Vision Payroll

This week’s question comes from Carla, a company president.

Carla asks:

We’re doing some compensation planning for next year. What are the 2012 Highly Compensated Employee Limits?

Answer: The IRS has just released updated information for 2012.

IRS Releases 2012 Highly Compensated Employee Limits in IR-2011-103

In IR-2011-103, the Internal Revenue Service (IRS) announced that for 2012 the Highly Compensated Employee Limitation under §414(q)(1)(B) of the Internal Revenue Code of 1986 will increase to $115,000. 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”.

Highly Compensated Employee Compensation Limit Had Been $110,000

For 2012 plan year testing, an HCE is anyone who was a “5-percent owner” at any time during 2011 or 2012 or anyone who received in excess of $110,000 in compensation during 2011 and, if elected by the employer, is in the top twenty percent of employees based upon compensation. The HCE limit was also $110,000 for 2010 and 2011 plan year testing. The new $115,000 limit for 2012 is to be used for 2013 plan year testing.

Look-back Provision Impacts HCE Testing Period

Since the law includes a look-back provision, employees who earned more than $110,000 in 2010 are generally considered HCEs for 2011 plan year testing, employees who will earn more than $110,000 in 2011 are generally considered HCEs for 2012 plan year testing, and employees who will earn more than $115,000 in 2012 are generally considered HCEs for 2013 plan year testing.

Contact Vision Payroll for More Information on HCEs

Contact Vision Payroll if you have questions on changes to the HCE definition for 2012 to be used in 2012 plan year testing or get further information at Important Facts and Figures.

According to the US Department of Labor, in the week ending October 15, the advance figure for seasonally adjusted initial claims was 403,000, a decrease of 6,000 from the previous week’s revised figure of 409,000. The 4-week moving average was 403,000, a decrease of 6,250 from the previous week’s revised average of 409,250.

Advance Seasonally Adjusted Insured Unemployment Rate Remains Unchanged

The advance seasonally adjusted insured unemployment rate was 2.9% for the week ending October 8, unchanged from the prior week’s unrevised rate of 2.9%.

Advance Seasonally Adjusted Insured Unemployment Increases

The advance number for seasonally adjusted insured unemployment during the week ending October 8 was 3,719,000, an increase of 25,000 from the preceding week’s revised level of 3,694,000. The 4-week moving average was 3,722,500, a decrease of 7,500 from the preceding week’s revised average of 3,730,000.

The Social Security Administration announced today that the Maximum Taxable Earnings or Social Security Wage Base would increase from $106,800 in 2011 to $110,100 in 2012.

Social Security Increases Based on CPI Change

Since there was a 3.6% increase in the Consumer Price Index (CPI-W) from the third quarter of 2010 to the third quarter of 2011, the Social Security Wage Base will also increase by 3.6%. This is the first increase in the Social Security Wage base since 2009. Wages are scheduled to be taxed at 6.2%, so the maximum tax to be paid by each employee at that rate would be $6,826.20. There are proposals to keep the current rate of 4.2% for employees or to reduce it to 3.1%, but none has passed at this time. About 7% of workers who pay Social Security Tax are expected to reach the maximum in 2012.

Retirement Earnings Test Exempt Amounts Increase for 2012

For workers under full retirement age who are receiving Social Security benefits, $1 in benefits is withheld for every $2 above the Retirement Earnings Test Exempt Amount of $14,160 per year or $1,180 per month in 2011. This will increase to $14,640 per year or $1,220 per month for 2012. The year an individual reaches full retirement age, $1 in benefits is withheld for every $3 above the Retirement Earnings Test Exempt Amount of $37,680 per year or $3,140 per month in 2011. This will increase to $38,880 per year or $3,240 per month for 2012. The month an individual reaches full retirement age there is no limit on earnings.

Quarter of Coverage Amounts Increases to $1,130

Also increasing for 2012 is that amount needed to earn a Social Security credit, formerly known as a quarter of coverage. In 2011, a credit is earned for every $1,120 of earnings, up to a maximum of four credits. That amount will increase to $1,130 for 2012.

Social Security Monthly Benefits to Increase in January 2012

The maximum benefit for a worker retiring at full retirement age is also increasing from $2,366 to $2,513. See the table below for other changes in Social Security benefits for 2012.

2012 Social Security Benefits

	2011	2012
Maximum Benefit:
Worker Retiring at Full Retirement Age	$2,366 per month	$2,513 per month
SSI Federal Payment Standard:
Individual	$674 per month	$698 per month
Couple	$1,011 per month	$1,048 per month
SSI Resources Limit:
Individual	$2,000	$2,000
Couple	$3,000	$3,000
SSI Student Exclusion:
Monthly Limit	$1,640	$1,700
Annual Limit	$6,600	$6,840

Contact Vision Payroll Today

Contact Vision Payroll if you have any questions on the Social Security changes for 2012 or get further information at Important Facts and Figures.

The Labor Department of the Arizona Industrial Commission announced recently that pursuant to Arizona Revised Statutes §23-363, the minimum wage for the state of Arizona will increase to $7.65 per hour effective January 1, 2012. The law requires an adjustment to the minimum wage be calculated each year.

Adjustment Is Tied to Changes in CPI-U

The adjustment is tied to the US Consumer Price Index for All Urban Consumers, US City Average (CPI-U) for the 12 months ending in August. The 3.8% increase in the CPI-U will result in an increase of $0.30 for 2012. Increases are rounded to the nearest five cents.

Find Out the Minimum Wage for All States by Visiting the Vision Payroll Minimum Wage Chart Page

Contact Vision Payroll if you have any questions on the Arizona minimum wage increase or visit our Minimum Wage Chart.

The Florida Department of Economic Opportunity announced recently that pursuant to the Florida Constitution, the minimum wage for the state of Florida would increase from $7.31 per hour to $7.67 effective January 1, 2012.

Adjustment Must Be Calculated Annually

The law requires an adjustment to the minimum wage that must be calculated each year. The adjustment is tied to the US Consumer Price Index for Urban Wage Earners and Clerical Workers (CPI-W) in the South Region for the 12 months ending in August. Since the CPI-W increased 4.9% from the previous year, an adjustment of $0.36 will be made to the minimum wage.

Find Out the Minimum Wage for All States by Visiting the Vision Payroll Minimum Wage Chart Page

Contact Vision Payroll if you have any questions on the Florida minimum wage or visit our Minimum Wage Chart.

Employment Security Commission (ESC) Chairman Lynn R. Holmes officially notified leaders of the General Assembly on Wednesday that she was suspending certain provisions of Senate Bill 532 because the provisions do not comply with federal law.

US DOL Had Threatened Eligibility of NC Employers to Receive FUTA Credit

In a September 22, 2011, letter from Gay M. Gilbert, Administrator in the Office of Unemployment Insurance of the US Department of Labor (DOL) to Chairman Holmes, the DOL requested that Chairman Holmes use her authority under North Carolina law to suspend certain provisions of the law. If the provisions had not been suspended and the law took effect November 1, 2011, the DOL would not certify North Carolina as in compliance with provisions of the FUTA Unemployment Tax Act (FUTA) and the Social Security Act (SSA). Without this certification, employers in North Carolina would not be eligible to receive the FUTA credit on Form 940, Employer’s Annual Federal Unemployment (FUTA) Tax Return.

Four Points of Law Found in Conflict

There were four parts of the law that the DOL had considered in relation to conformity issues. They are:

1. A provision that would allow employers thirty days to respond to a claim notice;
2. A provision that would permit the total reduction of benefit rights if an individual is arrested for or convicted of certain criminal behavior;
3. A provision that would permit an individual to be totally disqualified for unsatisfactory performance; and
4. A provision that would permit parties to waive the right to an appeal hearing by entering stipulations resolving the issues of an appeal.

Contact Vision Payroll for Further Information

Contact Vision Payroll for further information on the suspension of North Carolina law by Chairman Holmes.

The Job Service North Dakota has announced an increase in the taxable wage base for 2011. The wage base will increase from $25,500 for 2011 to $27,900 for 2012.

Annual Increase Is Mandated by Law

This amount is set annually and is 70% of a statewide average wage.

Find Out the Wage Base for All States by Visiting the Vision Payroll Unemployment Taxable Wage Base Page

Contact Vision Payroll if you have any questions on the North Dakota unemployment taxable wage base or visit our Unemployment Taxable Wage Base page.

This week’s question comes from Sylvia, a payroll manager.

Sylvia asks:

We have employees who worked overtime this past week and received bonuses. Do we need to include bonuses in overtime calculations?

Answer: The bonuses may or may not have to be included in the overtime calculation. Discretionary bonuses are not included in calculating overtime pay, but non-discretionary bonuses are included.

Both the Decision to Pay a Bonus and the Amount of the Bonus Must Be Discretionary

Under 29 USC §207(e)(3)(a), in order for a bonus not to be included:

Both the fact that payment is to be made and the amount of the payment are determined at the sole discretion of the employer at or near the end of the period and not pursuant to any prior contract, agreement, or promise causing the employee to expect such payments regularly.

Regulations Further Clarify the Law

The regulations issued under this section (29 CFR §778.221(b)) expand upon the explanation under the law:

In order for a bonus to qualify for exclusion as a discretionary bonus under [the law stated above] the employer must retain discretion both as to the fact of payment and as to the amount until a time quite close to the end of the period for which the bonus is paid. The sum, if any, to be paid as a bonus is determined by the employer without prior promise or agreement. The employee has no contract right, express or implied, to any amount.

State Laws May Be More Beneficial

State laws may provide rules that are more beneficial to the employee and must be followed. Vision Payroll recommends that employers contact a labor law attorney to ensure that their bonus plans will be considered discretionary if they plan to exclude the bonus from the overtime calculation.

According to the US Department of Labor, in the week ending October 8, the advance figure for seasonally adjusted initial claims was 404,000, a decrease of 1,000 from the previous week’s revised figure of 405,000. The 4-week moving average was 408,000, a decrease of 7,000 from the previous week’s revised average of 415,000.

Advance Seasonally Adjusted Insured Unemployment Rate Decreases

The advance seasonally adjusted insured unemployment rate was 2.9% for the week ending October 1, a decrease of 0.1 percentage points from the prior week’s revised rate of 3.0%.

Advance Seasonally Adjusted Insured Unemployment Decreases

The advance number for seasonally adjusted insured unemployment during the week ending October 1 was 3,670,000, a decrease of 55,000 from the preceding week’s revised level of 3,725,000. The 4-week moving average was 3,724,000, a decrease of 21,250 from the preceding week’s revised average of 3,745,250.

As previously announced, The National Labor Relations Board (NLRB) issued a final rule requiring most private-sector employers to notify employees of their rights under the National Labor Relations Act (NLRA). The NLRB will require employers to post a new NLRA notice in the workplace.

Posting Deadline Extended to 2012

The NLRB recently extended the deadline from November 14, 2011 to January 31, 2012.

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