Stambaugh Ness Annual Payroll Update

1. CPAs / Business Consultants
Welcome to …
Passion 4 Payroll!
2013-2014
Annual Payroll Update
1

2. Your Presenters...
Introduction - Presenters:
Tricia Richardson, CPP, SPHR
Marla Garrett
Payroll Advisor
Small Business Specialist
2

3. Your Payroll Team ...
Eric
Belcastro, CPA
Mike
Drayer, E.A.
Gregory
Scott
Stephanie
Trebatoski
3

4. Your Payroll Team ...
Penny
Berkheimer
Greta
Geisler
Holly
Mann
Jason
Sneeringer, CPA
4

5. Our Panel of Experts…
Stambaugh Ness, PC, would like to thank Rich Carson,
President of Webb Insurance for his expertise in the area of
the Affordable Care Act and Employee Benefits.
Rich Carson can be reached via email at
rcarson@webbinsuranceinc.com or via phone at 717.637.3670.
5

6. Our Panel of Experts…
Stambaugh Ness, PC, would like to thank the following representatives
from PayTime for their expertise in the area of payroll outsourcing and
payroll trends.
Chris Haverstick,
Vice President –
Sales & Marketing
Dale Chwastyk,
Chief Operating
Officer
PayTime can be reached via email at salesteam@paytimepayroll.com or
via phone at: (800) 298-6431.
6

7. Reminders

Questions – please feel free to ask questions
along the way – we will be compiling a list of FAQ
and providing these on our website

Evaluations – please complete at the end – we
read them and make changes to our material

CPE – sign the log & pick up your Certificate
before you leave

Cell phones - please silence, thank you!
7

8. Download your FREE 2013
Payroll Guide to your Desktop at:
www.stambaughness.com
Under the “More Knowledge” Tab
2013-2014 Payroll Guide
More Information, Less Paper
Ongoing Updates
Live Links
Websites
Forms
Charts
Essential Phone Numbers
Detailed Explanations
And More!
8

9. We are sympathetic. . .
Introducing some of the Members of the Payroll
Team…
“Don’t Bother Mike In Payroll!”
9

10. Agenda
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Annual Tax Changes – Federal, State, Local
General Payroll Item Limits
Employee vs. Independent Contractor
Exempt vs. Non Exempt
Fringe Benefits
Discretionary vs. Non-Discretionary Bonuses
Record Retention
W-2 & 1099 Forms
Telecommuting Taxation Issues
10

11. Agenda
 Business Process Assessment – How Efficient &
Compliant Are You?
 Handbooks, New Hires, and Personnel Folders
 Employee Self Service – HRIS
 PayCards
 Tip Reporting – Wages or Tips?
 Affordable Care Act – What’s Next?
 Defense of Marriage Act (DOMA) Reversal – Impact
on Employers
 Question & Answer
11

12. Trivia
What was the 1st Year We Reported
Income on Form 1040?
1.1901
2.1926
3.1913
4.1897
12

13. Trivia
1913
However, the 1st “tax” that was collected was a result of Civil
War funding needs – President Abraham Lincoln signed a
bill in 1862 that imposed a 3% tax on incomes between $600
and $10,000 and a 5% tax on anything greater than $10,000.
This was later amended in 1864 to 5% on incomes between
$600 and $5,000, a 7.5% tax on incomes in the $5,000$10,000 range and a 10% tax on anything greater than
$10,000. This Bill was declared unconstitutional and
repealed in 1872.
The Confederacy began a “graduated income tax” in 1863 to
fund their war needs. Wages up to $1,000 were exempted;
there was a 1% tax on the first $1,500 over the exemption,
and 2% on all additional income.
13

14. Annual Tax Changes – Federal
Social Security
Maximum Taxable Earnings
EE & ER Contribution Rate
Maximum EE & ER Contribution $
Self-Employment Tax
Medicare
Maximum Taxable Earnings
EE & ER Deduction
Maximum Deduction EE & ER
Self-Employment Tax
2013
2014
$113,700
$117,000
6.2%
6.2%
$7,049.40
$7,254.00
12.4%
12.4%
2013
2014
No Limit
No Limit
1.45%
1.45%
No Limit
No Limit
2.9%
2.9%
The 1.45% Employee rate applies to the first $200,000 of wages/selfemployment earnings. Wages/self-employment earnings beyond $200,000 are
withheld at 2.35%.
14

15. Annual Tax Changes – Federal
Federal Unemployment
2013
2014
Maximum Taxable Earnings
$7,000
$7,000
Percent of Taxable Earnings
.6%
.6%
Maximum Tax Per Employee
$42.00
$42.00
2013 Credit Reduction States
15

16. Annual Tax Changes – State
PENNSYLVANIA
Minimum Wage
$7.25
Tipped Employees
$2.83
Maximum Tip Credit
$4.42
Wage Withholding
3.07%
MARYLAND
$7.25
$3.63
$3.62
Based on MW-507
Unemployment Insurance
Max Taxable Earnings
Employee Deduction
$8,750
.07% (on all gross wages)
$8,500
None
Standard New ER Rate
New Construction ER Rate
3.6785%
10.1947%
2.6%
16

17. Annual Tax Changes – Locals
We survived Act 32!
…Just remember…
Obtain PA Certificates of Residency (no PO Boxes!)
Verify Resident and Non-Resident Tax Rates
Make sure the 2 digit tax collector code is on the W-2
Do not collect Non-Resident Local Taxes in York or
Adams County for your Maryland Employees
Collect the LST tax for ALL Employees unless an
exemption is received (for those paying through another
Employer or will have income in the jurisdiction of less than
$12,000 for the year)
17

18. General Payroll Item Limits
Description
2014
2013
Elective Deferrals (401(k) and 403(b); not including
adjustments and catch-ups)
$17,500
$17,500
457(b)(2) and 457(c)(1) Limits
not including catch-ups
Annual Defined Benefit Plan Limit
$17,500
$17,500
$210,000
$205,000
Annual Defined Contribution Plan Limit
$52,000
$51,000
Highly Compensated Employee ("HCEs")
$115,000
$115,000
Individual Retirement Accounts ("IRAs")
for individuals 49 and below
$5,500
$5,500
SIMPLE Retirement Accounts
$12,000
$12,000
SEP Coverage (minimum compensation)
$550
$550
SEP Compensation (maximum)
$260,000
$255,000
Health Savings Account (HSA) (Individual/family)
$3,300/$6,550 $3,250/$6,450
Catch-up additional HSA if age 55 or older
$1,000
$1,000
Flexible Spending Arrangement (FSA)
$2,500
$2,500
18

19. General Payroll Item Limits
FSA - For plan years beginning mid-2013, the
Treasury Department has announced a new rule,
which Employers can adopt, allowing Employees to
use up to $500 of unused money in their accounts
at the end of a plan year in the following plan year.
The Employer has to amend its plan documents to
allow this and the Employer would have to drop a
common grace period that already lets Employees
spend down unused money in the two and a half
month period following the end of a plan year.
19

20. Employee vs. Independent Contractor
The Internal Revenue Service (IRS) launched a program in 2010 to audit 6,000 businesses
over 3 years looking for worker misclassifications. *The IRS can audit as far back as 3 years
from the date of the return (indefinitely if they believe criminal activity is present).
On February 10, 2011, Pennsylvania Act 72 went into effect. This Act, also called “The
Construction Workplace Misclassification Act”, implemented more stringent guidelines on the
definition of an “independent contractor” in the State of Pennsylvania.
On July 14, 2009, (amended in 2012), Maryland Governor O'Malley signed Executive Order
01.01.2009.09, creating the Joint Enforcement Task Force on Workplace Fraud - including
staff from the Department of Labor, Licensing and Regulation, the Attorney General's Office,
the Comptroller's Office, the Insurance Administration, and the Workers' Compensation
Commission. Under the Workplace Fraud Act, the Commissioner of Labor and Industry has
authority to address misclassification of individuals in the construction and landscaping
industries.
On September 19, 2011, (expiring September 19, 2014), Maryland was one of 14 States that
signed a Memorandum of Understanding (MOU) with the Federal Department of Labor Wage
and Hour Division (and, in some cases, other Federal Agencies) that enable the Department
of Labor to share information and to coordinate enforcement efforts with participating States.
20

21. Employee vs. Independent Contractor
Why does this matter?
If someone is listed as an “independent contractor”, Employers do not
have to pay/consider:
Social Security & Medicare
Unemployment Insurance
Worker’s Compensation, General Liability Insurance, etc.
Health Insurance Benefits, Vacation, Sick or Personal Leave and any
other benefits provided Employees
Count towards the Affordable Care Act FTE or eligibility
Personnel issues and concerns
Timekeeping
From the Wall Street Journal Article dated March 13, 2013, “Payroll Audits
Put Small Employers on Edge”
Since September 2011, the government has collected $9.5 million in back
wages for more than 11,400 workers who were misclassified as
independent contractors…
21

22. Employee vs. Independent Contractor
Really…How Could “They” Ever Find Out?
One way –
If a worker believes that they should be an Employee and
NOT an Independent Contractor, they can file Form 8919
with their Income Tax Return – this will get Federal attention!
Another way…
Jane has been cleaning Widgets, Inc. offices for 3 years. Every
Monday, she leaves her full-time regular job and proceeds to
Widgets, Inc. to clean their offices. She is paid $100 per week and
is issued a 1099 at the end of the year for $5,200 for her services.
Last October, Jane was laid-off from her full-time regular job and
she applied for unemployment benefits. She listed Widgets, Inc. as
an income source.
22

23. Employee vs. Independent Contractor
Widgets, Inc. then received a notice from
Unemployment to identify the dates/times Jane worked
for them and the wages paid.
Widgets, Inc. responded by notifying Unemployment
that she cleaned for them and was an independent
contractor.
PA Unemployment decided to investigate further.
23

24. Employee vs. Independent Contractor
PA asked several questions related to Employee vs. Independent
Contractor guidelines and found that Jane was indeed an
Employee.
What did they base this on?
Jane used the vacuum cleaner Widgets, Inc. provided
in their linen closet.
Widgets, Inc. then had to reclassify all of Jane’s payments as
wages, pay Social Security, Medicare and Unemployment, as well
as amend all Payroll Returns for the last 3 years.
The Employer taxes alone (not including penalties and interest)
were over $2,000.
*This does not include the time you have to
spend with the auditor, collect data and
amend forms!
24

25. Employee vs. Independent Contractor
The IRS will look at 3 different categories when determining a
classification: Behavioral, Financial and Type of Relationship.
Behavioral
Is the Employer indicating when and where to do the work?
Are the Employer’s tools and/or equipment being used?
Are other Employees assisting with the work?
Does the Employer have the right to choose additional
workers to work with the “contractor”?
Does the Employer purchase the supplies and/or services
and dictate where these are purchased?
Does the Employer identify and clarify the order or
sequence to follow when performing the work?
If you answer YES to any of these –
this is an Employee!
25

26. Employee vs. Independent
Contractor
Financial
Has the independent contractor made an investment in supplies used?
Will there be unreimbursed expenses?
Will there be an opportunity for profit or loss?
Are the services available to the general public and are they marketed?
Are the services being paid with a check and based on contractual flat fees
or invoices that do not identify hours/expenses? (no timesheets, expense
reimbursements, etc.)
If you answer NO to any of these – this is an Employee!
Type of Relationship
Is there NO written contract?
Will there be payment for fringe benefits such as health insurance, pension,
vacations, disability, etc.?
Is this a permanent relationship with no start and end date?
Is the service being provided a key part of the business?
If you answer YES to any of these –
this is an Employee!
26

27. IRS Guidelines – 20 Questions
1. Instructions: If the person for whom the services are performed has the right to
require compliance with instructions, this indicates Employee status.
2. Training: Worker training (e.g., by requiring attendance at training sessions)
indicates that the person for whom services are performed wants the services
performed in a particular manner (which indicates Employee status).
3. Integration: Integration of the worker’s services into the business operations of the
person for whom services are performed is an indication of Employee status.
4. Services rendered personally: If the services are required to be performed
personally, this is an indication that the person for whom services are performed is
interested in the methods used to accomplish the work (which indicates Employee
status).
5. Hiring, supervision, and paying assistants: If the person for whom services are
performed hires, supervises or pays assistants, this generally indicates Employee
status. However, if the worker hires and supervises others under a contract
pursuant to which the worker agrees to provide material and labor and is only
responsible for the result, this indicates independent contractor status.
6. Continuing relationship: A continuing relationship between the worker and the
person for whom the services are performed indicates Employee status.
7. Set hours of work: The establishment of set hours for the worker indicates
Employee status.
27

28. IRS Guidelines – 20 Questions
8. Full time required: If the worker must devote substantially full time to the business
of the person for whom services are performed, this indicates Employee status. An
independent contractor is free to work when and for whom he or she chooses.
9. Doing work on Employer’s premises: If the work is performed on the premises
of the person for whom the services are performed, this indicates Employee status,
especially if the work could be done elsewhere.
10. Order or sequence test: If a worker must perform services in the order or
sequence set by the person for whom services are performed, that shows the
worker is not free to follow his or her own pattern of work, and indicates Employee
status.
11. Oral or written reports: A requirement that the worker submit regular reports
indicates Employee status.
12. Payment by the hour, week, or month: Payment by the hour, week, or month
generally points to employment status; payment by the job or a commission
indicates independent contractor status.
13. Payment of business and/or traveling expenses. If the person for whom the
services are performed pays expenses, this indicates Employee status. An
Employer, to control expenses, generally retains the right to direct the worker.
28

29. IRS Guidelines – 20 Questions
14. Furnishing tools and materials: The provision of significant tools and materials
to the worker indicates Employee status.
15. Significant investment: Investment in facilities used by the worker indicates
independent contractor status.
16. Realization of profit or loss: A worker who can realize a profit or suffer a loss
as a result of the services (in addition to profit or loss ordinarily realized by
Employees) is generally an independent contractor.
17. Working for more than one firm at a time: If a worker performs more than de
minimis services for multiple firms at the same time, that generally indicates
independent contractor status.
18. Making service available to the general public: If a worker makes his or her
services available to the public on a regular and consistent basis, that indicates
independent contractor status.
19. Right to discharge: The right to discharge a worker is a factor indicating that
the worker is an Employee.
20. Right to terminate: If a worker has the right to terminate the relationship with
the person for whom services are performed at any time he or she wishes
without incurring liability, that indicates Employee status.
29

30. Employee vs. Independent Contractor
IRS Penalties:
If a misclassification is found, Employers can be faced with:
Unreported and undeposited withholding taxes
Social Security tax
Medicare tax
Unemployment (Federal and State)
Potential Employee benefits
Penalties (up to 100% if the misclassification is deemed negligent)
Audits of prior years by both Federal and State even if just 1 or 2
misclassifications are found
Late payment interest for taxes
1-5 days late, two percent of the amount due
6-15 days late, five percent
16+ days, 10 percent
* IRS deems that the notice was “ignored”, 15 percent,+ interest on the
amount not deposited, + 100% if deemed willful
30

31. Employee vs. Independent Contractor
Pennsylvania Act 72 Guidelines
An independent contractor must:
Have a written contract with the business or person they work for
Control and direct their own work
Possess the tools that are needed to perform the work
Have an arrangement with the business they work for that allows them
to earn a profit or suffer a loss from their work
Be an owner or partner in their own business
Have a business location that is separate from the location of the
business or person which hired them to perform the construction
Have previously worked as an independent contractor, or hold
themselves out to the public as available and able to work as an
independent contractor
Have liability insurance of at least $50,000
31

32. Employee vs. Independent Contractor
Section 11 of the Act
details a poster
requirement.
While this is not on the list
of required posters in PA,
if you are in construction,
you should display this
poster with other poster
requirements.
You may even want to
provide this as a handout
to independent
contractors.
32

33. Employee vs. Independent Contractor
Pennsylvania Act 72 Violations
Any person who misclassifies an Employee as an
independent contractor could face criminal
prosecution, administrative fines up to $2,500 per
violation and a court-issued stop work order.
It is also unlawful for a person:
•To contract with an Employer knowing that the
Employer intends to misclassify workers
•To retaliate against workers who exercise their
rights under this law, including the right to file a
complaint
33

34. Employee vs. Independent Contractor
Maryland Workplace Fraud Act Guidelines
Applies specifically to businesses in the construction and landscaping
industries
Contains a very stringent definition of “independent contractor” and the
presumption of an Employer-Employee relationship rather than that of an
independent contractor
Requires Employers to pay restitution to misclassified persons and possible
civil penalties up to $20,000 per misclassified Employee
Provides the Commissioner of Labor and Industry with broad powers of
investigation, including subpoena power and the right to enter worksites,
interview Employees, and copy documents
Permits fines up to $500 per day for failure to produced requested materials
within 15 days
Requires Employers to provide independent contractors with written
statements of their classifications, the implications of such classification, and
other information
34

35. Employee vs. Independent Contractor




Requires Employers to keep for at least 3 years records detailing:
o The occupation and classification of each Employee and independent
contractor
o The rates or methods of pay; the amounts paid each pay period
o The hours worked each day and each period
o “Evidence” that each person classified as an independent contractor
is an “exempt person” or is an independent contractor
Permits persons not properly classified as Employees to sue for damages
Prohibits discrimination or retaliation against a person for filing a
complaint or testifying in an action under the Act
Prohibits creation of new entities for the purpose of evading the Act
35

36. Employee vs. Independent Contractor
A Maryland business owner must produce the following documents under the
2012 amendments of the WFA to rebut the presumption of an EmployerEmployee relationship:
•Written contract between the Employer and the contractor, which includes the
description of the nature of the work to be performed, the method of
compensation by the Employer to the contractor, and acknowledge by the
contractor of its obligation to maintain unemployment and worker's
compensation insurance, as well as, pay payroll taxes
•A signed affidavit by the contractor that states that it is an independent
contractor and is available to work for business entities other than the Employer
•A certificate of good standing from the contractors from the Maryland State
Department of Assessment and Taxation
•Proof of all occupational licenses held by the contractor for all state and local
authorities
•Proof that proper notice was given from the Employer to the contractor
regarding the implications of the classification
36

37. How Can You Protect Your Company?
What EVERY Independent Contractor Vendor File Should Contain:
•Signed Contract that includes:
o All terms in writing – use “Contractor language” not “Employee
language”
o Specifically note that the contractor is free from direction by the
company in performing the duties assigned (required in PA)
o Specifically note that no company tools will be provided to the contractor
(required in PA)
o Identify the separate business location of the contractor (required in PA)
o Identify the Vendor/Worker as an Independent Contractor
o Provide a description of the work
o Identify the expected completion date
o Identify cost in total and any expenses to be reimbursed
Note: If anything changes from the original contract, amend the
contract – keep this with your documentation. Also, pay the Vendor
from invoices ONLY – do not pay the worker from timesheets – the
Vendor should provide you with detailed invoices.
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38. How Can You Protect Your Company?
• Completed W-9 form (make sure the Vendor gets a 1099
at the end of the year) – the W-9 Form can be found here:
http://www.irs.gov/pub/irs-pdf/fw9.pdf
• Workers' Compensation and Liability Insurance (get
copies of insurance certifications and keep them on file)
• Licenses or Certifications needed for the scope of work
(keep copies on file- electrician license, etc.)
• Advertising or marketing materials provided, save this in
the file (including RFPs and notes on references, why the
Vendor was chosen, etc.) – showing this will also meet
the PA guidelines that the contractor “holds him/herself
out to the public as a bona fide independent contractor”
*Let us know if you would like a sample vendor sheet!
38

39. What If You Are “not sure” of the
Classification?
Let the IRS tell you how the individual should be classified.
Both Employers and Workers can ask the IRS to make a
determination on whether a specific individual is an
independent contractor or an Employee by filing a Form
SS-8, “Determination of Worker Status for Purposes of
Federal Employment Taxes and Income Tax Withholding”.
Form SS-8 (along with instructions) can be found here:
http://www.irs.gov/pub/irs-pdf/fss8.pdf
“Independent Contractors” can also complete this Form
and attach the determination to Form 8919.
39

40. IRS Voluntary Classification Settlement
Program (VCSP)
The Voluntary Classification Settlement Program (VCSP) is a
program developed by the IRS that allows taxpayers to
voluntarily reclassify their workers as Employees for future
tax periods for employment tax purposes.
Under the VCSP, a taxpayer will pay 10% of the amount of
employment taxes calculated for the workers being
reclassified under the VCSP for the most recent tax year.
In addition, the taxpayer will not be liable for any interest and
penalties on the payment under the VCSP, and will not be
audited for employment tax purposes for prior years with
respect to the worker classification of the workers.
Taxpayers may apply for the VCSP using
Form 8952, Application for Voluntary Classification Settlement Prog
.
40

41. Household Employees
Things to consider:
Are they “Employees” or “Independent Contractors”? – You could
get in trouble with the IRS!
If an Employee – you are subject to all of the same rules as any
other Employer!
Do they have liability insurance? Workers’ Compensation?
What happens if they injure themselves on your property? Will
your homeowner’s insurance pay that bill?
Did you issue a 1099?
If you have a “nanny” that transports your children – what
happens if there is an accident?
What happens if the Worker applies for unemployment and lists
you as a revenue source?
What if the Worker steals from you? What is your recourse?
41

42. Household Employees
The worker is your Employee if you can control not only what work
is done, but how it is done. If the worker is your Employee, it does
not matter whether the work is full time or part time or that you hired
the worker through an agency or from a list provided by an agency
or association. It also does not matter whether you pay the worker
on an hourly, daily, or weekly basis, or by the job.
Examples of household Employees include babysitters, butlers,
cooks, caretakers, drivers, gardeners, housekeepers, and privateduty nurses.
Example: You pay Betty Shore to babysit your child and do
light housework 4 days a week in your home. Betty follows
your specific instructions about household and child care
duties. You provide the household equipment and supplies
that Betty needs to do her work. Betty is your household
Employee.
42

43. Household Employees
Please review IRS Publication 926 for more information regarding Household Employees:
http://www.irs.gov/pub/irs-pdf/p926.pdf
Household Employer's Checklist
You may need to do the following things when you have a household Employee.
When you hire a household
Employee:
When you pay your household
Employee:
By January 31, 2014:
□ Find out if the person can lega lly work in the United States.
□ Find out if you need to pay state taxes.
□ Withhold Social Security and Medicare taxes.
□ Withhold Federal Income Tax.
□ Decide how you will make tax payments.
□ Keep records.
□ Get Employer identification number (EIN).
□ Give your Employee Copies B, C, and 2 of Form W-2, Wage and Tax
Statement.
By February 28, 2014 (April 1,
2014 if you file Form W-2
electronically):
□ Send Copy A of Form W -2 to the Social Security Administration (SSA).
By April 15, 2014:
□ File Schedule H (Form 1040), Household Employment Taxes, with your
2013 Federal Income Tax return (Form 1040, 1040NR, or Form 1041). If you
do not have to file a return, file Schedule H by itself.
43

44. Exempt vs. Non Exempt
An EXEMPT Employee is not paid Overtime (1 ½ times
their hourly rate) for any hours worked over 40 in a
7-day period.
Exempt positions
generally fall into
six categories:
A NON-EXEMPT Employee must be paid Overtime
(1 ½ times their hourly rate) for any hours worked
over 40 in a 7-day period.
1.Executive
2.Administrative
3.Learned
Professional
4.Computer
Professional
5.Creative
Professional
6.Outside Sales
An Employee’s status is based on the actual work
performed and on Department of Labor Regulations.
In general, two requirements must be met to classify an
Employee as exempt:
•They must earn a salary equal to or greater than $455 per week, $910 biweekly, $985.83 semi-monthly or $1,971.66 monthly
•They must hold a position with duties the U.S. Labor Department
designates as appropriate
44

45. Exempt vs. Non Exempt
Executive
1.Is the Employee’s primary duty managing the
enterprise or a department or subdivision of the enterprise?
2.Does the Employee customarily direct the work of two or more
other Employees or FTEs?
3.Does the Employee have the authority to hire or fire, and do
their recommendations carry significant weight if unauthorized to
make the final decision?
If the answer to any of these questions is “No” – this is NOT
an Exempt Employee
Note: If the Employee is at least a 20 percent owner of the
business and meets requirements 1 and 2 they need not meet
the salary requirement or the authority requirement in 3.
45

46. Exempt vs. Non Exempt
Administrative
1.Is the Employee’s primary duty performing office or nonmanual work directly related to the management or
general business operations of the Employer or the
Employer’s customers?
2.Does the Employee exercise discretion and independent
judgment with respect to matters of significance? Do they
evaluate and compare possible courses of action and then
make a decision or recommendation after considering the
various possibilities?
If the answer to any of these questions is “No” – this
is NOT an Exempt Employee
46

47. Exempt vs. Non Exempt
Learned Professional
1.Is the Employee’s primary duty to perform work requiring knowledge
of an advanced type in a field of science or learning customarily
acquired by a prolonged course of specialized intellectual instruction?
2.Is the advanced knowledge obtained by completing an academic
course of study resulting in a four-year college degree or leading to
certification?
If the answer to any of these questions is “No” – this is NOT an
Exempt Employee
Exception: Those who have completed the educational requirements
for a law or medical degree need not meet the minimum salary
requirement. Also, teachers need not be certified or meet the minimum
salary requirement to qualify as learned professionals.
47

48. Exempt vs. Non Exempt
Computer Professional
Is the Employee’s primary duty:
1.Application of system analysis techniques and procedures,
including consulting with users, to determine hardware, software or
system functional specifications?
2.Design, development, documentation, analysis, creation, testing
or modification of computer systems or programs, including
prototypes, based on and related to user or system design
specifications?
3.Design, testing, documentation, creation or modification of
computer programs related to machine operating systems?
4.A combination of the aforementioned duties requiring the same
level of skills?
If the answer to any of these questions is “No” – this is NOT an
Exempt Employee
48

49. Exempt vs. Non Exempt
Creative Professional
1.Is the Employee’s primary duty to perform work requiring invention,
originality or talent in a recognized field of artistic endeavor such as music,
writing, acting and the graphic arts?
2.Does the work require more than intelligence, diligence and accuracy?
If the answer to any of these questions is “No” – this is NOT an Exempt
Employee
Outside Sales
•Is the worker’s primary duty making outside sales?
•Do they regularly work away from the company’s
place of business?
•Does the worker sell tangible or intangible items, such as goods, insurance,
stocks, bonds or real estate, or obtain orders or contracts for services or the
use of facilities?
If the answer to any of these questions is “No” – this is NOT an Exempt
Employee
49

50. Exempt vs. Non Exempt
Some instances, according to FLSA, that you CAN deduct time from an
Exempt Employee:
•an Employee is absent from work for one or more full days for personal
reasons other than sickness or disability
•absences of one or more full days due to sickness or disability if the
deduction is made in accordance with a bona fide plan, policy or practice of
providing compensation for salary lost due to illness
•offset amounts Employees receive as jury or witness fees, or for temporary
military duty pay
•penalties imposed in good faith for infractions of safety rules of major
significance
•unpaid disciplinary suspensions of one or more full days imposed in good
faith for workplace conduct rule infractions
•initial or terminal week of employment if the Employee does not work the full
week
•unpaid leave taken by the Employee under the federal Family and Medical
Leave Act
50

51. Exempt vs. Non Exempt
Improper Deductions Include:
•If an Exempt Employee is absent for one and one-half days for
personal reasons, the Employer may only deduct for the one fullday absence - the exempt Employee must receive a full day's
pay for the partial day worked
•A deduction of a day's pay because the Employer was closed
due to inclement weather
•A deduction of three days pay because the exempt Employee
was absent for jury duty
•A deduction for a two-day absence due to a minor illness when
the Employer does not have a bona fide sick leave plan, policy or
practice of providing wage replacement benefits
•A deduction for a partial day absence to attend a parent-teacher
conference
51

52. Fringe Benefits
The 2013 Guide
was issued on
January 18, 2013
– based on
Government
“shutdowns” – the
2014 release
could be delayed
even later.
52

53. Discretionary vs. Non-Discretionary Bonuses
DISCRETIONARY BONUSES
According to the Code of Federal Regulations - (Title 29 › Subtitle B › Chapter V › Subchapter B ›
Part 778 › Subpart C › Section 778.211):
“In order for a bonus to qualify for exclusion as a discretionary bonus under section 7(e)(3)(a) the
Employer must retain discretion both as to the fact of payment and as to the amount until a
time quite close to the end of the period for which the bonus is paid. The sum, if any, to be
paid as a bonus is determined by the Employer without prior promise or agreement. The
Employee has no contract right, express or implied, to any amount. If the Employer
promises in advance to pay a bonus, he has abandoned his discretion with regard to it.
Thus, if an Employer announces to his Employees in January that he intends to pay them a
bonus in June, he has thereby abandoned his discretion regarding the fact of payment by
promising a bonus to his Employees. Such a bonus would not be excluded from the regular
rate under section 7(e)(3)(a). Similarly, an Employer who promises to sales Employees that they
will receive a monthly bonus computed on the basis of allocating 1 cent for each item sold
whenever, is his discretion, the financial condition of the firm warrants such payments, has
abandoned discretion with regard to the amount of the bonus though not with regard to the fact of
payment. Such a bonus would not be excluded from the regular rate. On the other hand, if a
bonus such as the one just described were paid without prior contract, promise or announcement
and the decision as to the fact and amount of payment lay in the Employer's sole discretion, the
bonus would be properly excluded from the regular rate.”
53

54. Discretionary vs. Non-Discretionary Bonuses
NON-DISCRETIONARY BONUS
“Promised bonuses not excluded. The bonus, to be excluded under section 7(e)(3)(a), must
not be paid “pursuant to any prior contract, agreement, or promise.” For example, any bonus
which is promised to Employees upon hiring or which is the result of collective bargaining
would not be excluded from the regular rate under this provision of the Act. Bonuses which
are announced to Employees to induce them to work more steadily or more rapidly or
more efficiently or to remain with the firm are regarded as part of the regular rate of
pay. Attendance bonuses, individual or group production bonuses, bonuses for
quality and accuracy of work, bonuses contingent upon the Employee's continuing in
employment until the time the payment is to be made and the like are in this category.
They must be included in the regular rate of pay.”
Note: Ensure your Policy Manual does not contain wording
promising bonuses. A “promised” Holiday Bonus is
considered “Non-Discretionary”. Use wording such as “…as
financial feasibility dictates, we may or may not provide
discretionary bonuses throughout the year”. Or, just leave it
out of your Policy Manual altogether.
54

55. Discretionary vs. Non-Discretionary Bonuses
Calculation of Pay with Non-Discretionary Bonus
Example: Joe earns $10 an hour and is paid weekly. For this
pay date, he worked 52 hours, received a one-time Holiday
Bonus of $100 that was discretionary and a $500 Attendance
Bonus for perfect attendance over the last 6 months.
Because the Attendance Bonus covered a 6 month period,
the Overtime (Premium Pay) would have to be allocated and
calculated retroactively to the period it reflected. The
Employer could take the $500 attendance bonus and allocate
$19.23 per week ($500 divided by 26 weeks) and calculate
the Overtime (Premium Pay) based on the weekly pays.
55

56. Discretionary vs. Non-Discretionary Bonuses
Below is an example of how a calculation would be completed if
all of the $500 attendance bonus was earned in the 1 week:
Step 1 Regular Pay = $10 x 52 hours = $520
Step 2 Add Attendance Bonus = $500
Total Regular Pay = $1,020
Total Regular Pay/Hours = $1,020/52 hours =
Regular Rate of Pay $19.62 per hour
Step 3 Overtime (Premium Pay) = $19.62 x .50 = $9.81 per hour
Overtime Pay = $9.81 x 12 hours OT = $117.72
Step 4 Total Weekly Gross Compensation = $1,020 + $117.72 +
$100 = $1,237.72
Some ways you can ease the administrative burden of calculating
Overtime (Premium Pay) on non-discretionary bonuses for nonexempt staff is to pay a “% of gross pay bonus” – which would
automatically include overtime calculations OR pay the bonuses in
the week they are earned.
56

57. Record Retention
The Internal Revenue Service requires Employers to maintain the following payroll records
for at least four years after the later of (1) the due date of the related payroll tax returns or
(2) the date the payroll taxes were paid: State and Locality retention policies may differ
from the IRS.
The recommendation of Stambaugh Ness is to save all payroll records for 7 years to
ensure compliance with all regulatory authorities.
 employer identification number
 copies of filed payroll tax returns
 dates and amounts of completed payroll tax
deposits verification numbers for electronic
deposits
 each employee's name, address, and SSN
 gross amount & date of each wage payment
 pay period dates for each paycheck
 amount subject to FITW, SS & Med
 amount and date collected for taxes
 reasons for any differences between the
taxable amounts and the total wage payment
 total amount paid to employees for calendar
year
 amount of compensation subject to federal
unemployment tax & amount paid into state
unemployment funds
 other info required to be shown on Form 940
 fair market value & date of each payment of
noncash compensation made to a retail
commission salesperson, if no income tax was
withheld
 amount of each payment for accident/health
 1099 information (even for employees)
 copies of any statements relating to nonresident
alien status, US territory, or foreign country
 Form W-4 & Form I-9 for each employee
 PA Residency Certificate and State WH Forms
 agreements for the voluntary withholding of
additional amounts of tax
 tip statements
57

58. W-2 Forms
Good News!
Employers are still not required to report the
cost of the healthcare on W-2s if they provided
less than 250 W-2s in 2012!
 IRS requires electronically W-2 filing for more than 250 W-2s
 Pennsylvania Employers with 250 or more W-2s must report
them electronically
 Maryland Employers with 25 or more W-2s must report them
electronically
58

59. 1099 Forms
The Pennsylvania Act 85 of 2012 has added a 1099-Misc reporting requirement any entity reporting payments on forms 1099-Misc in Boxes 1, 2 or 7, for nonEmployee compensation to residents, non-residents, partnerships (for tax purposes),
or single-member LLCs for any Pennsylvania-based work or Pennsylvania-source oil
and/or gas lease payments, have to submit copies of the Federal forms 1099-Misc to
the Pennsylvania Department of Revenue.
If you have 250 or more 1099-Misc forms to report, and you have a Pennsylvania
Employer Withholding ID, you must do this electronically through eTides.
If you do not have a Pennsylvania Employer Withholding ID, or you are reporting less
than 250 1099-Misc forms, mail the Federal Copy of the forms to:
PA Department of Revenue
P.O. Box 280412
Harrisburg, PA 17128-0412
The copies of the Federal forms 1099-Misc must be submitted to Pennsylvania by
February 28 (April 1 if they are electronically filed).
59

60. Telecommuting Taxation Issues
 Normally, telecommuters performing work in their State of
Residence for an Employer located in another State are
subject to the taxes of their State of Residence – “physical
presence rule”.
 Five States assess income taxes on nonresidents’ wages
under a “convenience of the employer” test: Delaware,
Nebraska, New Jersey, New York and Pennsylvania.
 Generally, under “convenience of the employer” rules, all of
an Employee’s income will be allocated to the Employer’s
location unless the Employee is able to prove that work
performed away from the Employer’s location was due to
the necessity of the Employer rather than convenience of
the Employee.
60

61. Telecommuting Taxation Issues
Some States have made agreements among one
another that allow Employers to withhold the State
personal income taxes of the Employee’s residence.
These agreements are called State reciprocal
agreements.
The Employer may choose to withhold the other
State's tax if the Employee is a resident of a
reciprocal State and the Employee requests the
Employer to withhold the reciprocal State's tax.
Additionally, there is also an exemption from the
requirement to withhold for nonresident spouses of
military service members.
61

62. Telecommuting Taxation Issues
Exemption Form
State
States with State Tax Reciprocal Agreements
District of Columbia
Illinois
Indiana
Iowa
Kentucky
All non-residents who work in DC can claim exemption from withholding for the DC income
tax.
Iowa, Kentucky, Michigan, Wisconsin
Kentucky, Michigan, Ohio, Pennsylvania, Wisconsin
Illinois
Illinois, Indiana, Michigan, Ohio, West Virginia, Wisconsin, Virginia
IL-W5NR
WH-47
44-16
42A809
Maryland
District of Columbia, Pennsylvania, Virginia, West Virginia
MW-507
Michigan
Illinois, Indiana, Kentucky, Minnesota, Ohio, Wisconsin - Employers may create their own
exemption form or use the line on MI-W4 for claiming exemption from withholding.
Employee should write "Reciprocal Agreement" and the state name on that line.
MI-W4
Minnesota
Montana
New Jersey
North Dakota
Ohio
Michigan, North Dakota
North Dakota
Pennsylvania
Minnesota, Montana
Indiana, Kentucky, Michigan, Pennsylvania, West Virginia
MW-R
NR-2
NJ-165
NDW-R
IT-4NR
Pennsylvania
Indiana, Maryland, New Jersey, Ohio, Virginia, West Virginia
Virginia
District of Columbia, Kentucky, Maryland, Pennsylvania, West Virginia
West Virginia
Wisconsin
Kentucky, Maryland, Ohio, Pennsylvania, Virginia
Illinois, Indiana, Kentucky, Michigan
D-4A
REV-419 EX
VA-4
IT-104
W-220
62

63. Telecommuting Taxation Issues
Unemployment - What to do - Gather the facts on where the Employee in question is
based, performs work, and lives. Some general guidelines are as follows:
Localized: The Employee works basically in one State with only temporary or transitory
work in another State. Pay the State where the Employee normally works.
Base of operations: The Employee works in more than one State on more than a
temporary or transitory basis, but receives instructions, maintains business records,
picks up mail or supplies, or has an office in one of the States where he or she works.
You pay that State.
Place of control: The Employee's work is not localized and the base of operations can't
be pin-pointed. You pay the State where the control over the Employee is localized, if
the Employee works there some of the time.
Residence: When all else fails, pay the State where the Employee lives, if he or she
works there at least some of the time.
However, when an Employee works in more than one State it is best to review the
unemployment laws of the State(s) they are working in to determine the specific
requirements of that State. There will be instances when unemployment tax is required
to be paid to more than one State.
63

64. Business Process Assessment –
How Efficient & Compliant Are You?
Stambaugh Ness offers a Payroll Business Process Assessment (BPA) to help you identify
potential regulatory and processing concerns and provide solutions to improve efficiencies
while ensuring compliance.
Our two-phase BPA is an investment in your business that delivers ROI!
Consider these questions….
Is your Employer Handbook up-to-date and compliant?
Does your staff understand and enforce handbook policies?
Are all of your processes and procedures documented?
Is your New Hire Process solid and compliant?
Will your personnel files pass an inspection?
Are you compliant with the Affordable Care Act?
Does your payroll staff understand taxation and compliance issues?
Do you track your leave time through payroll?
Are you compliant with overtime rules on bonuses and leave hours?
Phase 1 is a preliminary evaluation of your current processes surrounding HR
management and payroll processing - will provide you with insight and information into
basic regulations and recommendations on current process concerns.
64

65. Business Process Assessment –
How Efficient & Compliant Are You?
Phase 2 is a more comprehensive tool that will fully assess and document the
processes involved with these integral business functions.
Phase 2 will provide these additional assessment tools and benefits:
Documented interviews with relevant staff to ascertain
needs at the individual task area
Detailed investigation of all aspects of the payroll
process function (to include, but not limited to): identifying
staffing needs - communication, intake, new hire
process; wages; fringe benefits; taxation
Documentation of key processes and contingency
planning for key staff and resources
Evaluation of training and skills needed for key areas with
benchmarking salary and educational/training recommendations
Evaluation of compliance with labor standards, human resource regulations,
Affordable Care Act, and other jurisdictional issues
Recommendations related to compliance and processes based on the
findings and cost benefit analysis for solutions
65

66. Employee Handbooks
A well-crafted, enforced, understandable and
thoughtful Handbook will:
Ensure Employee/Employer understanding of
policies and procedures
Create an understanding of fairness
Protect the Employer during litigation
Make sure they are distributed to all new
Employees (with signed documentation indicating
date received and understood)!
Make sure the Handbook is regularly reviewed and
updated!
66

67. Employee Handbooks
I. FOREWORD
II. DIVERSITY
A.Equal Employment Opportunity Statement
B.Antiharassment Policy and Complaint Procedure
C.Americans with Disabilities Act (ADA) & Amendments Act (ADAAA)
III. EMPLOYMENT
A.Employee Classification Categories
B.Background and Reference Checks
C.Internal Transfers/Promotions
D.Nepotism, Employment of Relatives and Personal Relationships
E.Progressive Discipline
F. Separation of Employment
IV. WORKPLACE SAFETY
A.Drug-Free Workplace
B.Workplace Bullying
C.Violence in the Workplace
D.Safety
E.Smoke-Free Workplace
67

68. Employee Handbooks
V. WORKPLACE EXPECTATIONS
A. Confidentiality
B. Conflicts of Interest
C. Outside Employment
D. Attendance and Punctuality
E. Attire and Grooming
F. Electronic Communication and Internet Use
G. Social Media—Acceptable Use
H. Solicitations, Distributions and Posting of Materials
I. Employee Personnel Files
VI. COMPENSATION
A. Performance and Salary Reviews
B. Payment of Wages
C. Time Reporting
D. Meal/Rest Periods
E. Overtime Pay
F. On-Call Pay
G. Employee Travel and Reimbursement
68

69. Employee Handbooks
VII. TIME OFF/LEAVES OF ABSENCE
A. Holiday Pay, Vacation, Sick Leave
B. Family and Medical Leave (FMLA)
C. Personal Leave of Absence
D. Bereavement Leave
E. Jury Duty
F. Voting Leave
G. Military Leave of Absence
H. Lactation/Breastfeeding
VIII. BENEFITS
A. Medical and Dental Insurance
B. Domestic Partners
C. Flexible Spending Account
D. Group Life Insurance
E. Short-Term Disability Benefits
F. Long-Term Disability Benefits
G. 401(k) Plan
H. Workers’ Compensation Benefits
I. Tuition Assistance
J. Employee Assistance Program (EAP)
Remember – Handbooks are
an “implied contract” – be
careful what you promise!
69

70. New Hires
Have a documented New Hire Checklist and package ready
Collect the Following Forms:
Emergency Contact Information
Form W-4 for Federal Income
Tax Withholding
State Income Tax Withholding
Form (if needed – NA for
Pennsylvania Residents)
Certificate of Residency (for
Pennsylvania Residents only)
I-9 Form
Direct Deposit Authorization
Completed Job Application Form
Resume
Employee Handbook Receipt
Signed Job Offer letter (pay rate)
Background Check Forms
Designation of Beneficiary for
Sponsored Insurance Plans
 Enrollment, Change, Cancellation or
Opt Out - Health and Welfare Plans
 Other Signed Documents (list)






70

71. New Hires
Complete the following steps:
Use the E-Verify System to Verify Employment Eligibility
HTTP://WWW.DHS.GOV/E-VERIFY
Complete New Hire Reporting
Pennsylvania HTTPS://WWW.CWDS.STATE.PA.US/CWDSONLINE/NEWHIRE/
Maryland - HTTP://NEWHIRE-REPORTING.COM/MD-NEWHIRE/
Enter into Payroll System
Technology user names, passwords, equipment
Assign a “mentor”
Schedule trainings
Other (list)
71

72. Personnel Files
The following documents should be in each personnel
file:
Job application
Job description
Form W-4
Records relating to job offers, promotion, demotion,
transfer, layoff, rates of pay and other forms of
compensation, and education and training records
Records relating to other employment practices
(including policy acknowledgments and agreements)
Letters of recognition
Disciplinary notices or documents
Complaints received
72

73. Personnel Files
The following documents should be in each
personnel file:
Attendance records
Training records
Awards or citations
Performance evaluations and goal setting records
Termination records and documents such as
unemployment forms, letters of resignation,
termination letters, etc.
Emergency contact information
Any contract or written agreement between the
employer/employee (such as non-compete
agreements, company property, etc.)
73

74. Personnel Files
The following documents should NOT be in each personnel
file. These should be stored in separate secure files in the
Human Resource Office:
EEO/invitation to self-identify disability or veteran status
records
Interview notes and employment test results (DO NOT
PUT NOTES ON APPLICATIONS OR RESUMES – USE
SEPARATE PIECE OF PAPER!)
Reference/background checks
Drug test results
Immigration (I-9) forms
Medical/insurance records (medical questionnaires benefit
enrollment forms and benefit claims, doctor’s notes,
accommodation requests, and leave of absence records)
X
74

75. Personnel Files
The following documents should NOT be in each
personnel file. These should be stored in separate
secure files in the Human Resource Office:
Child support/garnishments
Litigation documents
Workers' compensation claims
Investigation records - (only any relevant disciplinary
action, counseling or other direct communications
would be placed in the employee’s personnel file)
Requests for employment/payroll verifications
X
Do not put anything in a personnel file you would
not want a jury to see!
75

76. Personnel Files
Electronic Files
In this era of electronic storage, for ease, space and
search considerations, electronic personnel files are a
great idea - but there are some guidelines you have to
follow.
Below is guidance from the Society for Human
Resource Management (SHRM) regarding how this
should be handled:
Safety. The record keeping system must have
reasonable controls to ensure the integrity, accuracy,
authenticity and reliability of the records kept in
electronic form.
76

77. Personnel Files
Accessibility. The electronic records must be maintained in
reasonable order, in a safe and accessible place and in such manner
that they may be readily inspected or examined. The electronic
records must be readily converted into legible and readable paper
copies as may be needed to satisfy reporting and disclosure
requirements or any other obligation under Title I of the Employee
Retirement Income Security Act (ERISA) or in conjunction with an
agency audit.
Privacy. Adequate records management practices must be
established and implemented, such as following procedures for
labeling electronically maintained records; providing a secure storage
environment; creating backup electronic copies and selecting an offsite storage location; observing a quality assurance program and
conducting regular audits of the system; and retaining paper copies of
any records that cannot be clearly or completely transferred to the
electronic record keeping system.
77

78. Employee Self Service
Using an Employee Self Service (ESS) Portal will provide the
following benefits:
No more printing, folding, stuffing and mailing paychecks or
paystubs
No more reprinting paystubs for Employees for those last
minute bank loans
No more printing, folding, stuffing and mailing W-2s
No more reprinting W-2s for those last minute accountant
appointments or lost W-2s
…and for the Employee
Easy access to pay history and W-2s
Secure data
Most Payroll Service Providers charge for this service – some do
not – don’t pay for what you do not have to!
78

79. 79

80. PayCards
State
Direct Deposit
PayCards
District of Columbia
Voluntary
No Law
Delaware
Voluntary
Voluntary (employees must have
full free access to pay)
Maryland
Voluntary
Voluntary (fees must be
disclosed)
New Jersey
Voluntary
Voluntary (employees must
consent in writing, get free
access to pay and disclosure is
required)
New York
Voluntary (can be mandatory for
exempt employees earning more
than $900 a week)
Voluntary for non-exempt
employees (get free access to
pay)
Pennsylvania
Voluntary (employees must
receive a record of their pay)
No Law
Virginia
Voluntary (employees incur no
fees)
May be mandatory for
amusement facility employees
and all new hires
West Virginia
Voluntary
Voluntary (employees must
consent in writing)
80

81. PayCards
Real Cost Savings:
Employers can save an
estimated $3 per paycheck by
simply removing paper checks
from the equation.
While you cannot “REQUIRE”
Pennsylvania Employees to
have direct deposit, you can:
Give them an option to have a
PayCard when hired
Remind the Employees that
they will receive their money
quicker if they use direct deposit
Mail Live Checks on the pay
date (this will delay their ability
to cash their checks on pay
dates)
81

82. …and now some comments from our
Panel on PayCards, ESS and HRIS –
and other trends in the
“outsourcing” payroll world!
82

83. Tip Reporting – Wages or Tips?
The IRS has recently clarified what
constitutes “Tips” and what
constitutes “Wages”. Although the
Law itself did not change, the IRS
has decided to begin enforcing this
clarification January 1, 2014.
Those “automatic gratuities” such
as “…for parties of 6 or more, 18%
will automatically be added as a
gratuity…” are now being
considered “Wages” and not “Tips”.
These must now be treated as
“Wages”.
83

84. Tip Reporting – Wages or Tips?
In addition, the Employer cannot use these non-tip wages when
computing the Tip Credit available to Employers because these
amounts are not “Tips.”
Common examples of service charges (sometimes called “autogratuities”) in service industries are:
Large Party Charge (restaurant)
Bottle Service Charge (restaurant and night-club)
Room Service Charge (hotel and resort)
Contracted Luggage Assistance Charge (hotel and resort), and
Mandated Delivery Charge (pizza or other retail deliveries)
Best Practice – take this off your receipts and menus. Let the
“Tip” remain a “Tip”.
84

85. Affordable Care Act – What’s Next?
The following provisions remain in effect for 2014 for individuals:
Individual Mandate: Individuals must have health care coverage or pay a penalty
Exchanges: Public Exchanges are still planned to offer coverage effective January 1, 2014
Subsidies: Premium subsidies will be available to help eligible individuals buy policies on the
Exchanges
The following provisions remain in effect for 2014 for businesses:
Summaries of Benefits and Coverage: Employers must distribute this summary during open
enrollment for the 2014 coverage period and must specify whether the plan provides minimum
value (should be provided by Carrier)
Exchange Notices: Employers must distribute “Exchange Notices” to employees by October
1, 2013, and thereafter to new employees within 14 days of hire
Application for Advance Premium Credits: Employers are required to complete the
“Application for Health Coverage and Help Paying Costs" (use the online version whenever
possible) when requested by employees who are applying for benefits using the Exchanges
W-2 Reporting: Employers must continue to report the aggregate value of health coverage on
Forms W-2 (for 250 or more W-2s issued in the preceding calendar year)
Counting Period for Employer Mandate: Employers need to determine whether they will be
subject to the employer mandate in 2015 (50 or more full-time equivalent employees in 2014)
Benefit Mandates: Plan design requirements for all plans continue to apply (maximum 90-day
waiting period, no limits on pre-existing conditions or essential health benefits, expansion of
wellness incentives, dependent coverage to age 26)
85

86. Affordable Care Act – What’s Next?
The following provisions were delayed until 2015:
Employer Mandate: Employers must offer coverage to
employees who work an average of 30-plus hours per week
Affordability: Coverage must be affordable (the employee’s
share of the EMPLOYEE-ONLY coverage cost cannot exceed
9.5 percent of the employee’s W-2 wages)
Coverage and Value Minimums: Minimum essential
coverage (60%) must be provided to full-time employees (30 or
more hours per week) and must be offered to 95% of full-time
employees
Reporting Requirements: Employers (and insurers) must
provide data regarding employees and coverage (FTE counts)
86

87. Complying With The Affordable Care Act
An Employer with 50 or more Full Time Equivalent
(FTEs) in the preceding calendar year would be subject
to the ACA in the current year
Let us show you the math…
Step 1 - Determine the number of full-time employees, including seasonal
employees, for each month in the preceding calendar year (employees who
worked an average of 30 hours or more per week)
NOTE: Partners and 2% or more Shareholders should NOT be
included in this count; Controlled group penalties are calculated on
the subsidiary level with the 30 employee exemption allocated ratably
based on FTE’s in each sub-group compared to the total amount.
Remember: For Health Insurance standards ONLY, the Federal
Government has defined Full Time as working 30 hours or more per week
87

88. Complying With The Affordable Care Act
Step 2 - Determine the total number of
hours worked by part-time employees in
each month; divide that total by 120.
This is the number of FTEs for the parttime employees
Step 3 - Add all of the monthly totals
together
Step 4 - Divide the Step 3 total by 12;
disregard the fractions – this will give
you the FTEs for the year
Full Time EEs
(greater than 30
hours)
January
50
February
53
March
50
April
53
May
51
June
52
July
48
August
43
September
50
October
55
November
53
December
47
Month
You can use the “Seasonal Worker Exception” (which
excludes seasonal workers from the FTE count) if the
following conditions exist:
The FTE count exceeded 50 employees on only 120 or
fewer days OR 4 or fewer months during the prior
calendar year AND Seasonal workers were the ONLY
reason the FTE count reached the 50 count
Note: Neither the 120 or fewer days or the 4 or fewer
months have to be consecutive.
Part Time
Hours
FTE
Total FTE
1735
1725
1735
1725
1252
1253
1245
789
452
1021
487
1027
14.46
14.38
14.46
14.38
10.43
10.44
10.38
6.58
3.77
8.51
4.06
8.56
64.46
67.38
64.46
67.38
61.43
62.44
58.38
49.58
53.77
63.51
57.06
55.56
TOTAL FTEs For Year
725.38
FTEs Divided by 12
60.45
Drop Fraction
60
FTEs > 50 = SUBJECT TO ACA
88

89. Complying With The Affordable Care Act
Compliance with the ACA (no penalties assessed)
requires:
•The Employer must provide a Health Benefit Plan that
covers the minimum (60% actuarial rate) of health care
costs and is offered to at least 95% of all eligible
employees
•The Employee Cost for single coverage cannot be
greater than 9.5% of the wages paid to the lowest paid
employee eligible for benefits (safe harbor)
89

90. Complying With The Affordable Care Act
There are two primary penalties associated with noncompliance with the ACA:
THE ENFORCEMENT OF THESE PENALTIES HAS BEEN DELAYED UNTIL
2015 (FOR 2014 PLAN YEARS)
1.Failure of a “large employer” to provide health insurance
to eligible employees ($2,000 per)
2.Failure to provide “affordable” and/or “minimal
coverage” healthcare to at least 95% of the eligible
employees (the lesser of $3,000 or $2,000 per) – IF the
employee receives a subsidy from the Exchange
*penalties will be indexed based on the 2014 healthcare costs
These penalties are NOT TAX DEDUCTIBLE!
90

91. Complying With The Affordable Care Act
If the Employer provides NO BENEFITS and is subject to the ACA
Obtain the total amount of Full Time Employees. Subtract 30 from that
total. Multiply the remainder by $2,000. This will be the penalty the
Employer will have to pay.
If the Employer provides Benefits but the Benefits do not meet the
“affordability test” or “minimal coverage test”
Affordability Test - Employee premium contributions cannot exceed 9.5% of
W-2 income of the lowest paid Full Time Employee (safe harbor)
Minimal Coverage Test – Plan must provide a “minimum value” which pays
at least 60% of allowed costs and must be available to at least 95% of the
eligible population
The Employer would pay a $3,000 fee per employee that obtained
coverage, and was subsidized, through the Exchanges.
91

92. Additional Fees
There are two fees each employer will be responsible for paying that are separate from any
possible penalties assessed.
Patient-Centered Outcomes Research Institute Fee (PCORI) - $2 per "Belly-Button" in
2014 (for plan years ending on or after 10.1.13 and before 10.1.14)
*for plan years ending on or after 10.1.14 – this fee is TBD
*Reported on Form 720
Transitional Reinsurance Fee (TRF) - $63 per "Belly-Button“
The first enrollment count is due November 15, 2014, to Health and Human Services
(HHS); HHS will provide a “notice of fee liability” by December 15 th ; Employer has 30
days to remit the fee
Confirm with your broker if they are submitting these counts and forwarding
payment!
Your Health Insurance Provider MAY or MAY NOT show this as a separate line item on
invoices.
Both fees are deductible for the Employer under the “…ordinary and necessary expenses
paid or incurred in carrying on a trade or business…” category (subject to IRS limitations).
92

93. Small Employer Tax Credits
Federal Credit (States may offer different Credits)
SHOP =
“Small Business Health Options Program”
93

94. SHOP?
 SHOPs are part of the “Health Insurance Marketplaces” (also
known as Exchanges)
 Provide competitive pricing
 Will ensure “Essential Health Benefits” required by the ACA
 Available to businesses with fewer than 50 employees (In
2016, SHOPs will be available to employers with up to 100
employees)
 Businesses can begin enrolling October 1, 2013, for coverage
beginning January 1, 2014 (after January 1, 2014, this will be
available monthly)
 How can you enroll? - Through a Marketplace Certified Broker
or directly through the SHOP
 Sole proprietors are not eligible for SHOP coverage, but can
purchase coverage through the Exchanges
94

95. Complying With The Affordable Care Act
We encourage you
to go to:
https://www.healthc
are.gov/.
This Website
provides some
useful integrated
tools to assist
businesses, as well
as individuals, with
the ACA.
95

96. Defense of Marriage Act (DOMA)
Reversal – Impact on Employers
Section 3 of DOMA, signed by President William Clinton on
September 21, 1996, allows individual States to refuse to recognize
same-sex marriages granted under the laws of other States. The
Act also barred same-sex married couples from being recognized
as "spouses" for purposes of Federal Law.
Edith Windsor led the case against the United States after she was
forced to pay over $363,000 in estate taxes after her same-sex
spouse, Thea Spyer, died in 2009. Edie Windsor, 84, sued the
Federal Government after the Internal Revenue Service denied her
refund request for the $363,000 in federal estate taxes she paid.
On June 26, 2013, Section 3 of DOMA was declared
unconstitutional by a 5-4 Vote of the United States Supreme Court.
96

97. Defense of Marriage Act (DOMA)
Reversal – Impact on Employers
On August 29, 2013, (with an effective date of September 16, 2013), the
Internal Revenue Service (IRS) issued Revenue Ruling 2013-17, which
provides that same-sex couples who were legally married in a State that
recognizes such marriages will be treated as married for Federal tax
purposes – even if they live in a State that does not recognize same-sex
marriage.
The Ruling provides that taxpayers may rely on the ruling retroactively for
purposes of filing original returns, amended returns, adjusted returns, or
claims for credit or refund for any overpayment of tax, provided the
limitation period for amending a return has not expired.
In general, the limitation period is three years from the date the original
return was filed or two years from the date the tax was paid, whichever is
later. All items affected by the marital status of the taxpayer must be
adjusted.
97

98. Defense of Marriage Act (DOMA)
Reversal – Impact on Employers
Employers will need to review the following:
Are any same-sex spouses currently receiving benefits
under your plan(s)?
Do any of these benefits need to be adjusted for taxability?
Consider…
401k – beneficiary forms
Section 125 – PA vs. MD vs.
Federal
FMLA
Flu shots
Employer Handbook
98

99. Defense of Marriage Act (DOMA)
Reversal – Impact on Employers
As of October 21, 2013
99

100. …and now some comments from
our Panel on PPACA, Exchanges
and DOMA – and other trends in
the employee benefits world!
100

101. Final Trivia
Did Carson get married?
a.Yes
b.No
101

102. Final Trivia
The answer is…
Best wishes,
Elizabeth and Carson!
102

103. Questions?
103

104. Don’t Leave Us Yet!
Please:
•Complete your Evaluation
•Pick up your CPE Certificate
•Drop off your Name Badge
Thank you!
104