2/13/2018

Payroll Basics
For New Employers
AN INTRODUCTION TO PAYING YOUR EMPLOYEES

Kelley L. Carson, CPP

Corporate Trainer
Complete Payroll
7488 Route 39
Perry, New York 14530
www.comletepayroll.com

PREPARATION
➢ Knowing what you need to know
➢ Having what you need to have

What’s involved in PAYING EMPLOYEES

➢ Collecting data
Payroll anyway? ➢ Applying Taxes and Deductions
➢ Producing payments
AFTER PAYROLL
➢ Making tax payments
➢ Filing tax reporting

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EMPLOYEE VS. INDEPENDENT

Preparation: CONTRACTOR

Knowing what FAIR LABOR STANDARDS ACT

you need (FLSA)

to know PAYROLL TAXES

Employee vs. Independent Contractor

Employee Independent Contractor

 Employer assigns when, where and  Sets own hours and processes of work
how the employee will work
 Self employed, working for multiple
 Once hired, employer provides work clients; services available to the public
on an on-going basis
 A contract governs the
 Subject to dismissal; can quit without client/contractor relationship how it
liability can be severed
 Paid a salary or hourly wage  Paid by the job with an opportunity for
profit or loss
 Everything needed to complete
assigned work is provided by the  Must provide tools, equipment, and
employer training required to complete the job

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Employee vs. Independent Contractor

- totally different legal requirements

For Employees For Independent Contractor

 Employer must withhold from wages,  Contractor is responsible to pay their
deposit and report income, Social own share of income, Social Security
Security, Medicare and in some states and Medicare taxes
unemployment taxes
 Contractor is responsible to pay the
 Employer must pay the employer’s share employer’s share of Social Security and
of Social Security, Medicare and Medicare taxes
unemployment taxes
 Company must provide a 1099-M to the
 Employer must provide a W-2 to the contractor and the IRS following each
employee and Social Security tax year in which the contractor was
Administration following each tax year paid $600 or more
 Employer must treat the employee  The Company and Contractor must
according to the requirements of the abide by the rules of their contract /
Fair Labor Standards Act FLSA does not apply

Fair Labor EXEMPT VS. NON EXEMPT

EMPLOYEES

Standards Act MINIMUM WAGE AND OVERTIME

(FLSA) of 1938 RATES

FAMILY AND MEDICAL LEAVE ACT

(FMLA)
aka
Federal Wage-Hour Law REQUIRED RECORD KEEPING FOR
EMPLOYERS

CHILD LABOR LAWS

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Non-Exempt vs. Exempt Employees

 Non-Exempt Employees are covered by the requirements of the Federal

Fair Labor Standards Act
 Exempt Employee status is determined by actual job duties and minimum
salary level
➢ Not by job title
➢ Not by employer choice
 White Collar Exemption Classifications include:
➢ Administrative Employees
➢ Executive Employees
➢ Professional Employees
➢ Outside Sales Employees

FLSA Regulations

Overtime Family & Medical

Minimum Wage Total regular pay divided by total Leave Act (FMLA)
number of hours worked equals
Federal minimum wage is $7.25 Regular Rate of Pay Required for employers with 50+
hour / NYS varies from $10.40 hr employees within a 75 mile radius
and up depending on location All compensation is included in total
regular pay except what is Guarantees eligible employees
Tipped employees’ federal specifically excluded by the FLSA, up to12 weeks of unpaid job
minimum cash wage is $2.13 / i.e. shift differential,
NYS $7.50+ hour as long as the protected leave within a 12-
employee makes enough in tips In general, all hours over 40 worked
month period for qualifying events
to make up the difference to in a workweek must be paid at 1.5 Some states have enacted Paid
minimum wage times the regular rate of pay Family Leave programs with
States with higher minimum wage Special rules for certain employees additional rules and requirements
rates outweigh federal minimum ➢ 8/80 rule for hospitals and nursing
wage rates homes
➢ Exceptions for police/fire/rescue
personnel

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FEDERAL TAXES
Social Security
Medicare
Federal Unemployment
Federal Income Tax
Payroll Taxes
STATE TAXES
State Income Tax
State Unemployment

LOCAL TAXES
City, County or Municipal Income Tax

Calculating Federal Taxes

Social Security
Medicare (HI) Federal Income Tax
(OASDI)
Based on filing status / allowances
claimed by employee
Employee Tax of 6.2% of Employee Tax of 1.45% of
gross wages gross wages Dependent on taxable wages
earned per pay period
Employer Tax of 6.2% of Employer Tax of 1.45% of gross
wages Dependent on pay frequency
gross wages i.e. weekly; bi-weekly; monthly
Additional Employee Tax of
Up to annual wage base .9% on wages over annual
Supplemental wages taxed at a
($128,400 in 2018) flat rate
threshold of $200,000 ➢ 22% under $1 million
➢ 37% over $1 million

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Calculating Other Taxes

State Income Tax Local Income Tax Unemployment Taxes

Federal Unemployment Tax Act (FUTA)
All but nine states have Some cities, counties and requires an employer tax equal to 6%
state income tax municipalities in 15 different of the first $7,000 of each employee’s
states have additional wages each year
Each state has their own ➢ Nonprofits may be exempt
tax forms, rates and income tax ➢ Pre-tax deductions may be
reporting i.e. NYC; Yonkers, etc. exempt
➢ FUI may be offset by on-time SUI
Multi-state income tax payments
rules must be followed
State Unemployment Tax (SUI)
when a company has ➢ Employer tax in all States
operations in more than ➢ Rates depend on state and
one state experience rating

EMPLOYER REGISTRATION NUMBERS

➢ Federal EIN
➢ State EIN

Preparation: EMPLOYER REQUIRED INSURANCES

Having what ➢
➢
Workers’ Compensation
Statutory Disability

you need ➢ Paid Family Leave

to have EMPLOYEE FORMS

➢ I-9
➢ W-4
➢ W-9
➢ IT-2104

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Employer Registration Numbers

Federal EIN State EIN

 Employer Identification Number  NYS uses the Federal EIN as the State EIN for
withholding tax
 Registration number with the IRS
 Employers must register with NY State to
 Can be obtained online obtain a separate SUI Identification Number
 Required for most businesses prior to having  NYS-100 form can be used to register for both
employees federal and unemployment numbers in New
 Required for making Federal tax payments York
and filing Federal payroll tax reports  Required for making State tax payments and
filing State payroll tax reports
 Each state has different requirements for state
identification numbers for withholding and
unemployment insurance

Employer Required Insurances

Workers’
Compensation Statutory Disability Paid Family Leave
➢ Required in every state to cover employee ➢ Required by New York State to cover ➢ Required by New York State for all private
injuries sustained on the job employees for illness or injury employers starting January1st, 2018
occurring outside of work
➢ Premium is based on multiple factors ➢ Addition to the NYS Disability policy
➢ Up to 60 cents per week can be
➢ Payment Frequency options are ➢ Funded through employee deductions
charged to the employee to help
determined by the carrier calculated based upon earnings with an
toward premium; employer is annual maximum
➢ NYS WC Insurance Fund is guaranteed if no responsible for the rest
➢ Number of weeks available, amount of
other insurance company will provide Premiums are based on several
➢ employee deductions and benefits
policy factors increase through 2021
➢ Minimum Premiums exist regardless of
size of company

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Employee/Contractor Forms - Federal

I-9 W-4 W-9 (Contractors Only)

Employment Eligibility Verification Employee’s Withholding Allowance Request for Taxpayer Identification
Certificate Number and Certification
➢ Used to verify that the employee is legally
authorized to work in the United States ➢ Worksheet and instructions ➢ Form should be completed by any
provided help the employee independent contractor working
➢ Lists legal documents acceptable for for the company
verification complete the form
➢ Allows the company to produce
➢ Employer must examine documents to ➢ Employers cannot legally advise 1099 for the contractors pay
determine they reasonably appear to be employees on entries without withholding income taxes
genuine
➢ Forms must be signed and dated ➢ Payments to contractors who do
➢ Must be kept on file for three years after the
by the employee to be valid not provide Taxpayer Identification
date of hire or one year after the date of
termination, whichever is later
Number and Certification are
➢ If no W-4 is provided withhold at subject to Federal backup
the single rate with zero withholding of 24% in 2018
allowances

Keep all records of employment taxes for at least four years after filing the 4th quarter for the year.

Employee Forms – State / Locals

 NYS IT-2104 Employee’s Withholding Allowance Certificate

New York State • New York City • Yonkers

➢ Must be completed by the employee

➢ If no IT-2104 is received, the employer can enter the same withholding
allowances as the employee has completed on the W-4

 Every state has it’s own requirements for employee forms and record-keeping
 Local areas in 15 states have income tax requirements which may have
additional requirements for forms and record-keeping
 Always be sure to research any additional income tax requirements in the
areas where employees work and live

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COLLECTING DATA

Paying APPLYING DEDUCTIONS

Employees:
PRODUCING PAYMENTS

Collecting Data – Record Keeping

Electronic
Manual Tracking Timekeeping Scheduling
Physical time clocks, web clocks When varying employee coverage is
All required documentation is
(on computers) or mobile apps required, scheduling can be a very
handled manually; often using time consuming and stressful process
paper, spreadsheets etc. are used to track employee for management and employees
punches
Disadvantages include: Electronic scheduling with
Advantages include: timekeeping allows:
➢ Lack of solid documentation can
➢ Accurate and time stamped ➢ Efficient creation of schedules
lead to costly Department of
Labor fines documentation can protect ➢ Electronic notification to
the employer from costly fines employees
➢ Data must be entered manually
into payroll which is time ➢ Data imported to payroll is ➢ Online ability for employees to
more efficient and less prone pick up / drop / trade shifts
consuming and error prone
to human error ➢ Online monitoring and reporting
for management

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Applying Deductions

Required by Law Involuntary Voluntary

Federal Insurance Contributions Act
Ordered by a court of law or By request of the employee
(FICA) Taxes government agency ➢ Health /Dental / Vision
➢ Life / Accidental Death
➢ Social Security (OASDI) Tax Levies ➢ Supplemental Health / Cancer
Care etc.
➢ Medicare (HI) Child Support Orders ➢ Retirement i.e. 401(k)
➢ Income withholding
Federal Income Tax (FIT) ➢ Medical Support Employers desiring to offer pre-tax
deductions to employees must
State Income Tax (SIT) Garnishments have an IRS approved 125
➢ Civil / Commercial Premium Only Plan in place
Local Income Tax (Locals) ➢ Educational
➢ Wage Attachments The employer can choose to
In some states ➢ Bankruptcies require employees to contribute
➢ Disability Insurance Tax (SDI)
toward premiums for:
➢ Unemployment Insurance Tax The Employer is legally responsible ➢ NYS Disability
(SUI) if employee’ wages are not ➢ NYS Paid Family Leave
garnished appropriately

Producing Payments

Cash or Check Direct Deposit Payroll Card

Most states require cash or check aka Electronic Funds Transfer (EFT) Prepaid, debit cards to facilitate
direct deposit for unbanked
payment as an option available employees
to employees Eliminates need for paper checks
allowing paperless payroll Used in place of bank accounts for
Generally employees cannot be reducing costs and manual deposit of net pay
➢ Employees must be allowed a
charged a fee to receive all of processes way to withdraw funds from the
their wages due bank card with no fee
Can be encouraged but not ➢ Debit transactions can incur
Cash payroll is fairly rare but it is required of employees charges if employees elect to
use the card in point of sale
still used by some employers in New York State transactions
Can be encouraged but not
required of employees
in New York State

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After Payroll: Dealing with Taxes

Calculating Taxes
Making Tax
Payments

Quarterly
Tax Annual
Reporting Tax
Reporting

Making Tax Payments

Payment Methods Federal Deposit Frequency

 Federal tax payments must all be submitted using  Federal tax due dates depend on the size of the payroll over a
the IRS’ Electronic Federal Tax Payment System lookback period of one year
(EFTPS)  Monthly Deposit Frequency:
➢ Federal tax liability of under $50,000
 State and Local Payments are submitted according ➢ Due the 15th of the following month
to specific requirements
➢ Some require electronic payments  Semi-Weekly Deposit Frequency:
➢ Some allow electronic or check payments ➢ Federal tax liability of $50,000 or more
➢ Some require check payments ➢ Due the following Wednesday or Friday depending on the
day of the week check date falls upon
 State and local tax payments can be due monthly,
quarterly or may have a threshold upon which  One Day Deposit Rule
➢ Once Federal tax liability reaches $100,000 on any day
payment is due, depending on the jurisdiction and during a monthly or semi-weekly deposit period, the taxes
size of payroll must be deposited by the close of the next business day

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Quarterly Tax Filing

IRS Form 941 - Employer’s QUARTERLY Federal Tax Return

➢ Filed with the IRS to provide a report of the employer’s total taxable wages paid and
payroll tax liability
➢ Can be matched against the employer’s record of tax deposits
➢ Schedule B included for semi-weekly depositors showing actual deposits

NYS-45 - Quarterly Combined Withholding, Wage Reporting, and Unemployment Insurance Return
➢ Filed with NYS Department of Taxation and Finance to provide a report including
wages, withholding and SUI information
➢ Each state has their own monthly/quarterly and/or annual filing

Annual Tax Filing – Primary Reports

Social Security Administration Reports

W-2 - Wage and Tax Statement W-3 - Transmittal of Wage and
➢ Annual report required for each employee Tax Statements
➢ Must be provided to the employee and ➢ Cover letter with company
submitted to the SSA by 1/31 following tax year totals submitted with W-2s

Internal Revenue Service Reports

1099-M - Miscellaneous Income Form 943 - Employer's Annual 940 - Employer's Annual
➢ Annual report required for Federal Tax Return for Agricultural Federal Unemployment
each independent contractor Employees (FUTA) Tax Return
paid $600 or more ➢ Similar to 941 but for agricultural ➢ Filed annually by January 31st
➢ Must be to contractor and (farm) employees or February 12 if all payments
submitted to IRS by 1/31 ➢ Filed annually by January 31st have been submitted timely
following tax year

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Resources

Internal Revenue Service website: www.irs.gov

Publication 15: Employer’s Tax Guide: https://www.irs.gov/pub/irs-pdf/p15.pdf

NYS Department of Taxation and Finance website: www.tax.ny.gov

NYS Department of Labor website: www.labor.ny.gov

Minimum Wage Poster – Misc. Industry: https://www.labor.ny.gov/formsdocs/wp/ls207.pdf

Minimum Wage Poster – Hospitality Industry: https://www.labor.ny.gov/formsdocs/wp/ls207.3.pdf

www.completepayroll.com

Questions

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