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Pay Frequency, Payment Methods, and Pay Statements Overview

This overview provides information on pay frequency options, payment methods, and the importance of accurate pay statements. It also covers escheat laws and payment considerations for deceased employees.

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Pay Frequency, Payment Methods, and Pay Statements Overview

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  1. Overview • Pay Frequency • Payment on Separation • Payment Methods • Pay Statements • Escheat Laws • Deceased Employees

  2. 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

  3. Payment on Separation • Type of separation matters • Lay-off, resignation, discharge • Think of Voluntary or Involuntary • Who had the choice

  4. Payment Methods • Cash • Check • Direct Deposit • Pay Cards

  5. Direct Deposit • Terms you will need to know • ODFI • RDFI • NACHA • Prenote • Process Flow • Authorization from Employee to Payroll Department • Payroll to ODFI • ODFI to ACH Operator • ACH Operator to RDFI • RDFI to Employee

  6. The flow chart for an EFT ACH ODFI Federal Reserve RDFI Company’s Bank Employee’s Bank I want Direct Deposit Payroll Employee

  7. Electronic Paycards • How Do They Work • Branded vs Nonbranded • Benefits for Employer • Benefits for Employee • Compliance Issue • Implementation Issues

  8. 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

  9. Escheat Laws • Unclaimed Wages • Wages go to state

  10. Wages Owed to Deceased Employees • Who may you pay? • Is there a maximum payment allowed? • Are there any special conditions or requirements?

  11. Extra Pay Period • Only effects Weekly and Bi-Weekly frequencies • Salary Reduction is allowed • Agreed rate is annual rate

  12. Questions / Comments

  13. Section 6 Withholding Taxes

  14. 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

  15. Constructive Payment • When are wages actually paid • Checks in the Mail • Postdating or Backdating • Why is it important

  16. 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

  17. 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

  18. 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%

  19. Wages Exempt from FICA • Worker Compensation Payments • Deferred Compensation Payments • Flex 125 Payments • Qualified Moving Expenses • More complete list available on Pg 6-48

  20. Statutory Employeesand Statutory Non-Employees • Statutory Employees – • Withhold SSEC and MEDCR • Do not withhold FIT • Statutory Non-employees – • Do not withhold taxes • Issue 1099-MISC

  21. 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

  22. 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

  23. Federal Income TaxWithholding 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

  24. Different Method of Withholding • Wage Bracket Method (see Pg 6-20) • Percentage Method (see Pg 6-23) • Alternative Withholding Methods • 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)

  25. 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)

  26. 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

  27. Practice Problems

  28. 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?

  29. Practice Problem #1Answer Answer - $55.00

  30. 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.

  31. 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

  32. 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.

  33. 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

  34. Questions / Comments ??? ?? ??? ?????? ????? ???? ????? ?? ??? ???????

  35. Discussion Time Any questions on: • Prior Topics • Topic this week • Homework Problems

  36. Next Class Topics: Section 7 Unemployment Taxes and Section 8 Depositing & Reporting of Withheld Taxes

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