CHAPTER 1
THE NEED FOR
PAYROLL & PERSONNEL RECORDS
Many Laws Affect Payroll




Fair Labor Standards Act 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 ($6.55/hour) plus overtime
Fair Minimum Wage Act of 2007 raises to
$7.25 by July 24, 2009
 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
State Minimum Wage &
Maximum Hours Laws



Established minimum wage rates for
specific industries
Employees covered by both federal
and state laws receive the higher
hourly rates
State minimum rates and
regulations vary
(www.dol.gov/esa/minwage/america.htm)
to see minimum wage by state
Federal Insurance Contribution Act (FICA)
 Comprised of two taxes paid by employers (ER)
and employees (EE)
 OASDI (Old Age, Survivors & Disability)
 6.2% with a cap that changes each year
 ER and EE pay
 HI (Hospital Insurance, part of Medicare)
 1.45% with no ceiling
 ER and EE pay
 SECA (Self Employment Contributions Act) applies
to self employed people
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
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 what kinds of standards each
state’s unemployment compensation law must
follow
Used to pay unemployment benefits
Fair Employment Laws

Title VII of the Civil Rights Act of 1964


Can’t discriminate in hiring, firing,
promotion or compensating based on






EEO (Equal Employment Opportunity)
color
race
religion
national origin
gender
Gender orientation added in certain states
See http://www.eeoc.gov/ for more information
The Age Discrimination in
Employment Act (ADEA)

ADEA states employers cannot use
age to discriminate against
hiring/firing/promoting


Applies to employers with 20+ employees
Exception to rule is
Executives aged 65 or over and
 Who hold key strategic decision-making
positions for prior two-year period
 Can face mandatory retirement if annual pension
from ER will be at least $44,000

Americans with Disabilities Act (ADA)


Prevents employers with 15 or
more employees from
discriminating against disabled
employees and job candidates
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 all
new hires within 20 days to state
agency



Records coordinated through Office of
Child Support Enforcement (OCSE)
Fines levied for failure to report
A few states now require same from
independent contractors
Immigration Reform and
Control Act (IRCA)



Bars hiring and retaining aliens
unauthorized to work in U.S.
Accomplished by employee completing
I-9 within 3 business days of
employment (or termination may result)
U.S. Citizenship & Immigration Services
may audit and levy penalties

Criminal penalties where discriminatory
practices are found
Family Medical Leave Act
(FMLA)


Covers companies with 50+ employees within
75 mile radius
EE 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 – but must be within 12 months of
qualifying event
ER continues health care coverage
Right to return to same/comparable job and
continue health coverage in absence
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


Provides for PBGC


Example of a vesting plan
Years of
Service
% Vested in
Pension Plan
2
50%
4
75%
5
100%
Pension Benefit Guaranty Corporation - a
federal agency which guarantees benefits to
employees
Stringent recordkeeping requirements
State Laws

Workers’ Compensation

Most states require employers to pay
workers compensation premiums



Can self insure if state approved
Different premiums based upon job class
State Disability Benefit Laws


A few states have established laws
requiring employers to provide disability
benefits to employees that become
disabled
This applies even if the disability did not
arise due to employment!
Human Resource System


FLSA requires stringent personnel recordkeeping
Pre-hire inquiries like application/screening
document design and retention also critical

No questions alluding to religion, gender, race,
age or national origin


Unless implicates 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 Checks




Due to amount of litigation in this area,
respondents should only verify facts (not offer
subjective information)
Really diminishes credibility of reference inquiries
 Prospective ER may require applicant to sign
“Employment Reference Release”
Interview records should be written/retained
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-to-date and year-to-date for each EE
Paycheck


Paycheck or direct deposit
Outsourcing Payroll


Many small to mid-sized businesses hire a payroll
company to do their processing
This independent company responsible for
compliance and can quickly and efficiently process
payroll