your Soul Mate in Human Capital Management” and check out its accompanying infographic.

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Posted in Blog, Compliance, Cyber Security, Document Management, Employee Engagement, Featured, HR Management, Learning Management, Payroll, Pre-Employment, Talent Acquisition, Talent Management

Emily R. Tate

by Emily R. Tate


Author Bio: Emily Rothrock Tate is an award-winning public relations professional with more than a decade of experience in both the nonprofit and for-profit sectors. In her role as a PR specialist, she writes about complex issues and trends that today’s HR professionals face, and serves as steward of Paycom’s corporate giving initiative. An honoree of OKC Biz’s Forty Under 40 and ionOklahoma’s 30/30 Next Gen awards, she serves on the board of Oklahoma City’s Plaza District Association. Outside of work, Tate enjoys science-fiction novels, volunteering in the arts community, cooking and spending time with her husband and son.

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