Overview
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Pay Frequency
Payment on Separation
Payment Methods
Pay Statements
Escheat Laws
Deceased Employees
Pay Frequency
• Annual, Monthly, Semi-Monthly,
Bi-Weekly, Weekly, and Daily
• May pay more frequent than state requires
• Lag time equals time after period end date
until pay date
Payment on Separation
• Type of separation matters
– Lay-off, resignation, discharge
• Think of Voluntary or Involuntary
–Who had the choice
Payment Methods
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Cash
Check
Direct Deposit
Pay Cards
Direct Deposit
• Terms you will need to know
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ODFI
RDFI
NACHA
Prenote
• Process Flow
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Authorization from Employee to Payroll Department
Payroll to ODFI
ODFI to ACH Operator
ACH Operator to RDFI
RDFI to Employee
The flow chart for an EFT
ACH
ODFI
Company’s
Bank
Federal
Reserve
RDFI
Employee’s
Bank
Payroll
Employee
I want
Direct
Deposit
Electronic Paycards
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How Do They Work
Branded vs Nonbranded
Benefits for Employer
Benefits for Employee
Compliance Issue
Implementation Issues
Pay Statements
• Check Stubs
– May need to include:
• Name and/or part of the SSN, Address
• Hours worked
• Pay Period Dates
• Total Earnings
• Itemized Deductions
• Net Pay
• Employer name and Address
• Benefits
• Gross and Net
Escheat Laws
• Unclaimed Wages
– Wages go to state
Wages Owed to Deceased
Employees
• Who may you pay?
• Is there a maximum payment allowed?
• Are there any special conditions or
requirements?
Extra Pay Period
• Only effects Weekly and Bi-Weekly
frequencies
• Salary Reduction is allowed
– Agreed rate is annual rate
Questions / Comments
Section 6
Withholding Taxes
What are taxes?
 What you need in order to withhold correctly
 Withholding Taxes
FICA
 Social Security
 Medicare
Federal Income Tax
State and Local
 How to Withhold
Constructive Payment
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When are wages actually paid
Checks in the Mail
Postdating or Backdating
Why is it important
Social Security Numbers
 9 digit number XXX-XX-XXXX
 Can be verified by contacting the Social
Security Administration – refer to Section 1
 Invalid SSN formats
 Form SS-5, Application for a Social Security
Card
Employee Withholding
Allowance Certificates
Form W-4 - Payroll
Form W-4P - Pension and Annuity
Payments
Form W-4S - Third Party Sick Pay
State Withholding Certificates
Social Security & Medicare
Social Security Tax Rate = 6.2% (there
was a special rate of 4.2% for 2010, 2011
and 2012)
Social Security Wage Base = $117,100 for
2014
Medicare Tax Rate = 1.45% (no wage
limit)
Total FICA Tax Rate = 7.65%
Wages Exempt from FICA
 Worker Compensation Payments
 Deferred Compensation Payments
 Flex 125 Payments
 Qualified Moving Expenses
 More complete list available on Pg 6-48
Statutory Employees
and Statutory Non-Employees
Statutory Employees –
 Withhold SSEC and MEDCR
 Do not withhold FIT
Statutory Non-employees –
 Do not withhold taxes
 Issue 1099-MISC
Federal Income Tax
(FIT)
 Based on Employee Income
 Must withhold when liability is incurred
Liability incurred when wages are paid or
constructively received by the employee
How to withhold
Federal Income Tax
Based on:
Estimated Annual Income
Marital Status*
Personal Allowances*
Additional Withholding (if applicable)*
*Information submitted by employee on
Form W-4
Federal Income Tax
Withholding Rates
Available in IRS Publication 15, Circular E,
Employer’s Tax Guide (revised each
calendar year)
Also Available in your Payroll Source and
Payroll Source Answer Key and Appendix
Different Method of
Withholding
Wage Bracket Method (see Pg 6-20)
Percentage Method (see Pg 6-23)
Alternative Withholding Methods
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Annualized Wages (see Pg 6-23)
Average Estimated Wages (see Pg 6-23)
Cumulative Wages (see Pg 6-24,25)
Part-Year Employment (see Pg 6-25,26)
Supplemental Wage Payments
Wages not part of ordinary wages
Flat rate of 25% if accumulated
supplemental wages are under $1,000,000
per year
Flat rate of 39.6% of amount over
$1,000,000
Combined payment
 Regular withholding rate (Aggregate
Method)
Advanced Earned Income Credit
Reduction of taxes owed for qualified
employees
Amount included in employee’s net pay
Must file Form W-5 annually with employer
to qualify
Practice Problems
Practice Problem #1
Wage Bracket Method – Employee Jane is
married and is paid $1,790 by her
employer on a biweekly basis. Jane
claims 6 withholding allowances on her
Form W-4. How much is deducted for
federal income tax each pay period?
Practice Problem
#1Answer
Answer - $55.00
Practice Problem #2
Employee Bill received a $2,000 bonus in
addition to his regular wages and has
received $50,000 in wages so far during
the year. Using the flat rate withholding
method for supplemental wages, calculate
Bill’s federal income tax withholding on the
bonus.
Practice Problem #2 Answer
 Employee Bill received a $2,000 bonus in
addition to his regular wages and has received
$50,000 in wages so far during the year. Using
the flat rate withholding method for supplemental
wages, calculate Bill’s federal income tax
withholding on the bonus.
$2,000 x 25% = $500
Practice Problem #3
Employee Karen received a $20,000
bonus in addition to her regular wages and
has received $990,000 in regular wages
so far during the year. Using the flat rate
withholding method for supplemental
wages, calculate Karen’s federal income
tax withholding on the bonus.
Practice Problem #3 Answer
 Employee Karen received a $20,000 bonus in
addition to her regular wages and has received
$990,000 in bonuses so far during the year.
Using the flat rate withholding method for
supplemental wages, calculate Karen’s federal
income tax withholding on the bonus.
$10,000 x 25% = $2,500
$10,000 x 39.6% = $3960.00
$2,500 + $3,500 = $6,460 Withheld
Questions / Comments
Discussion Time
Any questions on:
 Prior Topics
 Topic this week
 Homework
Problems
Next Class
Topics: Section 7
Unemployment Taxes
and Section 8
Depositing & Reporting of
Withheld Taxes