Vision Payroll

This week’s question comes from Dan, a business owner: I just found out that I had an ADP failure. What can I do to fix it? Answer: ADP failures are unfortunately too common, but Vision Payroll can easily help fix them. ADP, or Actual Deferral Percentage, and ACP, or Actual Contribution Percentage, are two tests that must be passed by many 401(k) retirement plans. These tests serve to limit the benefits provided to highly compensated employees (HCEs) in relation to the benefits provided to non-highly compensated employees (NHCEs).

  

In the ADP test, the average salary deferral of each group is calculated and compared to the other. The ADP of the HCEs may not exceed the ADP of the NHCEs by 1.25% or the lesser of the average NHCE percentage plus 2% or the average NHCE percentage times two. If it does, the plan has an ADP failure.

  

There are various methods for correcting an ADP failure depending on how quickly the failure is discovered. Unfortunately, many companies are unaware of the problems caused by ADP failures until it’s too late. Generally, if too much time has elapsed, fixing an ADP failure will become more expensive. Vision Payroll can work with your plan administrator to fix the ADP failure and provide solutions to make sure there are no ADP failures in your future.

According to the US Department of Labor, in the week ending October 25, the advance figure for seasonally adjusted initial claims was 479,000, unchanged from the previous week’s revised figure of 479,000. The 4-week moving average was 475,500, a decrease of 5,000 from the previous week’s revised average of 480,500.

Do your employees still waste time and money driving around to get a pay check cashed? Direct deposit is a great solution, but what about employees without a bank account. A Vision Payroll Platinum Pay Card is the answer. With low fees to the employee, it’s usually significantly less expensive than a check cashing service or banks that charge up to $6 to cash a check. And there’s no worry for an employee on vacation or stuck in bad weather. Each week’s pay will automatically be added to the card. Accepted at more than 24 million locations worldwide that accept Visa® debit cards and with the ability to get cash at more than 1 million ATMs, a Vision Payroll Platinum Pay Card is safer than cash. Employees get free account access online or multi-lingual customer support available 24/7/365. Best of all, there’s no charge to employers other than a nominal direct deposit fee. Contact Vision Payroll today or get your Vision Payroll Platinum Pay Card right now.

A court-appointed referee, retired California Superior Court Judge William J. Cahill, has awarded current and former drivers for FedEx Ground Package Systems, Inc. (FedEx) $14.4 million in expenses and interest. In 2005, the court granted judgment to the plaintiffs in a class-action suit against FedEx, a successor to the original defendant Roadway Package Systems, Inc (Estrada v. Fed Ex Ground, Los Angeles County Super. Ct. No. BC210130). The suit alleged that several drivers were improperly misclassified as independent contractors, not employees. As independent contractors, the drivers incurred expenses for fuel, vehicle maintenance, and insurance, among other costs. Since the drivers should have been classified as employees, these costs should have been paid by their employer, FedEx. In an order subject to a December hearing, only $32,000 of the requested expenses was denied.

Tuesday, November 11, 2008 will be Veterans Day, a federal holiday. Although the offices of Vision Payroll will be open and payrolls will be processed, most banks will be closed in observance of the holiday. Payrolls dated November 11 will be paid November 10 unless a previous change in schedule has been submitted. Payroll changes and hours must be submitted before the processing deadline on November 6. For payrolls dated November 12, payroll changes and hours must be submitted before the processing deadline on November 7. For payrolls dated November 13, payroll changes and hours must be submitted before the processing deadline on November 10. Payrolls submitted after these processing deadlines will be pushed back until the next available processing day. No changes are required for payrolls dated November 14. Contact Vision Payroll as soon as possible to make changes to or for questions on your processing schedule.

In IR-2008-118, the Internal Revenue Service (IRS) announced an increase for 2009 to the compensation limitation for Simplified Employee Pension (SEP) plans. Under §408(k)(2) of the Internal Revenue Code of 1986, SEP contributions are generally required for any employee of an employer with a SEP plan who has attained age 21, has performed service for the employer during at least three of the immediately preceding five years, and received at least a certain level of “compensation” from the employer for the year. For 2009, the compensation limit will increase to $550 from $500 in 2008. Contact Vision Payroll if you have questions on changes to the 2009 SEP Compensation Limitation or visit our Important Facts and Figures page for further information.

In IR-2008-118, the Internal Revenue Service (IRS) announced an increase for 2009 to the Highly Compensated Employee Limitation under §414(q)(1)(B) of the Internal Revenue Code of 1986. Non-discrimination testing in some types of retirement plans limits the deferral rate of “highly compensated employees” (HCEs) based upon the deferral rate (ADP) of the “non-highly compensated employees”. For 2009, an HCE is anyone who was a “5-percent owner” at any time during 2008 or 2009 or anyone who received in excess of $105,000 in compensation during 2008 and, if elected by the employer, is in the top twenty percent of employees based upon compensation. The HCE limit was $100,000 for 2007 and 2008 plan testing. Since the law includes a look-back provision, employees who earned more than $100,000 in 2007 are generally considered HCEs for 2008 plan year testing, employees who will earn more than $105,000 in 2008 are generally considered HCEs for 2009 plan year testing, and employees who will earn more than $110,000 in 2009 are generally considered HCEs for 2010 plan year testing. Contact Vision Payroll if you have questions on changes to the HCE definition for 2008 and 2009, visit Important Facts and Figures, or get updated information for 2009 and 2010.

This week’s question comes from Jennifer, an office manager: A new employee gave me a Form W-4 claiming exemption from federal income tax withholding. Can I give him a paycheck without withholding federal income tax? Answer: An employee who gives you a valid Form W-4 claiming exemption from federal income tax withholding does not have to have federal income tax withheld from his check. An employee may claim exemption from federal withholding if the employee had no federal income tax liability last year and does not expect to have a liability this year. Being of a certain age, being a student, or getting a refund on a federal income tax return (Form 1040) does not necessarily entitle an employee to claim exempt status. Valid Forms W-4 generally expire on the first weekday after February 14 of the succeeding year. For example, 2008 Forms W-4 claiming exempt status will expire February 16, 2009. At that point, employers must either obtain an updated Form W-4 for the new year or withhold based on the last valid Form W-4 they have for that employee. If none be available, employers must withhold based on single and zero withholding allowances.

Employees who submit invalid Forms W-4 are not to be allowed exempt status. Invalid forms include forms developed by the employee, forms with the certification language deleted, forms with the word “exempt” on line 7 and a number on line 5 or an amount on line 6, and forms that the employee indicates in any way are false.

Exemption from federal withholding does not automatically entitle the employee to an exemption from Social Security, Medicare, or state withholding tax. There are limited exceptions to withholding of Social Security or Medicare tax that are unrelated to an employee’s exempt status. Also, state exempt status generally follows different rules and requirements and filing of a state withholding form claiming exempt status. Contact Vision Payroll if you have questions on an employee’s Form W-4.

According to the US Department of Labor, in the week ending October 18, the advance figure for seasonally adjusted initial claims was 478,000, an increase of 15,000 from the previous week’s revised figure of 463,000. It is estimated that the effects of Hurricane Ike in Texas added approximately 12,000 claims to the total. The 4-week moving average was 480,250, a decrease of 4,500 from the previous week’s revised average of 484,750.

In TD 9356, the Internal Revenue Service made final the regulations on disregarded entities effective August 16, 2007. In order to allow taxpayers sufficient time to make the changes required by the regulations, the IRS delayed the effective date for the payroll tax changes until January 1, 2009. Under the new regulations, qualified subchapter S subsidiaries (QSubs) (under §1361(b)(3)(B) of the Internal Revenue Code of 1986) and single-owner eligible entities (under §301.7701-1, §301.7701-2, and §301.7701-3 of the Procedure and Administrative Regulations) that are treated as disregarded entities for most federal tax purposes will be treated as corporations for employment tax purposes. Therefore, owners of single-member LLCs who are treated as sole proprietors for income tax purposes must treat their LLCs as separate entities for employment tax and related reporting purposes. The final regulations clarify that an owner of a disregarded entity will continue to be treated as self-employed and not as an employee of the entity. The regulations also clarify that disregarded entities that are owned solely by a §501(c)(3) organization will maintain the organization’s exemption from federal unemployment tax or FUTA. Contact Vision Payroll if you have questions on changes to the payroll tax reporting procedures for single-owner eligible entities and QSubs.