Presented Tuesday, November 3, 2015 · Reconciliation of Form 941 to Form W-2 ©2015 The Payroll...
Transcript of Presented Tuesday, November 3, 2015 · Reconciliation of Form 941 to Form W-2 ©2015 The Payroll...
©2015 The Payroll Advisor
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Presented Tuesday, November 3, 2015
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Housekeeping
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Credit Questions Today’s
topic Speaker
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About the Speaker
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Vicki M. Lambert, CPP, is President and Academic Director of
The Payroll Advisor™, a firm specializing in payroll education
and training. The company’s website
www.thepayrolladvisor.com offers a subscription payroll
news service which keeps payroll professionals up-to-date on
the latest rules and regulations.
As an adjunct faculty member at Brandman University, Ms.
Lambert is the creator of and instructor for the Practical
Payroll Online payroll training program, which is approved by
the APA for recertification credits.
What We Will Cover Today
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1. Reconciling Form 941 to Forms W-2
2. Conducting internal audits to find compliance issues for before an external one finds you
3. Going paperless to decrease costs and increase efficiency
4. Benchmarking your payroll to determine where you are and where you are going
Reconciling Forms 941 to Forms W-2 on a Quarterly Basis
Key Area to help avoid audits by IRS and SSA
Key Practice #1 7
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Reconciling Form 941
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SSA Reconciliation Points
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Item W-2 Block 941 Line 944 Line
Social Security Wages 3 5a 4a
Social Security Tips 7 5b 4b
Medicare Wages/Tips 5 5c 4c
Additional Medicare Wages/Tips 5 5d 4d
Federal Income Tax Withheld 2 3 2
Compare the amounts to be reported to SSA on Form W-3
to the sum of the amounts you reported to IRS on Forms
941, 943, 944, or Schedule H for the tax year. The following
amounts on the IRS and SSA report should match:
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Reconciliation of Form 941 to Form W-2
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Lines on Form 941 To Boxes on Form W-2
2—Total Wages and tips and other
compensation
T
o
1—Wages, tips other compensation
3—Total income tax withheld from wages,
tips and other compensation T
o
2–Federal income tax withheld
5a – Taxable Social Security wages
column 1
T
o
3—Social security wages
5a column 2 T
o
4 – Social security tax withheld
5c –Taxable Medicare wages and tips
column 1
T
o 5 – Medicare wages and tips 5d—Taxable wages & tips subject to
Additional Medicare Tax withholding
5c & 5d column 2 combined T
o
6 – Medicare tax withheld
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What the SSA Will Audit
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Conducting Internal Audits to Find Compliance Issues Before an External
Audit Finds You
Key Area because IRS and DOL Audits are increasing to find
compliance issues especially in fringe benefits and calculating overtime
Key Practice #2 14
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Strategies to Conduct Internal Compliance Audits
Not a quick project but a department wide project
Allow months to a year to conduct
Any task payroll does is subject to audit
Conduct the audit on an aspect by aspect basis to allow a starting and stopping point along the way
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Setting Up…
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This makes it easier to complete each phase of the audit
Can handle other projects, and then return to the next phase
Speed is not the concern for this audit but accuracy
Must conduct the same kind of thorough audit of all the payroll procedures as an external auditor would do—You are the IRS Agent!
Setting Up…
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When to start the audit is a tough call
Best time is beginning of a new year—March is fine
Employees are less likely to notice/question the changes that may occur
Forms W-2 are easy to adjust
Entire department can be verified in same calendar year
Strategies…
The audit can be conducted with the full knowledge of the payroll staff
Not a secret audit to find fraud or to “catch” someone doing something wrong
Purpose is to find areas that are out of compliance and fix them before ever facing an external audit
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Strategies…
Payroll staff can be useful in this endeavor
Staff can audit each other and manager
No one working on the focus of audit does the audit for that task
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Strategies…
Don’t confuse this type of audit with accounting firm audits or other “internal audits”. Those are looking for compliance with general accounting practices or principles
Audit both policy and practice. Your policy may be in compliance but your actual practice may not be.
Never assume your company policy is in compliance
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Setting Up the Internal Audit
There are two points that are critical for the payroll manager to complete before beginning any internal audit
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First Point…
The person conducting the audit should know all the laws, rules and regulations concerning the topic being audited:
These should be put in writing and include both federal and state regulations
This should not be done from memory but from primary sources such as the DOL/IRS website or secondary sources such as manuals or web-based products
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Including…
The company policy for each topic should also be included
Many times the federal or state requirements are exceeded by company policy
Employees can sue if company policy is not followed even if the federal and state requirements are, so they should be included in the audit as well
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Second Point
A comprehensive list of all payroll tasks to be audited should be completed, in writing, either prior to beginning the audit or as you go along:
This gives a “playlist” of the tasks to be accomplished and what lies ahead
Helps with assembling the law book discussed in the previous bullet
Also assists in compiling the time frame and work schedule for the audit
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What to Cover
Should include:
All facets of paying employees that are covered by the Department of Labor
All taxation and reporting facets
Don’t forget the state equivalents
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Before Beginning…
Create template for conducting the audit for each task
Create report template for audit findings for each task
Create compliance problem template
Create general template of final audit report for department
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How to Conduct It
Written, formal report for each procedures or policy reviewed
This report the basis for new controls if needed
Not a quick scan
Set up spread sheets and review forms
Compare the regulations to the actual practice and then to policy
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Areas of Concern for DOL
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Regular rate of pay calculations
Lunches docked but not taken
Overtime for semi-monthly
payroll periods
Weighted averages used
for overtime payment when
employee works at more than one
rate per week
Off the clock work
State Side…
Now look at the same areas for the states where employees are performing work
Anything unique such as CA OT?
Do they follow federal?
Are meal and rest periods mandatory?
Check for postings, paystubs, notices and other state related items
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Auditing for Tax Compliance
All facets of taxation including all payments made through the payroll and through accounts payable and offered through human resources---Everything!
Don’t forget the state and local taxes
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What to Do If Noncompliance Issue Is Found
Set up procedures in advance to report to management any noncompliance issues that are discovered.
Deal with each one as they arise after the completion of the audit for that procedure
Keep written records to show corrections to procedures or to show why they were not corrected
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Going Paperless to Decrease Costs and Increase Efficiency
Key area in today’s payroll world because we all must
reduce our department’s cost and increase our efficiency to stay competitive
Key Practice #3 32
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Today… 33
Electronic payments surpassed paper payments in 2003
Most to all of Europe is on direct deposit
YET ONLY…
Around 72% of U.S. employees are on direct deposit
WHY?
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Could Be… 34
Direct deposit no longer new to employees as the “next best thing”
Life is hectic and not high priority for the employee
Are part of the “unbanked”
Or maybe payroll got complacent and satisfied with 2/3 of the employees?
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Cost and Efficiency 35
Cost savings and increased efficiency are the keys here
So the more employees on direct deposit directly relates to the more the department is saving on direct costs
Less time spent on handling the paper equals increased efficiency
But it will not “magically” appear for you!
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5 Steps to Improving Direct Deposit
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1. Get your house in order first
2. Survey your employees
3. Create the target marketing materials
4. Conduct the campaign
5. Remember new employees along the way
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Get Your House in Order First 37
Are your sign up forms complicated, out-of-date, cumbersome or stale?
Do you include directions and samples to assist employees in completing forms?
Are the forms easy to access and submit but still secure—remember they are attaching a check of their own
Do you acknowledge the receipt of the form to alleviate privacy worries
Do you explain how long the process will take?
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Survey Your Employees 38
Target survey of only those who don’t use direct deposit
Ask them upfront why they don’t use direct deposit
Help narrow your marketing scope
Can be quick e-mail or paper form
Can be essay style or multiple choice check box style
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Create the Target Marketing Materials
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Once survey is done create the marketing materials to target the reasons given in the survey
Design the marketing to address the majority of needs or concerns
Use materials that will reach them such as paycheck stuffers
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Conduct the Campaign 40
Conduct the campaign on many fronts
First advertise the campaign outright to let the employees know what is going on—company newsletter, intranet sites whatever…
Personalized letter: targeted campaign extolling the virtues of direct deposit
Personalized e-mail: use after the paper letter to remind the employee about signing up…keep it going until they sign up
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Remember New Employees
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Get them when they are hired How is a new hired informed about the direct
deposit program? Form in new hire packet? Bad idea! Mentioned in passing after Form W-4 but before
health insurance in new employee orientation? Bad Idea!
Not even that much? REALLY BAD IDEA!
No guarantee new employees will automatically sign up unless you can prove they do
Steps to Improving Pay Card Program
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Going to use the same steps but look at it from a different perspective. We are going after the “unbanked” this time not the “undecided”. If we get crossovers then great but not the goal.
1. Get your house in order first
2. Survey your employees
3. Create the target marketing materials
4. Conduct the campaign
5. Remember new employees along the way
Final Thoughts
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Offer direct deposit or pay card enrollment during other open enrollment periods such as health insurance or charity drives
Keeps the programs alive, fresh and active
Your goal must be 100% electronic so keep it all going
There is no “time period” for the campaigns
Change to electronic pay statements to encourage an all electronic environment
Use “green” as incentive for all campaigns
Going Electronic with Timekeeping
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According to the American Payroll Association’s The Payroll Source:
“…as much as 1% to 3% of labor costs are wasted on errors, processing costs, faulty time recording, and noncompliance penalties…Time and Attendance Automation can help control these costs”
Benefits of an Electronic System 45
Less time spent processing
Fewer errors introduced during processing
Decreased costs
Increased compliance with federal and state wage and hour regulations
More efficient data for use by management to control labor costs
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Electronic Filing of Reports
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There are states that require employers to file quarterly reports electronically but we are discussing when the state gives the option to e-file or paper file
California is a perfect example
Employer may paper file the DE 9 and DE 9C
But EDD offers the option of filing online using e-Services for Business
To cut down on paper use always use the e-file option even if not mandatory
EFT to Save Time and Paper
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Many states have mandatory limits that require EFT payments—California for example
If average deposit for SDI and PIT is $20,000 or more for the prior state fiscal year employer is required to pay all SDI and PIT deposits by EFT during the next calendar year regardless of dollar amount Go Green—do all deposits via EFT regardless if required by the state—just as done for federal taxes
E-IWO for Child Support
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Office of Child Support Enforcement working with employers and states to automate the income withholding process with electronic income withholding orders or e-IWO
2 types of implementation options
E-IWO for Child Support
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States electronically send IWOs to employers
Employers send acknowledgements to states
A single interface for all exchange partners
Federal Employer Identification Number (FEIN) is the key to passing data between the state and employer
Notification of terminations and lump sums by employer can be handled through the e-IWO Portal
E-IWO for Child Support
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Secure File Transfer Program (SFTP) is used to send the e-IWOs
IWOs are not sent via e-mail
Can receive all IWOs at one central location
Can save money if currently processing many IWOs or if trying to cut down on paper
E-IWO Options
Medium to large employer who has IT resources that can commit several months to programming
IWOs sent in flat file format or .XML document
You process and make appropriate updates to payroll system
Get PDF of IWO
You create acknowledgement record whether accepting or rejecting
Takes 3-5 months to implement
Receive small number of IWOs or have no IT resources
Receive an image ready PDF copy of the IWO and a prefilled acknowledgment as an excel spreadsheet or PDF
Takes 2-4 weeks to implement
Need to configure server and directories so some IT support is still needed
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Option 1—System to System Option 2—No Programing Option
(NPO)
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Acknowledgement
Sample
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Want a Single Acknowledgement Entry Form?
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XLS is for you
Receive a IWO PDF of each income withholding order sent to you by a state and a single spreadsheet for acknowledging
Enter “accept” or “reject” for each row
Supple a reason code if rejecting
Save the file
Move to outbound directory
You are done
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XLS Acknowledgment Sample
The Employer Can Also
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Notify a state when an employee is terminated
Notify a state when an employee is going to receive a lump sum payment
Employer controls when the notices are released
Can also do on Employer’s Services Web Application if not using e-IWO
How to Enroll
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Must register by completing the e-IWO profile form and providing FEINs
Profile form includes: Agreement to exchange data
Contact information
Exchange preferences (system to system, PDF or excel spreadsheet)
File names
Server info such as User ID, Password, IP Address, Host Name, directory Name and Port
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Currently using e-IWO Currently developing e-IWO Not using e-IWO
Map courtesy of the OCSE
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Get Rid of the Crates!
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Contact Bill Stuart for more
information:
E-mail:
Phone: 518-399-9241
This payroll professional was the
first tester of the system. She
gets 30,000 IWOs a month—she
loves the e-IWO!
Paying by EFT
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Only 15 states require child support to be paid electronically. These include: CA, FL, IL, IN, IA, MA, NE, NV, ND, OH, OR, PA, TX, VA, and WV
All state child support agencies except for South Carolina accept payments by EFT/EDI (electronic funds transfer/electronic data interchange)
EDI includes the identifying information such as case number to properly apply the payment
Electronic Form W-4
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May establish system that allows employees to submit their initial form or change existing form electronically
Paper form must be available as well
Paper form can be required for some employees if business reason justifies
Must be able to provide questionable forms to IRS electronically
Tech Specs for Electronic Forms
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Electronic version must contain exact same info as the paper version-no exceptions
Must be PIN or verified system
Lock-in letter compliance must be available
Perjury statement must be there
Employees must understand that it is signed under penalty of perjury just like the paper form
Tech Spec Continued
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Electronic signature required
Must be able to print hard copy
All other regulations apply the same as paper form
Practical Point: Good to have a system that requires employee to acknowledge perjury statement in order to submit as a separate step
Electronic Forms W-2 to Employees
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Software or website specs will vary
Employee must consent—electronic consent even if consenting on paper
Big stumbling block is disclosure requirements
Statement can be furnished on the web if employee given access info
See link section – IRS code
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Disclosure Requirements
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May get paper if they want it
How long will the consent last
Procedure for paper copy after giving consent
How to withdraw consent and how it is confirmed
Conditions on when electronic Form W-2 is not available
Procedures for updating contact info for employee
Employer must notify if changes in contact info for employer
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Duplicate Form W-2
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Nothing in the regulations require a duplicate form to be on paper
No disclosure required for duplicate forms
May require employee to download—should furnish printer and computer to use just in case
Employers are not prohibited from charging a fee for the issuance of duplicate Form W-2 per IRS Code—charge for paper not for electronic?
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What about Paystubs?
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40 states have some type of requirement for paystubs or pay statements
Paper or electronic-7 states have enacted legislation permitted electronic 1 has issued statement
DE, HI, IA, ME, MN, NC, OK, and OR
CA, NM, NY & VT employee must agree to it
What about Paystubs?
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40 states have some type of requirement for paystubs or pay statements
Paper or electronic-7 states have enacted legislation permitted electronic 1 has issued statement
DE, HI, IA, ME, MN, NC, OK, and OR
CA, NM, NY & VT employee must agree to it
Going Paperless Internally
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How do you handle vacation requests? Does the employee submit a paper form?
Could it be done electronically via e-mail and PDFs?
How are address changes handled?
How is direct deposit set up—on paper?
Could you set up employee self service portals to handle such items as address changes, voluntary deduction information, and direct deposit information
Websites
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If you have one they must be up-to-date
If you don’t have one—get one if possible
PDF files of all forms, links to IRS or state info
FAQs and all policies
Examples
Benchmarking Your Payroll: Find Out Where You Are and Determine Where You
Are Going
Key area because you cannot move forward unless you
know where you are now
Key Practice #4 70
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What is Benchmarking-Definitions
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1. The process of identifying, understanding, and adapting outstanding practices and processes from organizations anywhere in the world to help your organization improve its performance—American Productivity & Quality Center
2. Seeking out superior performance through the systematic search for and use of best practices including innovative ideas, effective operating procedures, and successful strategies—Bogan and English Benchmarking for Best Practices
3. A process for identifying and importing best practices to improve performance—A best practice is “anything better than your current practice”
4. The American Heritage Dictionary of the English Language defines a benchmark as “a standard by which something can be measured or judged”. As a verb, to benchmark means “to measure (a rival’s product) according to specified standards in order to compare it with and improve one’s own product”.
Benchmarking…
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Actually term is borrowed from surveyors
If a surveyor can mark a known position then that position serves as a reference point for other measurements and other points
The goal of using a benchmark is to drive improvements by assessing performance against other who have similar products, traits, organizations etc.
Powerful Tool
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Powerful management tool because it overcomes what is known as paradigm blindness…in payroll this is the old axiom: “The way we do it is the best because that is the way be have always done it”.
Any business process can be benchmarked
“Alone, I am satisfied with myself. With others, I am beset by troubling comparisons—Mason Cooley
What Benchmarking is Not
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It is not a simple comparative study, copying practices from other organizations, performance assessment or a comparative analysis—it is not a college research paper or an article for a monthly newsletter
You are not looking for the best performance but the best practice
Best practices cut costs and maintain compliance
Types of Benchmarking
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Benchmarking types vary and have numerous names
But the one that focuses on processes or procedures is designed for payroll departments
Process Benchmarking
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Focuses on specific work processes
Identifies the best operating practices
Uncovers how well other companies perform in comparison to you and how they achieve that performance
Example
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How many employees do you have on direct deposit? How many do they have?
What did they do, what method did they use or what procedure do they have in place that gets more employees to use direct deposit than you do?
How can we incorporate that procedure to improve our numbers?
Before Establishing a Benchmark Program…
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Before beginning a benchmark program you need to focus on 3 things:
First you need to recognize that benchmarking takes a new mentality—I am probably not the best in everything and probably not perfect in everything I do--Somebody does it better
Second you must be eager to learn from others
Third you must remember that it is adapt rather than adopt—learn about it and adapt it to your payroll
Are There Any Questions?
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How Can Ascentis Help Me?
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Process payroll
• Real time flexible processing
• 100% accuracy
• Reduce processing time by up to 30%
Employee portal
• Paycheck data
• Paystubs
• Tax forms
• Paycheck simulation tools
To earn RCH credit you must
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