Seattle Area Business Owners Braving Risk, and July Employment Data

     It's an interesting time. We saw an increase in protests in downtown Seattle (and in other areas of the country) pushing for a $15 minimum wage for fast food workers. Protesters pressuring other minimum wage workers to join them with chants of "You don't need the boss; the boss needs you!" For the record, I believe the employer-employee relationship is a symbiotic one. Tom Douglas gave some of his employees an increase of $15 per hour, but thinks the government should stay out of it (applause to Tom from me, for sure). 

     We sit on the eve of Oct. 1st, a kick-off compliance day of the Affordable Care Act, when employers are to notify employees of their coverage options under their respective state and/or federal SHOP exchanges and beyond - here in Washington, those coverage options haven't been rolled out, due to delays...so we wait.

For Small Business Employers considering hiring, it would be easy to hear only one thing - RISK

     BUT...this month I worked with an influx of start up companies, as well as a number of companies who decided to move from in-house to outsourcing of payroll compliance services. They wanted to capture back their time and hurdle risk; not ignore it, and not run from it. Each of these local owners, officers, and managers, from different industries, and with different backgrounds, has a positive-growth outlook for their economic future and made the decision to move forward in spite of the surrounding risk. They will be hiring.

     That's Entrepreneurship. That's Ownership.

Data Overview:

Small businesses with 1-19 employees had a net gain of 82,000 jobs nationally in July (ADP/NER)

Professional/Business Services Industry had a net gain of 49,000 jobs nationally (ADP/NER)

US Franchise Jobs growth slowed to just over 12,000 in July (ADP/NFR)

WA State had a gain of over 6,000 jobs (ADP/RER)

WA State Preliminary Unemployment Rate dropped to 7.4% in July (BLS)

WA State private sector has added an estimated 74,000 jobs in the last year: July 2012-July2013 (BLS)

The Future of Seattle Area Restaurant Ownership?

     There is a case to be made that restaurant ownership is going to require a more skilled and knowledgable business owner in the future. Some major regulation changes and other surprising challenges have made their way onto the plates of restaurant owners, and not everyone is going to like the taste of things to come.
     The Employment Policies Institute recently published results from a survey and study entitled Paid Sick Leave in Seattle: Examining the Impact on the Service Industry. The Seattle paid sick leave mandate officially rolled out last September and has had some time to make an impression on the restaurant community and service industry at large in the Seattle area. The EPI survey found that more than one third of the respondents have executed on cost cutting/revenue raising measures in response to the mandate, and "roughly 56 percent said it would increase their cost of doing business in Seattle."
     Protests have been picking up steam in the Fast Food Industry as the debate over a $15 minimum wage has caused people to take to the streets in Seattle and other cities. Washington State already boasts the highest minimum wage of any state in the country, but part of the cause of this discussion may be the shift in the demographics of our local restaurant industry workforce. The Washington Restaurant Association reports that the percentage of teenagers in the restaurant workforce has dropped from near 20% in 1998 to an estimated 5% today, surrendering to an older, post-recession workforce. An older workforce generally has more liabilities and more obligations, requiring a higher income.
    Add in new regulations accompanying the Affordable Care Act coming this Oct. 1, and you have some blustery winds of change blowing through an industry already known for its low margins and long hours. More regulations to comply with and rising labor costs may mean an increase in prices for customers, but coupled with the decrease in the younger workforce, will more restaurant owners change the way they run their business?
     Tomorrow's successful restaurants could operate like today's successful professional services companies from an employee management perspective. With the smallest errors seriously depleting already thin margins, will an industry notorious for its turnover focus its attention on stronger HR and better employee management in an effort to reduce turnover, minimize unemployment claims, and decrease hiring and training costs? The money to afford these new regulations and rising labor costs has to come from somewhere. A highly trained, more financially stable, tenured workforce could supply the type of experience required to deliver high quality service - the type of service that could support an increase in customer pricing.

June Jobs Data and Thoughts on Current Small Business Challenges in WA State

Two new clients I worked with in June provide this month’s theme:

                  (1) A small construction company of 5 employees, marred by turnover, was trying to process payroll, deposit taxes, and pay garnishments themselves, struggling with the myriad of compliance challenges with doing so. The tasks ate up their time and frustrated their business, culminating in tax penalties and personal stress.

                  (2) A small flooring company looked to get mobile in their payroll technology to gain the ability to process payroll on the jobsite, and to accurately communicate pay information to employees, using a mobile device.

                   Echoed from last month’s job growth, June brought with it a significant increase in jobs across a number of sectors including the construction (21,000 new jobs according to the ADP NER) and restaurant (21,000+ new restaurant franchise jobs according to the ADP NFR) industries. The great thing about these industries is they often offer entry level employment opportunities alongside more tenured jobs, inducing more financially diverse employment opportunities for those in search. The challenging side about these industries, from a business owner perspective, is they tend to be more seasonal, carry a higher rate of employee turnover, and carry a higher risk  of employment in terms of compliance—i.e. garnishment payment processing, unemployment claims, etc…

                   The small businesses that support these industries are looking to not only manage compliance, but to provide quality communication to their employees in terms of their hours worked and pay, in an effort to minimize turnover. They are also trying to get more done in less time, opening a new wave of mobile payroll prospective clients interested in such services.

Data Overview:

Small businesses with 1-19 employees had a net jobs gain of 84,000 jobs nationally (ADP/NER)

Professional/Business Services Industry had a net gain of 40,000 jobs nationally (ADP/NER)

Restaurant Franchise Jobs grew by over 21,000 in June (ADP/NFR)

WA State had a gain of over 6,000 jobs (ADP/RER)

WA State Preliminary Unemployment Rate is 1.6% lower than at the same point last year, June 2012 (BLS)

WA State has added an estimated 67,000 jobs in the last year: June 2012—June 2013 (BLS)

What the May Jobs data means to Washington State Employers

Two new clients I worked with in May provide this month’s theme:

                 (1) An independent contractor for years, providing a professional service, this business owner decided to invest in a retail space and hire on her first employees. With no previous experience in managing employees, her biggest concern was compliance—how to report what information, and to which agency, in order to avoid fines and penalties.

                 (2) The owners of an expanding doctor’s office, knowing they deal with sensitive client information (HIPAA Regulations, etc...), were looking to reduce their exposure during the hiring process by performing background screening of candidates as well as establishing company wide policies for better employer to employee communication of industry compliance standards.

          I’m always interested when a new business tax deduction or tax holiday is proposed via government in an effort to spur business hiring. In the small sample of business owners I bring on each year (75-100), most will tell you it is not tax breaks they want as an incentive for hiring, but risk mitigation—lower the level of risk that comes with hiring on a new employee.

          As more SMBs embark on the journey of employment growth, options for compliance and risk management are becoming increasingly more sought out. And knowing as they do, business owners are concerned about their increased chances of state or federal audits as our governments struggle to find new sources of revenue to bridge their increasing budget gaps —and the tidal wave of this trend is coming...as 2014, the year of the Affordable Care Act, looms.

          With that being said, employment growth is happening, which is wonderful news—And here in the Greater Seattle Area, when we look at the local unemployment rate, we should feel particularly optimistic about our prospects to make of our future what we wish. Cheers.

Data Overview:

Small businesses with 1-19 employees had a net jobs gain of 37,000 jobs nationally (ADP/NER)

Professional/Business Services Industry had a net gain of 42,000 jobs nationally (ADP/NER)

Business Services had the 2nd largest jobs growth by industry in Franchise Employment (ADP/NFR)

WA State had a gain of over 3,000 jobs (ADP/RER)

WA State Preliminary Unemployment Rate dropped to 6.8% (BLS)

Seattle/Bellevue/Everett Preliminary Unemployment Rate dropped to 4.7% (BLS)

Payroll: Getting Started Guide to Washington State

Congratulations, you're ready to hire your first employee in Washington State!

Here's a short checklist guide of the items you'll need to get set up properly for your first payroll.

When doing payroll in Washington State we have 3 main tax agencies that cover payroll taxes. (Reminder: We have no State Income Tax...yet)

1. IRS - Federal Taxes
2. WA State Employment Securities - the office of Washington State Unemployment
3. WA State Labor and Industries - the agency covering Worker's Compensation Insurance

In order to File and Pay Federal Payroll Taxes, and there are a number of them, your company must have a Federal Employer Identification Number (FEIN or EIN for short). You can apply for an EIN online or complete and submit a hard copy SS-4 Form application. The online application gives you an identification number and receipt of completion instantaneously, and tends to be the preferred option.

The Department of Employment Securities requires an assigned identification number (called an ES Reference Number), as does the Department of Labor and Industries, in order to properly pay their state specific payroll taxes. To obtain both ID numbers, a Washington State Master Business Application must be filed indicating you are now hiring on employees - in doing so, both the Department of Employment Securities and the Department of Labor and Industries will issue identification numbers upon receiving the correctly completed Master Business Application, which can be completed online.

Once you have your three tax identification numbers you'll want to be sure your new employee(s) complete(s) their W4 Form so that you or your payroll company will be able to calculate that individual's payroll taxes accordingly.

Once you've gotten your Tax ID numbers and W4 forms, you can process payroll. There may be some other tax or compliance requirements based on your employee count and/or location of your business, so be sure to consult your CPA or business advisor. Also, there are a number of compliance items to tackle like New Hire Reporting and hopefully you've had your employee(s) complete their I9 Form for Homeland Security purposes.

If you're willing to take on the burden of payroll compliance on your own be sure to review IRS Publication 15 - the Employer's Tax Guide, as well as Employment Securities and Labor and Industries filing and depositing requirements.

If you feel better served having a professional service company take over payroll duties, feel free to contact me at Randy.Harris@adp.com and we can quickly explore if some of our small business payroll services options could ease your concerns. We process payroll and file & deposit payroll taxes for companies with as few as one employee in Seattle, Bellevue, and all corners of Washington State. Reach out for a discussion today.

Payroll Taxes Ranked #2 in Top Burdens for Small Business Owners

The 2013 Small Business Taxation Survey was just released by the National Small Business Association (NSBA) in the days leading up to the 2013 April 15th Tax Filing Deadline and Payroll Taxes Ranked #2 in both the Top Administrative and Top Financial Burdens of small businesses. 


A note from the forward in the survey...

"When it comes to payroll taxes, one-third of small businesses report spending more than six hours per month on the administration of payroll taxes, which, while it may not sound overly burdensome, amounts to more than 72 hours per year, or nearly two full work weeks."


That's an eye opening amount of valuable time, and the study asked if small business owners were outsourcing payroll in order to reduce their time spent on payroll administration:

40% of the respondents said they "Use a Payroll Service Like ADP or Paychex to prepare...payroll" 

and...

"...one in three report spending more than $500 per month on payroll services"

While most of my small business clients tend to spend in the $100 to $300 per month range, it is interesting to note the amount of small business employers choosing to outsource coupled with the amount business owners are willing to pay to reduce their payroll tax administrative burden.

Most of the small business owners I work with tell me (as a reason they are choosing to outsource):

1. They have little knowledge of payroll tax compliance regulations 
2. They have some knowledge but don't have time to learn all of the payroll tax compliance regulations
3. They are knowledgable of payroll tax compliance regulations but it is more cost effective to outsource than to perform payroll administration themselves

Based on personal experience over the last ten years, most owners and accountants are interested to learn of how many small business owners outsource payroll services with just one or two employees. During our conversation, I can often reference a one or two employee company I had just set up in the current or previous week that had made the choice to outsource.

With time savings becoming ever more valuable in the struggle to operate a successful business, it seems to be becoming more justified to outsource a compliance function like payroll services - which, at the current rate of government regulation changes and requirements, may become more and more of a necessity and less of a convenience. 

Payroll Services Can Provide Check Fraud Protection

Small business owners, have you ever been afraid of check fraud against your company due to a company issued payroll check?

Seattle, like most other major cities, has had a history of this problem.

If you have 10 employees that you pay with live checks twice a month. That's twenty pieces of paper out there with your bank account information (and signature) every month, just from payroll.

In their 2012 Report to the Nations, The Association for Certified Fraud Examiners (ACFE) revealed a few key challenges...

"Check tampering was three times as common and payroll skimming schemes were noted almost twice as often in smaller organizations than in their larger counterparts"

"Most occupational fraudsters are first-time offenders with clean employment histories. Approximately 87% of occupational fraudsters had never been charged or convicted of a fraud-related offense, and 84% had never been punished or terminated by an employer for fraud-related conduct"

If you're worried, here's something to look into if you have to pay employees via check...

Most payroll services now offer a check fraud protection service whereby payroll checks are drawn off of the payroll services' bank account. The checks issued then have the payroll services' signature and bank account numbers on them instead of your company's.

The NFIB made some recommendations last year to reduce a businesses chances of experience payroll check fraud. #5, Positive Pay, is an additional service, with an additional cost, on the banking end - but your payroll services company may likely have a Check Fraud Protection Option...which you can also pair with the NFIB's recommendation #7, Direct Deposit.

Setting Up Payroll for Employees in Multiple or Different States

Setting up payroll for employees in multiple or different states can be tricky as most employers, (especially small business owners), and most people in general have likely only had experience paying payroll taxes in their home state.

Technology has made it possible for small business owners to reach across state lines, coast to coast, and beyond to find the most capable employees to fit their company vision and do 'the work.' This type of reach has expanded the wonderful possibilities of business for these companies and allowed them to find talent that may not be available to them locally, but it has also created some challenges in terms of payroll processing that can impact the business from a compliance standpoint and from an employer-employee relationship standpoint.

These types of issues can result in penalties, fines, and employee turnover - which can be costly.

The most important thing to remember is that every state is different and even some cities and local municipalities have their own taxes that may need to be deducted from the employee's pay depending on where they live, where they work, or both.

Below are some of the 'State Level Taxes' to watch out for.

State Income Tax
State Unemployment Tax
County Taxes
City Taxes
Local Taxes (School District Taxes, etc...)

These taxes may or may not apply depending on the state, city, or county the employee is employed in. Also, it is VERY important to take note of where the employee lives and where the employee works - which may be two different states (this occurs quite often in certain regions of the country) - and you will be paying different state taxes to the lived in state vs the worked in state.

The IRS and State Governments are watching you to make sure you're in compliance and your employees are counting on you to get their paycheck calculation correct.

I see a lot of small business owners in particular lean toward outsourcing in these situations. I have numerous 2 to 7 employee companies that carry employees in 2, 3, 4, or more states, and the compliance risk is often something more cost effectively managed by a payroll processing company.

If this is something impacting your small business and you have questions about what outsourcing looks like, free to reach out to me via phone or email.

Making a Mid-Year Switch in Payroll Services

Making a Mid-Year Switch to a Payroll Services Company isn't as challenging as it used to be and shouldn't cause you to lose any sleep.

Many years ago, a mid-year conversion would cause employees to receive two W2s at year end, and make the current quarter filings a potential mess.

Thank goodness technology has caught up.

I generally see the following scenarios when bringing on a new client for payroll and tax filing services...

Current System - Transitioning To - Payroll Services Company

1. In-house payroll (using software) - to - Payroll Services
2. Manual payroll (using spreadsheet docs or doing payroll by hand) - to - Payroll Services
3. Payroll Services (using another p.s. company) - to - Payroll Services
4. Accountant/Bookkeeper - to - Payroll Services

In any of these cases, the same approach is usually taken with the Payroll Company:

• You'll want to exchange copies of the Quarterly Filing Reports (Both Federal and State(s)) for any of the Quarters that have passed so far this year.
• You'll want to exchange payroll reports for each payroll so far in the current quarter, so that they can accurately file and deposit for the current quarter.
• You'll want to grab a Year to Date Payroll Report (Jan. 1st - Today)
• In both the per payroll reports and the year to date report it is important that those reports be broken down as follows:

Employee Name: Hours worked | Gross Pay - Taxes - Deductions = Net Pay

This is done to make sure the Payroll Company knows who's been paid what, and what taxes and deductions have come out of who's pay.

After that you're just looking to pass along Employee W4 information and possible Direct Deposit Information if applicable.

The Payroll Company may want to see receipts of tax payments made so far during the current quarter and may ask if there are any taxes due from previous payrolls you would like them to deposit on your behalf.

After your new Payroll Services Company has set up your account, and before you begin processing payroll with them, you'll want to verify that the data in their system matches that of the data on the reports you turned over or uploaded to them.

Verify the Employee Data as well, but its a good best practice to ask your employees to verify their W4 information on their first paystubs also.

Keep an eye out and don't be afraid to ask questions. And while service and results will always vary based on individuals and companies involved, there shouldn't be any technical reason to hold back in making a change in Payroll Services mid-year if you trust the people you're working with and they have a solid history of helping other companies make a transition.

Payroll Taxes Go Up for All in 2013

Prediction: About two weeks from now, an employee at your company is going to call on human resources, or their manager, or the business owner, or you, and ask this question:

"How come I'm getting paid less, they passed the fiscal cliff thing...?"

I'm being facetious of course, but the newly passed 'fiscal cliff bill' has been highlighted as keeping a tax increase from hitting 98% of Americans.

...And that is true in regards to federal income taxes, but what was interestingly (and likely intentionally) left out of the President's late night speech on Jan. 1 was the sunset of the social security payroll tax holiday.

As a result of that sunset, the employee portion of the social security payroll tax will increase in 2013 from 4.2% to 6.2%. Click here for the new IRS Guidance.

A 2% increase for a family earning $50,000 means $1,000 less in take home this year. A family earning $100,000 takes home $2,000 less this year. There is a cap on the tax at $113,700.

Unfortunately today, very few working employees truly understand the taxes and calculations that impact their paycheck. Business owners, managers, and hr directors are likely to have to deal with a number of questions around this fact over the next number of weeks. 

Fiscal Cliff Diving for Small Business Owners

Jeepers, its been a year since my last post! I realized my hiadous started when my second child went mobile (parents know what that means...). Time to get back at it.

Fiscal Cliff !!! Yes its an overplayed term, but here's what is likely to happen...

Since its December 22nd and Congress is vacationing for the holiday, there are only two likely outcomes that will happen upon their return: #1. No deal by Jan 1 or #2. A short term fix to be adjusted in 2013.

Either of these paths mean a pain in the rear for small business owners trying to manage payroll.

For those managing payroll in-house using software, you'll likely have to perform a download of the tax tables that will be used starting Jan.1. If the download doesn't work, then you'll have to spend time with customer service. Hopefully service is state-side and they have a large team because if the download didn't work for you it didn't work for others.

You will have to do this twice - because there will again likely be adjustments at some point in Jan/Feb, maybe even March and the adjustments to the income tax tables or payroll tax holiday will likely be retoractive for some tax payers (maybe some or all of your employees).

What my clients are telling me...

I'm hearing owners and managers who have done payroll in-house for years finally consider outsourcing because they don't have the time to spend dealing with these adjustments and making sure they are correct. Obviously incorrect payroll tax calculations = fines and penalties.

It seems outsourcing payroll is a viable plan for the next six months to a year for even the most 'anti-outsourcing' small business owners, at least until we get some stability in the tax code.

Making a January Payroll Switch to a Payroll Company

January 1st is just around the corner, and this time of year I tend to get a lot of calls from business owners and CEO/CFOs looking to outsource their payroll for the first time.

January is a great time to start your payroll outsourcing experience because all payroll tax balances have reset at zero. This minimizes the data that payroll companies have to enter into their system (outstanding payroll tax balances, etc...), and reduces the chance for an error during conversion.

If you have made the decision to outsource I recommend getting the paperwork and set up of your account completed early. There are a lot of companies who begin outsourcing or make a change in providers this time of year and you'd rather be in and done and not caught in a shuffle or near a deadline when your account set up is happening  - with so many other accounts being set up simultaneously, quality could be sacrificed.

Schedule a time with the sales representative of your payroll company to be live and on site for the first payroll to help ease the new experience.

Then figure out what revenue generating tasks your going to accomplish with your new free time now that the payroll company is taking the time burden of payroll off your shoulders.

How Direct Deposit Saves Business Owners and Employees Money

Have you ever received a check for a really small sum?

Did you cash it?

The other day I received a check for $.36 (not a typo, 36 cents!). It was the first time I remember thinking, 'it would cost me more money to cash this check, than this check is worth.'

How much does it cost your employees to cash their checks?

Math: let's say $3.80 for a gallon of gas today, 2 miles each way to the bank. Let's say 20 minutes door to door (standing in line at the bank or depositing via the ATM). And how much is your employee's time worth (20 minutes, 1/3 of what they make an hour)?

Some banks may charge fees for cashing a check if the employee doesn't bank there (it might be the closest one to the office), or doesn't have the right level of bank account. Also, if it's a deposit, funds may not be available for a few banking days (is rent due this weekend?).

...And how much does it cost you as an employer?

Bankers will tell you, often the only time people stand in line is on pay day. That's every friday, the 1st, 15th, and end of the month, and the next banking day after holidays. That 20 minutes might be more than 20 minutes.

Did they leave on their lunch break?
Will they make it back in time, or are you paying them to wait at the bank?
How much do they earn every 15 minutes, and how much in payroll taxes are you paying to the government on that employee while their away?

There's another option.

If you utilize direct deposit, funds are available on pay day, and no one has to leave the office to cash a paycheck. Offering direct deposit could save yourself and the employee a significant amount of time and money.

How to Understand Employee Labor Costs for a Small Business

The other day I was sitting in on a consulting session with a group of new restaurant owners who were sampling ingredients that would potentially make up their restaurant's new panini sandwiches. The group was comprised of approximately five or six people, only one of whom had extensive experience in the restaurant industry.

All of them, however, had experience in business. And one thing they understood was the cost to make the sandwich included more than just bread, lettuce, and other food ingredients.

The employee cutting the bread, slicing the tomatoes, and preparing the sandwich must also be paid, as do the IRS and State governments on employer taxes.

Dividing your employee's hourly wage plus employer taxes by 60 (as in minutes), you'll be able to understand your labor cost per minute. Knowing that it takes five minutes to make your special Chicken Caesar panini, you can add your labor cost for that time to your ingredients to get a better understanding of the your cost of that tasty sandwich. You'll have a better grip on price setting this way too, as, due to your costs, maybe charging $7.99 is more appropriate than $6.99.

Unless, of course, you're in the airport, where $14.99 seems to be appropriate:)

How to Choose How Often to Pay Your Employees

How often employees are paid within their company is known as their pay frequency, and how yours is set could contribute to something most small business owners dread...employee turnover.

Pay frequencies are typically scheduled weekly, bi-weekly (every two weeks), semi-monthly (twice a month), or monthly. Some other special circumstances enable pay frequencies outside of these, such as quarterly and others, but most non-owner, non-corporate officer employees, will fall in the weekly to monthly range.

As an employer, hiring on your first employee, you have the opportunity to set your pay frequency (which can later be changed) - but here a few things to consider:

Some states mandate weekly pay for employees within certain job categories, such as manual labor, and not abiding by these rules could result in penalties. Why is this?

And Why are payday loans popular?

Cash flow is extremely important to small business owners, but just as important to the households of employees. Think processing your company's payroll twice a month versus weekly is a good idea because it could be slightly cheaper with your payroll company? Or maybe it's easier on your schedule? It might be pressuring employees to look for other employment.

Believe it or not, it's very common within the medical staffing industry to offer employees daily pay. Nurses and other medical professionals have switched from one staffing company to another simply because they can get their pay daily instead of at the end of the week.

Turnover may not be a case where employees aren't being paid enough - just not often enough.

None of this means that you should pay your employees every day or even every week, but it's important to note. The cost of an employee leaving the company could far exceed the cost or time savings of a less frequent pay schedule.

Ultimately, choosing a company pay frequency likely comes down to the types of employees you'll be employing. Don't be afraid to look at pay frequency as a retention tool, as believing the opposite (that it doesn't matter), could potentially cost you employees.

Preventing Payroll Fraud When Using a Payroll Company

The court case outlined in the link below deals with the issue of liability when payroll fraud is attempted when using a payroll company.

OPHTHALMIC SURGEONS, LTD. v. PAYCHEX, INC. http://www.leagle.com/xmlResult.aspx?xmldoc=In%20FCO%2020110131088.xml&docbase=CSLWAR3-2007-CURR

Is this case, the payroll manager at a small business would call in the company payroll to the payroll company. The payroll manager would call in multiple payrolls each week (instead of just the one normal payroll), and issue herself multiple direct deposits. The payroll company was not liable to reject the payroll manager's request since she was listed as a contact on the account who could call in payroll.

The business tried suing the payroll company for the amount the business' payroll manager embezzled through payroll fraud.

The court found that the payroll company was not liable as they had issued financial payroll reports to the company and that the company owner did not review the reports for discrepancies.

The opportunity for payroll fraud can be more limited when using an outside payroll company because of these payroll reports. Payroll reports from in-house systems have the potential to be modified (a payroll check issued and then wiped off or left out of the payroll reports). Payroll reports from payroll companies are canned - so when an employee gets two pay checks it will be there in plain sight.

Most payroll companies can have reports courier delivered and received by signature only. They can also separate the reports from the live checks and have them delivered to separate locations. Even one step further, some payroll companies can deliver electronic copies of the reports via email.

One or all of these options could be taken by the owner/CEO/CFO of the company as a checks and balances system to eliminate these kinds of payroll fraud opportunities from happening - provided the reports are reviewed, of course.

How Household or Domestic Employee Payrolls Work

Fulfilling the proper payroll tax filing and depositing requirements for household or domestic employees can be confusing, but here's how the process usually works...

Household, or domestic, employees are prevalent enough that the IRS issues a how-to guide with compliance requirements called Publication 926.

Its important to note that household employees are not reserved for high net worth individuals; Caretakers for the elderly and Nanny's for children of working parents are just two of the more common classifications for household employees.

For all employers with employees, payroll taxes are due at the Federal (IRS) and State level (and sometimes at the county, city, and local level).

For Federal taxes, most household employers are not required to file a quarterly form 941 as do most other employers with employees. Instead, household employers report their Federal Payroll Tax liability on a form Schedule H with their 1040 tax filing completed at the end of the year. Federal Tax deposits can be made with the Estimated Tax deposit schedule throughout the year (Estimated tax payments for 2013 are due April 15, June 17, and September 16, 2013, and January 15, 2014 - note this is a different deposit schedule than Employers who file form 941).

State Tax Filings and Deposit schedules and requirements may vary per state. Here in Washington, we file and deposit Employment Securities (WA State Unemployment Tax) on a quarterly basis for domestic employees earning more than $1,000 in a calendar quarter. Some states, for example, Texas, may allow filings and deposits to be performed annually, so check with your state departments of Revenue and Unemployment.

As challenging as some of this may seem. It is important to note that the individual employee will still need their proper payroll taxes deducted and paid for them as they would have under any other employer. They will also still require a W2 from you at the end of the year.

If this becomes overwhelming, there are payroll services companies that can help. Just be sure to work with someone at the company with a history of setting up these kinds of payrolls, as a lack of experience may cause some added challenges.

Feel free to contact me at Randy.Harris@adp.com if you would like more information on our payroll services options in this area.

2011 Form W-4, important dates and regulations

The following are a list of dates and regulations accompanying the 2011 Form W-4. (Information taken from IRS Publication 15 - 2011)

By February 15

Request a new Form W-4 from exempt employees. Ask for a new Form W-4, Employee’s Withholding Allowance Certificate, from each employee who claimed exemption from income tax withholding last year.

On February 16

Forms W-4 claiming exemption from withholding expire. Any Form W-4 claiming exemption from withholding for the previous year has now expired. Begin withholding for any employee who previously claimed exemption from withholding but has not given you a new Form W-4 for the current year. If the employee does not give you a new Form W-4, withhold tax based on the last valid Form W-4 you have for the employee that does not claim exemption from withholding or, if one does not exist, as if he or she is single with zero withholding allowances. If the employee furnishes a new Form W-4 claiming exemption from withholding after February15, you may apply the exemption to future wages, but do not refund taxes withheld while the exempt status was not in place.

Before December 1

New Forms W-4. Remind employees to submit a new Form W-4 if their marital status or withholding allowances have changed or will change for the next year.

Using Form W-4 to figure withholding. To know how much federal income tax to withhold from employees’ wages, you should have a Form W-4, Employee’s Withholding Allowance Certificate, on file for each employee. Encourage your employees to file an updated Form W-4 for 2011, especially if they owed taxes or received a large refund when filing their 2010 tax return. Advise your employees to use the Withholding Calculator on the IRS website at www.irs.gov/individuals for help in determining

how many withholding allowances to claim on their Forms W-4.

Ask all new employees to give you a signed Form W-4 when they start work. Make the form effective with the first wage payment. If a new employee does not give you a completed Form W-4, withhold income tax as if he or she is single, with no withholding allowances.

Electronic system to receive Form W-4. You may establish a system to electronically receive Forms W-4 from your employees. See Regulations section 31.3402(f)(5)-1(c) for more information.

Effective date of Form W-4. A Form W-4 remains in effect until the employee gives you a new one. When you receive a new Form W-4 from an employee, do not adjust withholding for pay periods before the effective date of the new form. If an employee gives you a Form W-4 that replaces an existing Form W-4, begin withholding no later than the start of the first payroll period ending on or after the 30th day from the date when you received the replacement Form W-4. For exceptions, see Exemption from federal income tax withholding, IRS review of requested Forms W-4, and Invalid Forms W-4, later.

Why Automated Payroll Check Signing Makes Your Life Better

I had a client, a small business owner, who told me he chose to sign each one of his employees paychecks because he liked to 'confirm the amounts of the paychecks he was issuing.'

He had 15 employees and paid them every other Friday.

Believe it or not, this is a very common practice. 

Because of this practice, this business owner was tied to his office every two weeks. Come rain or shine, wedding or childbirth, every other week he had to be there or his employees didn't get paid.

It doesn't have to be this way.

Most outsourced payroll services have a Payroll Check Signing service. They can have the business owner's signature (or multiple signatures) pre-printed on the checks when they are issued. The owner can be miles away, on vacation, with family, or conducting revenue generating business, and the payroll checks can arrive pre-signed and sealed in envelopes ready for handout.

But what about a signature stamp safe-guarded by a trusted office employee? Won't that work too?

A good point. A signature stamp does solve the problem of having to be in the office to sign checks. But then it potentially creates another problem - Check Fraud.

Phantom employees can easily be created by in-house bookkeepers or other office staff. And signature stamps can be used to authorize those checks without owner notice. Trusted staff member or not, most check fraud perpetrators are first-time offenders.

See the attached article from the Association of Certified Fraud Examiners on Ghost Employees and in-house payroll fraud. http://www.acfe.com/resources/view.asp?ArticleID=21

Not only can most Payroll Outsourcing Services pre-sign and seal paychecks, but most can produce electronic payroll registers that can be viewed by the business owner from any remote location. They can then verify the pay amounts before the checks are even sent from the payroll company.

This also makes it very difficult for in-house employees to hide ghost employees on the payroll.

This way, the owner:
1. has the same piece of mind of verifying their employees pay
2. drives down the chances of check fraud, and...
3. gains the personal satisfaction and empowerment of being a business owner who comes and goes as they please

...the way it was meant to be.

How Time Clock Systems Can Save Your Small Business Money

If you are a small business employer with employees and you do not have a time clock or time & attendance system, you may be leaking cash.

The Problem: Most employers will concede that their employees are being paid for at least 10 minutes of time during the day when the employees are not, in fact, working...

This time is usually a combination of when the employee walks in the door 5 minutes late in the morning, leaves 5 minutes early, takes a long break, or long lunch, etc...

A Robert Half Study issued in the mid-1980s revealed a startlingly high amount of weekly time lost to employee time theft, and more recent studies still yield equally uncomfortable results.

How do you calculate the cost of time theft?
Your numbers may be more or less than the 10 minutes we will use, so please feel free to plug in your own in the following calculations to see how much time (and money) you may be losing to employee time theft.

Multiply the [(minutes lost per day to time theft) x 250 (average working days in a year)] / 60 (minutes per hour)

-This will give you your Annual Average Hours Lost to Time Theft per employee

[10 x 250] / 60 = 41.67 hours lost to time theft (annual per ee)

Multiply the (annual hours lost to time theft per employee) by (employee's average hourly pay rate) and then multiply that dollar amount by (total hourly employees on the payroll)
-This will give you your Company Total Annual Loss to Time Theft
41.67 x $10.00 x 12 ees = $5,000.40

But remember, it's not all numbers
Here's the kicker, time clocks can easily be viewed as a dissolution of trust between employer and employee, hurting morale.

They can add monotony and job dissatisfaction, and potential increased turnover (which can cost far more than any cost savings seen by installing a time clock).

Options?
Time & Attendance systems are available today that can collect time and be used as a communication tool between management and employees.

There are online clock options where employees can log in and view their schedules, see their paid time off accruals, send notes to management, and confirm their previous time worked.

Management can view and print reports based on time to help curb excessive overtime pay.

Payroll administrators don't have to manually tally time cards and can often import time data into their payroll systems to eliminate human error in tabulation and re-keying.

And storing of time card data is kept via cloud storage - satisfying time card storage labor laws without the liability of piled up paper time cards laying around the office.

What's next?
Understanding your team goes a long way in this process. If none of the employees, or management staff are comfortable using the Internet, the perceived value may not be positive.

If everyone within the company is more progressive online, these type of systems may be a very big win.

Most small business owners understand that inefficiencies that lead to cash and financial leaks need to be plugged for the long term health and survival of the business. These days, time & attendance systems have become very common place, and an understood necessity for some industries in particular, that rely heavily on managed labor costs.

For more information on time & attendance system options, please feel free to email me at Randy.Harris@adp.com