Payroll Accounting 2010
Bernard J. Bieg and Judith A. Toland
CHAPTER 1
CHAPTER 5
CHAPTER 1
THE NEED FOR
PAYROLL & PERSONNEL RECORDS
Developed by Lisa Swallow, CPA CMA MS
Payroll Profession
 Positions within payroll profession
 Range from payroll clerk to senior payroll
manager
 Professional
membership – American Payroll
Association (APA)
 Certified Payroll
Professional exam
 Code of Ethics sets direction for profession
Many Laws Affect Payroll
 Fair Labor Standards Act
(FLSA) of 1938
 State minimum wage and maximum hour laws
 Federal Insurance Contribution Act (FICA)
 Income tax withholding laws
 Federal, state and
local
 Unemployment tax acts
 Fair employment laws
 Other federal and state laws
Fair Labor Standards Act
 Federal Wage &
Hour Law of 1938
 Minimum wage is $7.25/hour
 Equal pay for equal work provisions
 Sets law for companies involved
 In interstate commerce or
 In production of goods/services for
interstate commerce
 Requires payroll records be maintained
Federal Insurance Contributions Act (FICA)
 Comprised of
two taxes
 Both taxes paid by ER (employer) and (EE)
employee

OASDI (Old Age, Survivors & Disability Insurance)
6.2% with a cap that changes each year
 Both employees and employers pay


HI (Health Insurance Plan - Medicare)
1.45% with no cap
 Both employees and employers pay

Income Tax Withholding Laws
 Federal
income tax
 Levied on earnings of
employees
 Income tax is withheld from paychecks
 State and
local income tax
 Income tax is withheld from paychecks
 Different in each state

Not all states have state income tax
Unemployment Tax Acts
 FUTA (Federal
Unemployment Tax Act)
 ER
tax – paid on $7,000 per EE per year
 Taxes used to pay state and federal administrative
expenses, not used to pay unemployment benefits
 SUTA (State Unemployment Tax Act)
 Mandatory unemployment insurance – each state has
different laws
 SSA outlines standards that each state’s
compensation law must follow
 Used to pay unemployment benefits
unemployment
Fair Employment Laws

Title VII of the Civil Rights Act of 1964


EEO (Equal Employment Opportunity)
Can’t discriminate in hiring, firing, promoting or
compensating based on
color
 race
 religion
 national origin
 gender


Gender orientation added in certain states
See http://www.eeoc.gov/ for more information
Age Discrimination in
Employment Act (ADEA)
 ADEA states employers cannot use age to
discriminate in hiring, firing or promoting
 Applies to employers with 20 or more employees
 Provides protection to workers over 40

With a few key exceptions
Americans with Disabilities Act (ADA)
 Prevents employers with 15 or more employees
from discriminating against qualified persons
based upon disability
 “Reasonable accommodation” must be
provided
 This is a very vague term and subject to court
interpretation.
Personal Responsibility & Work Opportunity
Reconciliation Act
 Requires employers to report information on
all new hires within 20 days to state agency
 Includes name, address and social security
number
 Records coordinated through Office of Child
Support Enforcement (OCSE)
 Fines up to $25/hire levied for failure to report
 A few states now require same from independent
contractors
Immigration Reform and Control Act
(IRCA)
 Law that bars hiring and retaining aliens
unauthorized to work in U.S.
 Accomplished by employee completing I-9 within
three business days of employment
 U.S. Citizenship & Immigration Services may
audit and levy penalties
 Criminal penalties can apply if
discriminatory practices found
pattern of
Family Medical Leave Act (FMLA)
 Covers companies with
50 or more employees within 75
mile radius
 Employee guaranteed 12 weeks unpaid leave for
 Birth, adoption, critical care
 Can use for child, spouse or parent
 Leave may be used all at once or at separate times –
must be
within 12 months of qualifying event
 Employer continues health care coverage
 Right to return to same job or comparable position
 In 2008, expansion of
FMLA to include up to 12 weeks
when family member is on active duty or up to 26 weeks
for line of duty injury/illness
Uniformed Services Employment &
Reemployment Rights Act
 Military personnel given right to take leaves of
absences from civilian jobs
 Right to return to prior jobs with seniority intact
 Health benefits must be started without a waiting
period
 Doesn’t apply if
dishonorably discharged
Employee Retirement Income
Security Act (ERISA)
 Trustees
must monitor pension plans
 Vested 100% in 3-6 years
 Example of

a vesting plan
Provides for PBGC
Years of
Service
% Vested in
Pension Plan
2
50%
4
75%
5
100%
 PBGC (Pension Benefit Guaranty Corporation) is a federal
agency which guarantees benefits to employees

Stringent recordkeeping required
State Laws
 Workers’
Compensation
 Most states require employers to pay employees’
premiums
Can self insure if state approved
 Different premiums based upon job class

 State Disability Benefit Laws
 Five states plus Puerto Rico have established
laws requiring employers to provide disability
benefits
 This applies even if the disability did not arise
due to employment!
Human Resource System
 FLSA requires stringent personnel record-keeping
 Application for Employment
No law prohibiting questions about religion, gender, race, age
or national origin - but must tie into ability to perform job
(for example, bilingual capabilities)
 If application asks age/birth date, should contain ADEA
language notifying candidate of anti-discriminatory
provisions

Human Resource System (continued)

Reference Inquiry
Due to amount of litigation in this area, respondents should
only verify facts and not offer subjective information
 Really diminishes credibility of reference inquiries
 Prospective employer may require applicant to sign
Employment Reference Release
 Must notify employee if seeking investigative consumer report

Hiring notice alerts payroll department to new
employee
 Employee history record contains performance
evaluations, compensation adjustments, disciplinary
issues, etc.

Critical area – employment related litigation is very expensive
and often times avoidable
Payroll Accounting System
 Payroll Department documentation
 Change in payroll rate form notifies proper departments of rate
change
 Payroll Register compiles data per paycheck
 EE Earnings Record outlines earnings per period, quarter-todate and year-to-date for each employee
 Paycheck

Paycheck or direct deposit
 Outsourcing Payroll
 Many small- to mid-sized businesses hire a payroll company to
do their processing
 An independent company responsible for compliance