Table of Contents

Payroll Practice Fundamentals

Table of Contents pages: 1 2

• Payroll Fundamentals 1-115
• 1.1 Challenges 1-115
• 1.2 Concepts 1-216
• • 1.2.1 Employees vs. Independent Contractors 1-317
  • 1.2.2 Common Law and Reasonable Basis Tests 1-418
  • 1.2.3 Temporary Service/Leased Employees 1-620
  • 1.2.4 Misclassifying Workers 1-620
  • 1.2.5 Employment Eligibility 1-721
  • 1.2.6 Social Security Numbers 1-822
  • 1.2.7 New Hire Reporting 1-1125
• 1.3 The Fair Labor Standards Act 1-1529
• • 1.3.1 Exempt vs. Nonexempt Employees 1-1529
  • 1.3.2 Exempt Employees 1-1630
• 1.4 Federal Minimum Wage 1-1832
• • 1.4.1 State Minimum Wage 1-1933
  • 1.4.2 Tip Credit 1-1933
• 1.5 Additional Earnings 1-2135
• • 1.5.1 Shift Premiums 1-2135
  • 1.5.2 Paid Time Off 1-2135
  • 1.5.3 Bonuses 1-2337
  • 1.5.4 Final Pay 1-2337
• 1.6 Defining Overtime 1-2539
• • 1.6.1 When Must Overtime Be Paid? 1-2640
  • 1.6.2 Other Overtime Regulations Exist 1-2640
  • 1.6.3 Defining the Workweek 1-2741
  • 1.6.4 Time of payment 1-2741
  • 1.6.5 Workweek Exceptions 1-2741
  • 1.6.6 Changing Workweeks 1-3044
• 1.7 Calculating Overtime Payments 1-3347
• • 1.7.1 Establishing a Regular Rate of Pay 1-3347
  • 1.7.2 Issues When Calculating Regular Rate of Pay 1-3448
  • 1.7.3 Doing the Math – Calculating Overtime Pay 1-3751
  • 1.7.4 Acceptable Rounding 1-4256
• 1.8 Defining Time Worked 1-4458
• • 1.8.1 Portal‑to‑Portal Act of 1947 1-4458
  • 1.8.2 Call‑back and Show‑up Pay 1-4660
  • 1.8.3 Waiting to Work 1-4660
  • 1.8.4 Preparing to Work 1-4660
  • 1.8.5 Travel Time 1-4761
  • 1.8.6 Seminars/Meetings 1-4862
  • 1.8.7 Remedial Education 1-4862
• 1.9 Recordkeeping and Systems 1-4862
• • 1.9.1 Handling Payroll Documents 1-4963
  • 1.9.2 Maintaining a Master File 1-4963
  • 1.9.3 Why a Master File? 1-5165
  • 1.9.4 Record Retention 1-5266
  • 1.9.5 HIPAA Basics 1-5468
• 1.10 Form W‑4, Employee’s Withholding Certificate 1-5771
• • 1.10.1 Forms W‑4, W‑4P, and W‑4R 1-5872
  • 1.10.2 Filing Requirements 1-5872
  • 1.10.3 Invalid Form W‑4 1-6074
  • 1.10.4 Exempt Form W‑4 1-6074
  • 1.10.5 Employer’s Responsibilities 1-6276
  • 1.10.6 Withholding Income Tax From Pensions, Annuities, Nonperiodic Payments, and Rollover Distributions (Forms W‑4P and W‑4R) 1-6478
  • 1.10.7 Deducting Income Tax From Sick Pay (Form W‑4S) 1-6579
  • 1.10.8 Obtaining Taxpayer Identification Numbers 1-6579
  • 1.10.9 State Withholding Certificates 1-6579
• 1.11 Child Labor 1-6680
• 1.12 Family and Medical Leave Act (FMLA) 1-6781
• 1.13 Expatriates, Resident Aliens, and Nonresident Aliens 1-6882
• Fundamentals of Payroll Operations 2-191
• 2.1 The Payroll System 2-191
• • 2.1.1 Complying With Federal/State/Local Regulations and Company Policies 2-191
  • 2.1.2 Timely and Accurate Issuance of Paychecks/Direct Deposit 2-191
  • 2.1.3 Periodic Reporting 2-191
  • 2.1.4 Record Retention 2-292
  • 2.1.5 Maintaining Control and Security 2-292
• 2.2 Batch and Real-time Processing Methods 2-292
• • 2.2.1 Batch Processing 2-292
  • 2.2.2 Real-time Processing 2-292
  • 2.2.3 Employee and Manager Self-Service 2-393
• 2.3 Interfaces 2-393
• • 2.3.1 Human Resources 2-393
  • 2.3.2 Benefits 2-393
  • 2.3.3 Data Collection 2-393
  • 2.3.4 Bank Checking Accounts 2-494
  • 2.3.5 Electronic Funds Transfer 2-494
  • 2.3.6 Time and Attendance 2-494
  • 2.3.7 General Ledger/Cost Accounting 2-494
  • 2.3.8 Integration 2-494
  • 2.3.9 Reconciliations 2-595
• 2.4 Control Procedures 2-797
• • 2.4.1 Edits 2-797
  • 2.4.2 Balancing and Reconciliation 2-898
  • 2.4.3 Documentation 2-898
  • 2.4.4 Apply Department Procedures and Update Payroll Processes 2-999
  • 2.4.5 Auditing and Validation of Source Data Input/Output 2-999
  • 2.4.6 Batch Controls 2-10100
  • 2.4.7 Correction Procedures 2-10100
  • 2.4.8 Accumulator Totals 2-11101
  • 2.4.9 Upgrading/Updating the Payroll System 2-11101
  • 2.4.10 Security 2-12102
• 2.5 External audits 2-15105
• 2.6 Paying Employees 2-18108
• • 2.6.1 Paying by Check 2-18108
  • 2.6.2 Direct Deposit 2-20110
  • 2.6.3 The Direct Deposit Process 2-22112
  • 2.6.4 Resolving Late Deposit Issues 2-26116
  • 2.6.5 Stopping Direct Deposit 2-27117
  • 2.6.6 Reversing Direct Deposit 2-27117
  • 2.6.7 Federal Bank Holidays 2-28118
  • 2.6.8 Payment by Payroll Card 2-29119
  • 2.6.9 Regulation of Payment Timing 2-31121
  • 2.6.10 On-Demand Pay (Earned Wage Access) 2-32122
  • 2.6.11 Unclaimed Wages 2-33123
• 2.7 Business Continuity Plans 2-33123
• • 2.7.1 Components of a Business Continuity Plan 2-34124
  • 2.7.2 Testing the Plan 2-35125
• Paycheck Fundamentals 3-1131
• 3.1 Withholding Federal Taxes 3-1131
• • 3.1.1 Taxable Wages 3-1131
  • 3.1.2 Wages are Taxable When Paid 3-1131
  • 3.1.3 Factors Affecting Withholding 3-4134
  • 3.1.4 Withholding Methods 3-4134
  • 3.1.5 A Note on Rounding 3-26156
  • 3.1.6 Withholding Income Tax From Pensions 3-27157
• 3.2 Withholding Social Security and Medicare Taxes 3-30160
• • 3.2.1 Tax Rate and Wage Base 3-31161
  • 3.2.2 Employers Must Pay Their Portion 3-32162
  • 3.2.3 There Is No Age Limit 3-32162
  • 3.2.4 Employers Must Withhold up to the Maximum 3-32162
• 3.3 Additional Deductions From Pay 3-36166
• • 3.3.1 Voluntary Deductions 3-36166
  • 3.3.2 Involuntary Deductions 3-38168
• 3.4 State Taxes 3-55185
• • 3.4.1 State Income Taxes 3-55185
  • 3.4.2 Local Income Taxes 3-55185
  • 3.4.3 State Disability Insurance and Paid Family Leave Taxes 3-56186
  • 3.4.4 State Unemployment Insurance 3-56186
  • 3.4.5 Multi‑State Income Taxation 3-57187
• 3.5 Deceased Employees 3-61191
• 3.6 Gross to Net Calculation 3-63193
• • 3.6.1 Calculating Total Deductions 3-63193
  • 3.6.2 Calculation of Net Pay 3-64194
• 3.7 Employer‑Paid Taxes 3-64194
• • 3.7.1 Why Gross‑up? 3-65195
  • 3.7.2 Calculating Gross‑up 3-65195
  • 3.7.3 Grossing up with Special Circumstances 3-66196
• Payroll Benefit Basics 4-1205
• 4.1 Fringe Benefits 4-1205
• • 4.1.1 Tax Treatment of Employee Compensation 4-2206
  • 4.1.2 IRS Definition 4-3207
  • 4.1.3 Fair Market Value of Noncash Compensation 4-3207
  • 4.1.4 Imputed Income 4-3207
  • 4.1.5 Recognition of Noncash Fringe Benefits 4-4208
  • 4.1.6 When to Withhold and Deposit Taxes on Noncash Fringe Benefits 4-5209
  • 4.1.7 Withholding Tax on Fringe Benefits 4-5209
  • 4.1.8 Nonreportable Fringe Benefits 4-5209
• 4.2 Prizes and Awards 4-11215
• • 4.2.1 Length‑of‑Service and Safety Awards 4-11215
  • 4.2.2 Gift Cards 4-12216
• 4.3 Company Vehicles 4-13217
• • 4.3.1 Valuation Methods 4-14218
• 4.4 Group‑Term Life Insurance 4-18222
• 4.5 Deferred Compensation 4-21225
• • 4.5.1 Qualified Versus Nonqualified Plans 4-21225
  • 4.5.2 401(k) Plans 4-23227
  • 4.5.3 403(b) Plans 4-25229
  • 4.5.4 457(b) Plans 4-26230
  • 4.5.5 Nonqualified Deferred Compensation Plans 4-27231
• 4.6 Section 125 Flexible Benefit Plans 4-30234
• • 4.6.1 Cafeteria Plans 4-30234
  • 4.6.2 Possible Menu Choices 4-30234
  • 4.6.3 Tax Implications 4-31235
  • 4.6.4 Flexible Spending Accounts 4-32236
• Tax Reporting 5-1241
• 5.1 Depositing Federal Taxes 5-3243
• • 5.1.1 Tax Deposit Requirements 5-4244
  • 5.1.2 Clarification of the Rules 5-5245
  • 5.1.3 Safe‑Harbor Rule (98% rule) 5-8248
  • 5.1.4 Making Deposits 5-9249
• 5.2 Quarterly Tax Returns 5-13253
• • 5.2.1 Form 941, Employer’s Quarterly Federal Tax Return 5-13253
  • 5.2.2 Form 941 Preparation 5-15255
  • 5.2.3 State Unemployment Insurance Reporting 5-31271
  • 5.2.4 FUTA (Federal Unemployment Tax Act) 5-32272
  • 5.2.5 Depositing and Reporting FUTA Tax 5-35275
• 5.3 Form W‑2, Wage and Tax Statement 5-37277
• • 5.3.1 The W‑2 Series 5-37277
  • 5.3.2 Deadlines 5-38278
  • 5.3.3 Instructions for completing Forms W‑2 5-41281
  • 5.3.4 Transmitting Your Forms W‑2 (Form W‑3 or Electronically) 5-54294
• 5.4 Penalties 5-57297
• 5.5 Annual Tax Returns 5-61301
• • 5.5.1 Form 940 5-61301
  • 5.5.2 Form 1099‑NEC 5-71311
  • 5.5.3 Form 1099‑MISC 5-75315
• 5.6 Additional Reporting Forms 5-77317
• • 5.6.1 Form 941‑X, Adjusted Employer’s Quarterly Federal Tax Return or Claim for Refund 5-77317
  • 5.6.2 Form 943, Employer’s Annual Federal Tax Return for Agricultural Employees 5-78318
  • 5.6.3 Form 944, Employer’s Annual Federal Tax Return 5-78318
  • 5.6.4 Form 945, Annual Return of Withheld Federal Income Tax 5-78318
  • 5.6.5 Form 1094‑C, Transmittal of Employer‑Provided Health Insurance Offer and Coverage Information Returns 5-79319
  • 5.6.6 Form 1095‑C, Employer‑Provided Health Insurance and Coverage 5-79319
  • 5.6.7 Form 4070, Employee’s Report of Tips 5-79319
• Payroll Accounting 6-1327
• 6.1 Accounting Basics 6-1327
• • 6.1.1 Recording Transactions 6-1327
  • 6.1.2 Types of Accounts 6-5331
  • 6.1.3 Balance Sheet and Income Statement 6-6332

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