" Since I entered politics, I have chiefly had men's views confided to me privately. Some of the biggest men in the U.S., in the filed of commerce and manufacturing,are afraid of something. They know there is a power somewhere so organized, so subtle, so watchful, so interlocked, so complete, so pervasive, that they had better not speak above their breath when they speak in condemnation of it."
- Woodrow Wilson
Although I'm not not a fan of Woodrow Wilson, since he expanded government and increased taxes, his quote captured the fear and angst that business people had toward the IRS and still have today.
A soon to be released Inspector General's report will highlight how the IRS targeted a group of tea party and conservative groups beginning in 2010. According to an ABC News Report by Abby D Phillip: "Since as early as 2010, IRS officials have selected organizations whose names or mission statements suggested an affiliation with conservative or tea party causes,singling them out for additional scrutiny, according to excerpts of a forthcoming Inspector General report on the practice."
This post is not about the IRS tactics and whether it was a failure on the part of an individual, department, a planned attack by the IRS in general or a directive from higher up in the government. Time will sort out the politics behind what transpired.
If you are a business owner, an event such as this should give you pause and have you go back and check your current strategy of tax compliance. The IRS is the biggest and most controlling bureaucracies in the world and is a constant in all our lives. Our hearts skip a beat if a letter arrives from the IRS. If not properly prepared the IRS can cost your business time and money.
Tax Compliance Built on Fear
For right or wrong, tax compliance and enforcement of the tax code is largely built on fear. Nobody wants to deal with the IRS so fear of receiving a letter, fear of being audited or fear of having criminal charges brought against you or your business insures increased compliance to the tax code.
This post is not meant to debate whether the IRS or individuals over stepped their bounds. As you can see from the quote by Woodrow Wilson fear of the IRS, by business people, dates back to when the IRS was still relatively knew. The angst and fear that business people had then still applies and is even greater today.
The increased angst and fear of the IRS is because of the increased size, scope and power the IRS wields. In the coming years with the roll out of the Patient Protection and Afffordable Care Act, it will become even larger and expand its authority over more of our lives. Not only will the IRS be responsible for enforcement of the tax code, but it will also include monitoring and enforcement of the new healthcare reporting and compliance requirements.
As a business owner, if questioned by the IRS it will be your responsibility to demonstrate compliance and justify the revenues you report and all expenses, deductions or credits taken.
It all Starts with Good Records
The critical component whenever justifying your revenue and expenses is your record-keeping. Here are a couple of quick tips that if you are not doing so already you should implement immediately
1. Work with a good CPA. A CPA can help you with tax fillings, tax compliance and tax reporting. They can represent you before the IRS and be your business consultant for your business.
2. Always, always always, separate your business bank account from your personal account. I know this sounds like a no-brainier, but we get several people a year that are starting a business or have had a business and never bothered opening up a separate bank account a or applied for a separate EIN number for their business.
3. Maintain an accurate set of books. With the popularity of Intuit's QuickBooks, many business owners have taken a Do-It-yourself mentality and try to maintain their own sets of books. Unfortunatley, almost all have no background in accounting and try and learn some basic accounting principles on the fly while learning a new software. More than 75% of the time we receive financial records, where the owner or owner's friend, acquaintance, family member is maintaining them and they are wrong. For a few hundred dollars a month you can outsource them to a company such as ours and you will receive a fully accurate set of financial records.
4. Keep your financial records separate for each year. The IRS a few years back bought thousands of copies of QuickBooks and trained IRS staff members on how to use QuickBooks. If you are using an electronic software programming such as QuickBooks they can demand a copy of your electronic file. Unfortunately, when the IRS receives your file, you will most likely be providing them with not only the year they are demanding but previous and current years that may not have been requested. Whose to say they wont take a peak at those other years as well and question you for years not included in their audit. With this latest IRS scandal, we see rules and procedures aren't always followed.
5. Maintain either hard copies or electronic copies of all receipts to backup expenses taken. This includes keeping all receipts, maintaining a mileage log if you are taking mileage and maintaining a calendar showing business dinners and appointments for any meal expense, business expense, or mileage expense.
The power and authority of the IRS is not going away. As a business owner, you have to be prepared for an inevitable audit by the IRS. Taking these steps will go a long way in demonstrating compliance and keeping the IRS out of your business so you can focus on growing your business.
Why would an automated timekeeping system have anything to do with the Patient Protection and Affordable Care Act you ask? Quite frankly, everything!
It has become critical, for employers to track and accurately measure employees' hours for the new health care compliance requirements. Beginning this year employers need easy access to historical time records and proof of employees' hours for the Patient Protection and Affordable Care Act.
To understand why you first need to to understand a few basics of the new health care law.
- For your company you have to define a measurement period from 3 to 12 months. This is the period of time after hiring an employee where you measure and track the employees hours for the purpose of classifying them as a full or part-time employee.
- The Patient Protection and Affordable Care Act requires you, as an employer, to determine the number of full-time employees or full-time equivalent employees. To calculate this, requires you have an accurate record of how many hours each employee works for the months you choose for your measurement period.
- If you calculate the number of full time employees and full time equivalent employees and you have more than 50, you are required to comply with the health care law mandates for a large employer. This means providing a minimum amount of health care coverage for your full-time employees or paying a fine.
- You only pay health care coverage (or fines if you choose not to provide health care coverage) for workers that are classified as full time employees.
Since health care coverage cost or fines are tied directly to the number of full time employees you have, and a full time employee is determined during your measurement period it will be important to:
- Have an accurate way to track an employees hours.
- Pull custom reports over a 3-12 month period that corresponds with your measurement period.
- Have an automated employee time and attendance system that sends out an alert as a part-time employees' hours reach a threshold you do not want to exceed. Many companies have opted to limit their part time employees to 26 hours per week or less. This minimizes their healthcare coverage cost or fines by minimizing the number of full time employees they have on their payroll.
An automated timekeeping is ideal for effective time tracking and reporting. For any company that has more than 50 employees it will be difficult to maintain adherence and accurately track and pull reports to determine compliance to the new helathcare law with some automated timekeeeping system.
In addition to helping you comply with the Patient protection and Affordable Care Act an employee time and attendance system will help you comply with the Fair Labor Standards Act which requires employers to:
- Collect and maintain certain key employment data
- Retain key timekeeping records for a minimum period of time as specified by the FLSA
- Have available key timekeeping records in a central location for immediate access if requested by a regulatory agency.
- Demonstrate a complete and accurate system for measuring and tracking employee hours as required by the FLSA.
We outline these requirements in a previous article that can be found here.
We also outline in our previous article that can be found here how an automated employee time and attendance tracking system will save you money and presents a great return on your investment.
If you are not currently using an automated employee tracking system it is an investment that is well worth making. In the coming years, most businesses will be unable to operate and compete efficiently without accurately tracking employees hours to manage employee cost and having a system for accurately reporting those hours to regulatory agencies.
If you would like more information about automated timekeeping systems you may visit our timekeeping page here.
We are also offer a free 30 day trial for a timekeeping system that cna be requested here. No credit card number required or long term obligation required. Just sign-up and you have full access to the web clock so you can check it out to see if it meets your needs.
We work with many small businesses and are amazed at the number of Charlotte, NC small businesses that do not use an employee time and attendance system or how an automated timekeeping system can save them money.
We will break down the many benefits of using a system into two articles. The first will cover how much, even a small company with as few as 10 employees, can save by using a timekeeping system. The second article will cover how an automated timekeeping system helps you comply with regulatory wage and labor laws and why it will be increasingly important with the implementation of the Patient Protection Affordable Care Act (Healthcare) to have a system to track time for your employees.
Why an Automated Timekeeping System
According to the American Payroll Association (APA), companies can save 2-percent of gross payroll costs each year if they automate their time and attendance process. Many small businesses continue to use a manual process to track time. They do this using a manual time sheet, Excel spreadsheet or a mechanical timeclock. Many of these companies understand the power and savings of automation, as they have already invested in technology and automation for other parts of their business.
Manual timekeeping processes are tedious and often error-prone. Many are archaic processes that require an administrator to collect handwritten timesheets, transcribe the data into an Excel spreadsheet or some other software application and in some cases reenter it into a payroll software data entry page.
This process leaves open the opportunity for "padding" the hours by your employees, transcription and data entry problems and additional time required by your payroll administrator to collect and enter the data. Finally, overpaying payroll wages will cause you to incur additional payroll taxes and larger worker compensation fees.
Cost Savings with an Automated Employee Time Tracking System is Big
There are four ways you can save with a timekeeping system:
1. As an Employer you will not pay your employees for hours they do not work. Do you know how many of your employees show up five, ten, fifteen minutes late? How many leave early? How many say they will make up time but never do? How about those who take an extra five minutes during a break? With an automated time and attendance tracking system, they only get paid for the hours worked and not phantom hours.
2. It cuts down on the time required for the payroll administrator to prepare payroll. No longer will your administrator have to distribute timesheets, collect them, manually enter them into a spreadsheet and/or reenter them into a payroll software entry screen. The payroll reports are immediately available. With a few edits payroll data would be ready for payroll processing.
3. Payroll errors are reduced. Often times with a manual time tracking system, employees are over or under compensated for their time. Any employee that feels they were under compensated or shorted hours will immediately make it known to the payroll administrator. This causes additional administrative costs (time required to correct issue, reissue checks and will cause you to incur additional payroll charges from your payroll processor). The employees that are over-compensated will more than likely not notice or not bring it to you attention, unless it is such a significant difference and realize you will notice.
4. Social Security and Medicare taxes and Worker Compensation fees are tied directly to your payroll wages. As wages for your payroll increase so do payroll taxes and worker compensation charges. Payroll taxes are 7.65% and worker compensation fees can add 2.5% or more to your total payroll cost. Reducing payroll wages will reduce your payroll tax obligations and worker compensation payments.
How Much Can I Really Save with A Time and Attendance System?
Here is a conservative example of how much a company with just 10 full time employees can save:
The company has 10 full time employees that get paid an average rate of $15 per hour. Weekly compensation per employee is $600/week and annual compensation is on average $31,200 per employee.
Total payroll for the company is $312,000 (10 employees multiplied by $31,200 per employee).
The payroll administrator requires 2.5 hours every other week to track down, collate and enter the time in a spreadsheet and other payroll data entry applications.
Savings from Item 1 (Overpaying employees for hours not worked)
Let's be conservative and assume it is on average only 5 minutes per day per employee that come in a few minutes late, leave a few minutes early or take a few extra minutes at lunch or during a break. Many employees will do this without realizing it. Five minutes is truly below the radar and even the best employees may not even know it is occurring.
Five minutes per employee add up to an extra 50 minutes (0.83 hours) of pay per day. This works out to be an extra $12.50 per day, $62.50 per week or an additional $3,250 per year. If you have 20 employees you can double this cost, for thirty employees increase it by a factor of 3, etc. If it averages more than 5 minutes per day per employee than the cost to you is even greater.
- Annual Savings of Not Overpaying = $3,250/year
Savings from Item 2 (Payroll Administration Cost)
If the manual process requires your administrator to spend 2.5 hours every other week to distribute, collect, collate and enter data to prepare payroll for processing and you can reduce that down to 0.5 hours you realize a savings of 2 hours per pay period.
If the administrator is being paid $20 per hour the savings is $40 every other week or an annual savings of $1,040
Savings from Item 3 (Error Rate Associated with Manually Managing Payroll)
The American Payroll Association estimates that there are between 1% and 8% processing errors for payroll. Assume that your payroll processing errors is only 2% - on the very low side because you have a good administrator. With an annual gross payroll amount of $312,000 and an error rate of 2% the total cost to you is 2% multiplied by $312,000 or $6,240.
Savings from Item 4 (Savings from Social Security and Medicare taxes and Worker Compensation Charges)
If you add up the savings listed above you would save an additional 7.65% plus whatever additional worker compensation charges you pay. Even if you are paying a 2.35% workers comp rate the workers comp rate of 2.35% plus the 7.65% in payroll taxes add up to 10% in additional tax savings.
The total savings listed above is $10,530 ($3,250 + $1,040 + $6,240 = $10,530)
Multiply these savings by 10%. The additional savings is $1,053
Adding the $1,053 to the other savings above ($10,530) equals a total savings of $11,583.
- Total Estimated Annual Savings = $11,583
Are you a small business owner that can use an extra $11K?
What will an Automated Timekeeping System Cost?
The good news for an employer is not nearly as much as you think especially considering the cost savings it provides. For example our system for a small employer with 10 employees can be implemented for less than $50 per month. Sounds like an easy decision to make - an investment of $600 per year to save over $11,000 per year. The savings are even more dramatic with more employees and/or the employees you have are abusing your current attendance and tardiness policies.
QuickBooks has done a phenomenal job marketing themselves to small business owners who want to manage their own books. Unfortunately, this false sense of confidence can lead to major problems in your business. Simply installing the software and entering the data does not give your business the tools and information necessary for effectively managing and understanding what is happening in your business. In this post we look at some of the drawbacks of using QuickBooks.
QuickBooks is often accused of being too simple. While being simple is usually a good thing, this is not true when it comes to bookkeeping. The biggest problem with QuickBooks is that is has a 'failsafe' built right in.
This failsafe allows the business owner (or bookkeeper) to go back in at anytime and change the data. Though businesses love this feature (they shouldn't and I'll explain that in a minute) the IRS and banks hate it. These large institutions feel that it's too easy to manipulate data. Therefore, handing the bank or the IRS your QuickBooks statement is not 'proof' of anything.
Business owners should feel very uncomfortable with a bookkeeper, or other QB user, to be capable of going in and changing or making adjustments after a month has been reconciled and closed out. It makes it it too simple for staff members to embezzle money and cover up the theft after you checked the month's financials.
Many business owners feel it is too complex for many of the functions they need it for. Because it tries to be all things to all people, it has functions that are really better suited to a large business than a small or medium size business - although most large business believe it is not sophisticated or secure enough for their needs. The additional functionality can confuse business owners and lead to incorrect data entry.
All these added features cause QuickBooks to come with a steep learning curve. Because it can do just about everything, you need training simply to make it do anything. In addition, how well QuickBooks works depends on your own knowledge of accounting and bookeeping. Unlike a knowledgeable person who understands accounting, the software does not recognize when something is incorrect or missing. Often times it is an inexperienced bookkeeper, business owner or family member with little knowledge or background in accounting and bookkeeping managing QuickBooks.
At the end of the month when it comes to time to do the reconciliation, business owners or whoever is managing the books has difficulty because of incorrect data entry or missing data altogether. This results in either making erroneous journal entry adjustments, or setting the reconciliation aside for another time. Each month it is not unusual for the reconciliation of QuickBooks to be at the bottom of a business owner's 'to do' list. This cycle can repeat itself each month throughout the year. In some cases, go on for years with QuickBooks never being reconciled.
The number one reason that small business owners buy QuickBooks rather than using an accounting firm is to save money. At first glance this makes sense. Small businesses are on tight budgets and QuickBooks is a one time fee...so it would seem.
The initial investment in a copy of QuickBooks is several hundred dollars, After purchasing a copy of QB, additional costs include learning - taking a class, receiving one-on-one training, or buying a book and learning through trial and error. Many of the costs will be hidden, including investment of time in learning and using QuickBooks, unrecognized errors, and poor decision making based on incorrect financial data in QuickBooks.
In addition to purchasing and learning the software, you have to buy checks designed for use with QuickBooks. While these checks make it easy to pay monthly bills, they can be expensive and the process confusing. The handwritten checks have to be entered into QB and reconciled to the bank account. Often times they never get entered.
Of course, one of the most expensive costs of QuickBooks can be the upgrade. Each year your business becomes a little more complex. An upgrade will be necessary after a certain period. However upgrades from QuickBooks are not cheap. You will have to pay anywhere from several hundred dollars to full retail price for the upgrade.
When you consider all of these factors, it's easy to see why QuickBooks does not live up to its promise. The good news is there are alternatives to QuickBooks. For all of the clients that use our Charlotte accounting service we provide access to a cloud hosted bookkeeping solution. It offers our clients an easy to use solution, that is reconciled each and kept up to date each month, has automatic software updates and because it is a cloud based solution can be accessed from anywhere in the world.
As a business owner, what you have to consider is the true cost of managing your own bookkeeping with QB verses outsourcing it to a professional CPA firm, whose bookkeeping rates are competitive with any in-house bookkeeping solution you may have once all your true costs are factored in.
The NC Department of Revenue will be hosting a seminar on June 11 for businesses or individuals thinking of starting a business in North Carolina. Charlotte business owners can register with the NC Department of Revenue at www.dornc.com/business.
Business owners and entrepreneurs thinking of starting a business, will have an opportunity to learn about the "Business Essentials" from staff members at the NCDOR and the Employment Security Department. Each will be presenting information applicable to their department
The NCDOR will cover topics that include, tax basics, registering your business, how to withhold taxes from your employees and requirements covering the sales and use tax.
The employment Security Department will review the appeals process, the State Unemployment tax (SUTA) and, unemployment insurance laws.
The session will wrap up with a question and answer session and business owners and prosepctive business owners will have an opportunity to network.
The seminar is being held at Room 215 in the Hall Building at Central Piedmont College in Charlotte, NC. It will be on June 11, 2013 from 10 AM to 12 PM.
If you cannot make it to this seminar or are looking for additional resources for your small business you will want to check out these resources.
CharlotteBusinessResources.com is web portal that provides business owners with valuable educational content and connects them to some great business resources.
SCORE is another great resources for businesses. It is staffed by volunteers with extensive business experience. They provide counselors that will help small business clients write business plans, marketing plans, evaluate business prospects and assist them in seeking financial assistance when needed. the website for the Charlotte chapter of SCORE is www.CharlotteScore.org.
Of course if you are considering starting or thinking of starting a business you can contact us as well. We offer a free 30 minute consultation to assist new business owners or prospective business owners.
Mistakenly classifying an employee as an Independent Contractor can result in a significant back tax bill and heavy fines. Over the past few years the IRS has aggressively been pursuing employers who misclassify their workers.
Central to an IRS investigation into the classification of a worker is how much "control" an employer exerts over its workers. The control an employer has over a worker can be broken down into three areas:
Behavioral Control - factors pertaining to job instructions, training, etc.
Financial Control - factors pertaining to investment expenses, profit/loss, etc.
Relationship of the Parties - factors that cover employee benefits, written contracts, etc.
When evaluating these areas, the IRS uses twenty different factors to determine the relationship between the employer and worker and the amount of control that is exerted by the employer over the worker.
In this article we highlight five questions from the list of twenty, the IRS will consider when determining the appropriate classification of a worker. To obtain a complete list of the twenty questions, you may go here to obtain a complimentary copy.
1. Profit or Loss
Can the worker make a profit or suffer a loss as a result of the work , aside from earned from the project? This falls under financial control and for the Independent Contractor there should involve real economic risk-not just the risk of getting paid. The IRS wants to determine whether the contractor is undertaking a financial risk, where they cannot only make money but run the risk of loosing money.
If the contractor is never at risk of loosing capital and is rewarded with set wages or hourly pay, then the IRS will tend to view that as an employee/employer relationship. if on the other hand, the contractor has to purchase material, pay out wages out of his or her own pocket and runs the risk of loosing money, then it favors the Independent Contractor model.
2. Works for More than One Firm
Does the worker work for more than one company at a time? This can indicate Independent Contractor status but not conclusively. Employees often times work multiple jobs, working at multiple companies. In fact today it is not uncommon for a person to work for 2-3 different employers as a W2 employee.
A good example of an independent Contractor is a freelance writer. If a freelance writer is working for multiple companies at a time, and setting his or her own schedule for working on various projects, it is a strong indicator he or she is an Independent Contractor. On the other hand if the freelance writer is only doing work for one company and has set hours, then that indciates an employer/employee relationship.
Do you have the right to give the worker instructions about when, where and how to work? Any of these factors demonstrates to the IRS behavioral control over the worker.
Consider a plumbing contractor; a general contrator will let the plumber know when a site is ready for him, but will not instruct him on how to do the work, or what hours the plumber has to work. He will provide him or her with a deadline and it is up to the plumber to meet the agreed upon deadline.
Full Time Work
Must the worker spend all of his or her time on the job? independent Contractors choose when and where they will work. if you are directing an employee that he or she must maintain a full time schedule to be employed, it is a strong indicator to the IRS that it is an employee/employer relationship.
Right to Fire
Can you terminate the worker? n Independent Contractor cannot be fired without subjecting you to the risk of a breach of contract lawsuit. This goes to the relationsship of the party where it is governed by a contract.
Fortunately for may employers that have been using 1099 contractors, the IRS does have a voluntary Classification Settlement program. You can read about the VCSP here.
To further assist you we put together a list of the top twenty questions the IRS will ask to determine whther the worker is atruly a 1099 contractor or employee. If you have been or thinking of using 10999 contractors you will want to download this list.
In a previous post, Tax preparation: CPA Verses a DIY Software Program, we outlined why taxpayers should choose a CPA over a DIY tax software. Recently Minnesota found extensive problems with TurboTax software that you can read about here. Now comes news about 600,000 customers of H&R Block who will have their tax refunds delayed because of a mistake made by H&R Block. You can read how upset their customers are by reading the comments on the H&R Facebook page.
Mandi Woodruff in her article, A Huge H&R Block Errror Could Delay 600,000 Tax Refunds, that was posted on Business Insider highlights the H&R Block mistake.
"In a mea culpa on its Facebook page Wednesday morning, the company said something went wrong with a specific tax form designated for students looking for tax credits."
Really H&R Block? A large company like yours whose core business is tax returns, a company that has a vast team of programmers, CPAs and tax experts on staff and you don't gt it right? Now 600,0000 tax payers are affected...
The author goes onto highlight how students looking to file FAFSA applications for college financial aid are affected:
"This could cause problems for students applying for federal student aid as well. They need tax return information for the FAFSA application."
What is different about a CPA verses H&R Block or another lower cost tax preparer?
Earlier this year the IRS lost a court battle that would have required an estimated 600,000 to 700,000 tax preparers to pass a standardized test demonstrating a minimum level of competency.
That's correct - currently anybody can prepare taxes without taking a test and regardless of how little knowledge they have!
In fact H&R Block will hire individuals that have no experience but simply go through their tax preparation course which is less than 100 hours.
So sure you can pay under $100 and find a low cost tax provider, but be prepared - they may have very little or limited knowledge of the tax laws and tax code.
Compare that experience with the knowledge and training a CPA must have.
If you are filing anything more than a 1040EZ, then your tax return will start to get a little more complicated. Tax preparers that are required to meet the most stringent requirements and demonstrate the highest level of knowledge are CPAs. All CPAs must meet a minimum education level, have worked in the industry for several years and have passed an in-depth rigorous exam demonstrating comprehensive knowledge of the US tax code.
Additionally CPAs must follow stringent IRS guidelines (IRS circular 230), maintain a standard code of ethics and complete a minimum number of continuing education courses each year to maintain their license as a CPA.
Your tax return should be checked for accuracy, both in regards to what tax laws apply to your specific situation and calculation errors. The mistake made by H&R Block huge and affected 600,000 tax payers, that must now wait longer for their refund.
Every year the IRS receives large numbers of tax returns with calculation errors, missing information or incomplete returns. Errors cause returns to be rejected, delayed refunds, or notices from the IRS causing you to have to pay more in taxes or file an amended return.
Preparing a tax return yourself or by a low cost tax provider will not save you time or money if you have to correct the mistakes.
A reputable tax professional will be available year round and not just during tax season. What happens if you have a tax problem in July? has your tax preparer closed up shop for the year? Was it just a seasonal part time gig for that person and he is no longer employed with the company paying him?
You Have a Choice
Each year we see scams and fraud being committed by tax preparers, problems with DIY software programs and now a major mistake by H&R Block affecting 600,000 tax payers. In Minnesota, the state revenue agency stopped tax filers from using TurboTax for a period of time because of the inadequacies of the program.
This year more than ever you have choices. You can choose a software program and do it yourself, you can choose a low cost, box store such as H&R block or you can pay a little more and hire a professional CPA.
From the HR Pros at Richard A. Beauchemin, CPA/Carolina Accounting & Tax Service, PLLC
Federal, state and local laws require employers comply with all labor laws and including those governing compliance to wage and hour laws. Wage and hour requirements apply to all employers regardless of size. Failure to comply can result in litigation brought forth by employees or agency investigations. Critical to compliance is understanding the fundamentals of wage and hour requirements. Here are some basic requirements for compliance but in no way a complete list.
Minimum Wage Requirements
All employees must make minimum wage. Because the state and federal minimum wage limits can differ, an employer must pay the highest minimum wage whether that is the state minimum or federal minimum wage. If an employee earns tips, an employer can pay less than the minimum wage; however, the tips plus the wages must meet or exceed the minimum wage.
The seven day "work week" must be specified for overtime calculations. You cannot vary the pay period or work week to avoid paying overtime hours.
Overtime must be calculated and paid correctly based on the "regular" rate of pay.
Because overtime calculations can vary between federal and state requirements, you will have to make sure you conform to the daily/weekly overtime requirements for both federal and state laws governing overtime pay.
You are not required to pay exempt employees overtime, however they must meet the definition of an exempt employee under the Fair labor Standards Act (FLSA) and your states relevant requirements. You will want to familiarize with the overtime exemption criteria and remember that simply because an employee is paid on a salaried basis does not automatically disqualify the employee from entitlement to overtime compensation.
Employee Time Tracking
Accurate time tracking and time reporting records are important. Train non-exempt staff and supervisory personnel on the requirements to accurately complete time reporting records such as time sheets.
An alternative to hand written time sheets and time reporting data, is an Employee Time and Attendance systems. A Time and Attendance system, allows you to accurately track employee hours.
In addition to providing you with access to electronic database that stores employee time records, they offer a significant Return on Investment (ROI). It is not uncommon for even a small company with fewer than 25 employees to be able to save thousands of dollars per year.
An electronic timekeeping where you can run labor reports with custom dates, allow you can match time records to payroll reports. This is a life saver when responding to an agency's investigation or litigation for violation of wage laws.
Secure and maintain signed timesheets for all non-exempt employees verifying their hours worked for at least three years.
Make sure that any state specific requirements for "Direct Deposit" are followed if you provide "Direct Deposit"
Many companies are moving toward a paperless payroll, using "Direct Deposit" and giving employees access to a web portal to view their paystub and W2. If you intend to move towards a paperless payroll, make sure you conform to your state's requirements.
Any non-standard deductions to paychecks such as uniform expenses, expenses for tools, etc. need to be authorized in writing by employees and are in conformance with your state's wage and hour regulations.
Federal and state agencies are examining closely how employers classify workers with an increased emphasis on employers that use 1099 workers. Make sure you properly classify workers as either W2 employees or 1099 workers in accordance to IRS and your state requirements. Failure to comply can result in large penalties and you owing back taxes for payroll taxes not paid if workers are reclassified from 1099 contractors to employees.
Critical to the success of a company is compliance to all federal, state and local laws. Although we often focus on tax compliance, labor laws as well wage and hour compliance is equally important. To assist you we have a number of guides and resources available. Our Resource Library page includes a list with descriptions of each. On the page is clickable link to request any guide or checklist available. All information is available at no charge.
Thomson Reuters, our software provider, did this video a while ago for one of their software products. After watching the video and thinking of the business owners that I've met with over the past years it made me wonder...Business owners don't really want to start a business so they can be an accountant or do bookkeeping - but assume those roles all too often.
Watch and enjoy the first few minutes of the video. Of course as an accounting firm we are probably much more amused by it.
Often times, in speaking with owners, they send mixed messages. They want to have a successful and thriving businsess that will not require 80 to 120 hours a week of their time but do not want to invest in financial accounting and bookkeeping support services that will help them achieve their goal.
The emergance of all the DIY shows and Intuit's messgae of "It's easy to setup and manage a business with QuickBooks" has connected with many business owners. Unfortunately, after buying the software trying to set it up (usually incorrectly), attempting to keep up to date with all the data entry, monthly reconciliations, and trying to produce meaningful financial reports, frustration sets in. Better yet they may have a spouse that works full time trying to manage QuickBooks.
Meanwhile valuable time is sepnt trying to learn the software along with how to do the bookkeeping and accounting. This is time that could be better spent focusing on developing the vision for your business and implementing your strategy to achieve the goals for your business. It is also meaningfull time better spent with your customers, growing your sales or with your family.
Are you sepnding too much time being an accountant or a bookkeeper and not managing and growing your business?
CPAs are valuable asset to both business decision makers and as a tax adviser for individuals. With an increasingly complex and confusing tax code isn't more important than ever to turn to a professional whose careers is centered around keeping up to date and understanding the tax code.
Additionally, CPAs are a valuable asset and trusted adviser to business owners as seen from the data in the infographic below. CPAs will:
- Take a large amount of financial data and organize it to generate meaningful financial reports
- Work with businesses to help them understand the meaning behind the financial reports and numbers
- Show businesses how the financial reports can be applied to highlight opportunities for improvements and areas that are functioning well