Vision Payroll

This week’s question comes from Luna, a business owner: I have employees who bicycle to work; can I reimburse them for their costs? Answer: §132(f) of the Internal Revenue Code has been amended by §211 of the Emergency Economic Stabilization Act (Public Law 110-343 or the “bailout bill”) so that effective with tax years beginning after December 31, 2008, employers may reimburse employees who “regularly [use] the bicycle for a substantial portion of the travel between [their] residence and place of employment” as long as the employee does not receive any other “qualified transportation fringe”. Costs to be reimbursed include “purchase of a bicycle and bicycle improvements, repair, and storage”. The limitation is $20 per month multiplied by the number of qualified commuting months. Contact Vision Payroll if you have any question on reimbursements for any qualified transportation fringe benefit.

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.

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.

This week’s question comes from Joe, a payroll administrator. I’m always busy at year-end. Is there anything I can do now to make 2008 year-end easier? Answer: There are several things that can be done to ease the year-end crunch.

• Review each employee’s basic information including name, address, and social security number and update for changes or mistakes.
• Be sure contractor W-9 forms are on file for preparation of any Forms 1099.
• Review company paid time off policy and remind employees of any use it or lose it feature.
• Accumulate data for special pay transactions including items that must be added for W-2 purposes. Examples include fringe benefits, including personal use of a company car, value of group-term life insurance in excess of $50,000, and medical premiums for certain S corporation shareholders. These items should be included with a live payroll run in order to collect the employee’s share of any taxes due.
• Confirm with your pension plan administrator which employees should have pension indicator box checked on Form W-2.
• Determine which employees will require an additional Form W-2 to report third-party sick pay.
• Plan and schedule any additional pay runs, including holiday and performance bonuses and directors pay.

Vision Payroll can work with you to prepare now for a smooth year-end. Contact us now with any questions or concerns.

This week’s question comes from Mel, a small-business owner. I’ve heard that the Massachusetts HIRD report must now be filed on a quarterly basis. Is the report due November 15 for the third quarter? Answer:  The Health Insurance Responsibility Disclosure (HIRD) Report due November 15 and for the year ended September 30, 2008 must still be filed on an annual basis. Under 430 CMR 15.00, starting October 1, 2008 the base periods will be quarterly. Therefore, to determine the amount of any Fair Share Employer Contribution your company must pay, a quarterly calculation and filing will be required. Periods will end December 31, March 31, June 30, and September 30 and the filing and payments will be due on or before February 15, May 15, August 15, and November 15. Contact Vision Payroll if you have questions on your Fair Share Employer Contribution or HIRD Report.

This week’s question comes from Denise, a sole proprietor. I just hired my husband to work for me in my business. I’m a sole proprietor. Can I pay my husband through payroll? Answer: If your husband (or wife) is a bona fide employee of you in your trade or business, you can pay him though payroll. He would be subject to all regular taxes except federal unemployment and, in most cases, state unemployment. He should also be eligible for most benefits that any other employee would receive, including health insurance, if he works enough hours. Spouses employed in non trade or business situations, e.g., domestic care of a child, follow different rules for taxation. Contact Vision Payroll for your state’s rules or further information on employing your spouse.

This week’s question comes from Cheryl, a sales rep. I’m applying for a mortgage and need to know how much I’ve earned this year. Can you tell me how much I’ve earned so far this year? Answer: Due to privacy concerns, only authorized personnel from each client are allowed to contact Vision Payroll and receive confidential information. Since we are unable to identify each employee from every company, we’ll provide information only to owners or authorized employees. Please ask someone authorized by your company to call or e-mail Vision Payroll to receive confidential information.

This week’s question comes from Harold, a business owner. I own a business in Massachusetts. Can I switch from a weekly to a bi-weekly pay period? Answer: Under Massachusetts law it is allowable to change to a bi-weekly pay period as long as employees are provided with written notice. MGL c. 149, §148 requires written notice to each employee at least ninety days in advance of the first bi-weekly check. Contact Vision Payroll if you have questions on pay frequency changes.

This week’s question comes from Crystal, an office manager. I have an employee who wants to have his paycheck direct deposited into his account. How long will it take for the direct deposit to become active? Answer: Vision Payroll will prenote all Automated Clearing House (ACH) transactions and wait ten business days after the date of the payroll for which the prenote was sent before activating the direct deposit. A prenote is a zero dollar transaction sent through the ACH system in order to detect invalid routing and account numbers. Although a prenote will not detect all errors, prenotes help in detecting invalid routing and account numbers, checking accounts classified as savings accounts and vice-versa, and sometimes, name and account mismatches. This will help to prevent incorrect postings before they happen. Remember, that although most prenotes will become live ACH transactions for the second weekly or first bi-weekly payroll after the prenotes, federal holidays may delay the activation for one additional payroll. Contact Vision Payroll if you have questions on the ACH or prenote process.

This week’s question comes from George, a business owner. We’re planning an end-of-summer party with bonuses for our employees. I’d rather give them live checks for their bonuses. Can I stop an employee’s direct deposit one time only? Answer: You can easily stop direct deposit for any or all employees whether you submit your payroll online or by some other method. If you want to stop direct deposit for one or more employees online, simply check the “Stop Direct Deposit” box for selected employees on the Pay Detail section. If you want to stop direct deposit for all employees online, simply check the “Stop Direct Deposit” box on the Dates section. If you still don’t submit payroll online, indicate on the time sheet those employees for whom you wish to stop direct deposit. You may also contact Vision Payroll by telephone or e-mail to stop direct deposit. Using any of these methods will only stop direct deposit for that paycheck or payroll and direct deposit will become active on the next paycheck or payroll.