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Unit 1Unit 1

Payroll Laws and Regulations Payroll Laws and Regulations

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Federal Income Tax Laws

• Current Tax Payment Act (1943)– “pay as you go” basis– Employers are able to

withhold federal income tax from employees

– Guidelines • Circular E • Pub 15 • Pub 15-A

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Employees vs. Independent Contractor

• Employee:– anyone who performs services for you – and you can control what will be done– and how it will be done.

• Independent contractor (consultant) – he/she has the right to control the result of the work, – and not what will be done – and how it will be done

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Social Security Laws

• Federal Insurance Contribution Act (FICA)– Social Security

• (Old, Age, Survivors and Disability Insurance) • 6.2%

– Medicare • (HI- Hospital Insurance) • 1.45%

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Social Security Laws

• Federal Insurance Contribution Act (FICA)– Taxable base limits

• Social Security – taxable wages base limit - $89,700 (2005)

• Medicare – taxable wages base – no limit (2005)

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Required Payroll Records

• Internal Revenue Service (IRS) bookkeeping requirements: – Keep the following items per employee:

• Personal information: – name, – address, – date of birth – social security number

• amount and dates of wages payments • period covered by the wages/salaries payments

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Required Payroll Records

• Internal Revenue Service (IRS) bookkeeping requirements: – Must keep the following items per employee:

• wages payments • period covered by the wages/salaries payments• Hiring date • Termination date • Reason for termination/separation

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Unemployment Insurance Program

• Partnership Federal and State Insurance programs:– Federal unemployment

• established by the “Federal Unemployment Tax Act” (FUTA)

• Administer by IRS and the Dept of Labor • 6.2% of the first $7,000 of each employee• Paid only by the employer

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Unemployment Insurance Program

• Partnership Federal and State Insurance programs:– State Unemployment

• established by the “State Unemployment Tax Act” (SUTA) • states set the tax rate per employer • states set the limit on taxable wages • taxable earnings varies within state• Administer by the individual states• Contribution paid by employees and employers

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Fair Labor Standards Act

– Established in 1938– Enforced by the Wage and Hour

Division of Employment Standards Administration (ESA) under the Dept. of Labor.

– Establish federal minimum wage of $5.15 (2005).

– Overtime hours:• are work done beyond 40 worked

hours • rate = 1.5 times regular rate

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Fair Labor Standards Act

• Exempt employees vs. non-exempt employee– Non-exempt employees

• employees covered by the FLSA • covered by minimum wage and overtime pay provisions

– Example: hourly employees

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Fair Labor Standards Act

• Exempt employees vs. non-exempt employee– Exempt employees:

• Not covered by the FLSA • Not covered by minimum wage and overtime pay

provisions– Example: management, Office professional and salary

employees

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State Minimum Wage Laws

• State minimum wage: – state is responsible to establish the minimum wage– If state’s minimum wage is:

• higher than the federal rate, then you must pay the higher of both rates.

• If the state does not have a minimum wages then the federal rate applies.

– Some states have their own minimum wage for employees who are not covered under FLSA.

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State Minimum Wage Laws

• State Minimum Wage:

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State Minimum Wage Laws

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Other laws affecting wages…..

• Davis Bacon Act of 1931– Applies to businesses that

have contracts of $2,000 with the federal government for contraction, repair or alterations of public buildings.

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Other laws affecting wages…..

• Walsh-Healy Public Contracts Act of 1936– Covers firms holding contracts exceeding $10,000

with agencies of the federal government

• McNamara-O’Hara Service Contract Act of 1965– Applies to business with contracts worth more than

$2,500 with government

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Workers Compensation and State Disability Benefits

• Workers Compensation Insurance – protects employees and their families from lost

wages– because of job-related accidents, disabilities or

death.• State Disability

– protects employees who are absent from work,– because of illness or accidents that are NOT job-

related.

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Fair Employment Laws

• Equal Employment Opportunity Commission is responsible for enforcing the Fair Employment laws.

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Fair Employment Laws

• Enforce fair practices in employment:• Prevent discrimination based on:

– Race– Color– Religion– National origin– Age – Sex

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Fair Employment Laws

• Title VII of the civil Rights Act of 1964– Prohibits discrimination based on:

• Race• Color • Religion• Sex• National origin

• Equal Pay Act of 1963– Requires equal pay for men and woman in equivalent jobs

• Age Discrimination in Employment Act of 1967– Protects worker over 40 years of age

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Fair Employment Laws

• American with Disabilities Act of 1990 (ADA)/Rehabilitation Act of 1973 – Protects qualified workers with disabilities

• Civil Rights Act of 1991– Provides monetary damages to employees who

have been intentionally discriminated against.

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Fair Employment Laws

• Family and Medical Leave Act – – Up to 12 weeks of unpaid

leave• For the birth/adoption of child• Provide care of family

member that has a serious illness

– employee’s position is protected for up to 12 weeks.

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Fair Employment Laws

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Pension Security Laws

• Employment Retirement Income Security Act (ERISA)– Protects the pension funds– Regulates the pension fund operations – Specifies the actions that can be taken if the employer’s

fund does not have enough money to pay the benefits– Enforced by the Employees benefits security

administration (EBSA)

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Immigration Reform Act

• Employers must certify that newly hired employees have shown either proof of:– U.S. citizenship or – Working visa

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Immigration Reform Act

• Documents accepted as proof are:– Certificates of US

citizenship/naturalization– Valid foreign passports

plus employment authorization

– Social security card and valid Id

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New Hire Reporting

• Personal Responsibility and Work Opportunity Reconciliation Act (Welfare Reform Act)– Requires employers to file a new hire report.– Report must be completed within 20 days of

employment– Federal Parent Locator services– child support

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Summary

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Questions?

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