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It is important to note that tip pooling, tip sharing and gratuities are no longer applicable for the FICA Tip Credit and are subject to taxes.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

What Substance Abuse in the Workplace Costs Employers

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Of the estimated 14.8 million Americans who use illegal drugs, 70% of them are employed, according to the U.S. Department of Labor. Therefore, odds are your company employs workers who fall into this group. The use of drugs or alcohol by employees inside or outside the office can be costly for a business, leading to:

  • increased turnover rate
  • workplace incidents
  • poor workplace morale

From a financial perspective, the National Institute on Drug Abuse found substance abusers cost employers twice as much in workers’ compensation and medical expenses. Additionally, substance abusers are five times more likely to file workers’ compensation claims.

Furthermore, employees with alcohol dependencies are nearly three times more likely to have injury-related absences, according to the National Council on Alcoholism and Drug Dependence. In 2015, that council reported that federal surveys indicate 24% of workers reported drinking on the job at least once in the past year.

Recognizing the signs

Knowing how to handle substance abuse in the workplace starts with recognizing the existence of a problem. Whether it is abuse of alcohol, prescription drugs or illegal substances, a number of visible signs can indicate an employee needs help:

  • change in appearance
  • frequent tardiness
  • decline in job performance
  • slurred speech and drowsiness
  • mood swings and irritability
  • scent of alcohol

None of these signs alone indicates a substance abuse issue, but intervening early with employees displaying a combination of these signs may be valuable to your business. Implementing a companywide policy, training managers to recognize signs of substance abuse, and setting expectations with employees through training can help safeguard your business and your workforce.

 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 problems.

 

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Posted in Blog, Compliance, Featured

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.

Podcasts

5 Podcasts That Every HR Professional Should Download

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Podcasts provide the opportunity to sit like a fly on the wall and listen to some of the most brilliant minds in the world converse about today’s biggest trends and challenges.

According to a study by Triton Digital, nearly one quarter of Americans listen to a podcast at least once a month. Education is a popular subject, with 40% of podcast listeners tuning in to that type. If you’re an HR professional or business leader looking to broaden your knowledge of HR and HR technology this year, I highly recommend filling your ears and brains with these five podcasts throughout ’18.

1. HBR IdeaCast

From Harvard Business Review, the weekly HBR IdeaCast features leading thinkers in business and management discussing a variety of key topics in the work world.

It is an excellent resource for insights on a wide array of subjects including, but not limited to, HR. The discussions apply directly to organizations nationwide. The podcast reminds me of NPR’s Fresh Air, but with an emphasis on business leaders.

Recommended episodes:

2. HR Happy Hour

Since 2009, HR Happy Hour has featured thought leaders, workplace and technology experts, academics and more to take on important aspects impacting HR, technology and the workplace.

The podcast is so long-running that it has episodes dedicated to just about every HR topic under the sun. The charming hosts Steve Boese and Trish McFarlane make trending topics fun and informative.

Recommended episodes:

3. CIPD

From the UK’s Chartered Institute of Personnel and Development, the monthly CIPD podcast covers everything from talent acquisition to workplace training and cybersecurity.

CIPD’s international perspective brings fresh eyes to subjects that resonate with many American HR professionals. With a backlog of more than seven years’ worth of episodes available, it’s easy to recommend.

Recommended episodes:

4. Workology Podcast

Covering the science and art of the workplace, Jessica Miller-Merrell’s Workology Podcast offers insights and actionable tips on HR and recruiting. Each 45-minute episode promises an in-depth look at every company’s most valuable asset: the employee.

In asking sharp, pointed questions about the latest HR trends, Miller-Merrell does an excellent job as host, bringing a unique and often unexpected take on familiar subject matter.

Recommended episodes:

5. HR Break Room

The official podcast of Paycom, HR Break Room brings you quick conversations on hot topics in HR and HR technology. Co-host Chelsea Justice and I talk with guest experts about the challenges faced by the everyday workplace, as well as their solutions.

To be a bit self-indulgent, I love doing this podcast because it gives me the opportunity to talk with some of the most brilliant minds in the industry. In our first year, our esteemed guests have included New York Times best-selling author Cy Wakeman, millennial expert Adam Smiley Poswolsky, HR Bartender’s Sharlyn Lauby, futurist Jacob Morgan, author and Harvard professor Mihir Desai and of course, motivational speaker and leadership expert, Mark Sanborn.

Recommended episodes:

You can learn more about goings-on within the HR sphere by subscribing to HR Break Room podcast. Here’s to a year full of professional growth through podcasts!

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Posted in Blog, Featured, HR Management, Leadership

caleb.masters

by Caleb Masters


Author Bio:

Caleb is the host of The HR Break Room and a Webinar and Podcast Producer at Paycom. With more than 5 years of experience as a published online writer and content producer, Caleb has produced dozens of podcasts and videos for multiple industries both local and online. Caleb continues to assist organizations creatively communicate their ideas and messages through researched talks, blog posts and new media. Outside of work, Caleb enjoys running, discussing movies and trying new local restaurants.

Deadline Extended

Employer Deadline Extended for Furnishing 2017 ACA Forms

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Distribution of 2017 Affordable Care Act (ACA) Forms 1095-B or -C to your employees has been extended.

As issued in Notice 2018-06, the IRS has extended the deadline from Jan. 31 to March 2. (However, the deadline to provide Forms W-2 and 1099 to employees and contract workers remains as Jan. 31.)

Filing deadlines unchanged

While the deadline to furnish forms was extended, the filing deadlines remain the same: Feb. 28 for paper forms, and April 2 for electronic forms.

IRS Notice 2018-06 emphasizes that employers who do not comply with the due dates for furnishing or filing are subject to penalties under sections 6722 or 6721.

Good-faith transition relief extended

The IRS also announced the extension of good-faith transition relief. This may allow an employer to avoid some penalties if it can show that it made good-faith efforts to comply with the information reporting requirements for 2017.

This relief applies only to incorrect and incomplete information reported on the ACA forms, and not to a failure to file or furnish the forms in a timely manner. Additionally, the IRS stated it does not anticipate extending either the good-faith transition relief or the furnishing deadline in future years.

Contact a trusted tax professional if you have questions on how this may affect your business specifically.

Click here to read more about how the ACA is affect by the new Tax Cuts and Jobs Act.

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 problems.

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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.

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