Vision Payroll

This week’s question is from Randy, an HR Manager. We are reviewing our payroll processing schedule for 2011. What is the holiday schedule for 2011? Answer: There are two types of holidays: those on which payrolls are processed and those on which payrolls are not processed. In addition, companies should also consider that there is no mail pickup or delivery on federal holidays.

UPS Holiday Delivery Schedule Varies

UPS may pickup and deliver on certain holidays, but may not pickup or deliver on other days that are not holidays. Consult the UPS website for further information. The schedule for 2011 holidays is as follows:

Date	Holiday	Federal Reserve Holiday	Payrolls Processed
1/1/2011	New Year's Day	Yes	No
1/17/2011	Birthday of Martin Luther King, Jr.	Yes	Yes
2/21/2011	Washington's Birthday	Yes	Yes
5/30/2011	Memorial Day	Yes	No
7/4/2011	Independence Day	Yes	No
9/5/2011	Labor Day	Yes	No
10/10/2011	Columbus Day	Yes	Yes
11/11/2011	Veterans Day	Yes	Yes
11/24/2011	Thanksgiving Day	Yes	No
12/26/2011	Christmas Day (Observed)	Yes	No

Visit VisionPayroll.com for Further Details on Individual Holidays

Contact Vision Payroll if you have any questions on the 2011 holiday schedule and be sure to check VisionPayroll.com for further details as each holiday approaches.

This week’s question comes from Meg, an HR manager. We have a third shift that works from 11 pm to 7 am the following day. Some of the workers will work this Saturday night into Sunday. How many hours do we need to pay for work on the third shift this Saturday night? Answer: Since Daylight Saving Time ends in most parts of the country at 2 am, Sunday, November 7, 2010, many workers on a third shift will work nine hours. At 2 am on that day, clocks are turned back to 1 am. Clocks will remain on standard time until the switch to Daylight Saving Time on March 13, 2011.

FLSA Requires Payment for Extra Hour

The Fair Labor Standards Act (FLSA) requires employers to pay employees for the extra hour worked. Some employees may be entitled to overtime if they work forty-one hours in the pay period instead of the usual forty. Under the FLSA, non-exempt employees are generally entitled to time and one-half pay for any overtime worked.

Switch to Standard Time Complicates Payroll Calculations

Contact Vision Payroll if you have any further questions on the switch to Standard Time.

This week’s question comes from Cristina, a company president. We’re doing some planning for next year. What are the 2011 Highly Compensated Employee Limits?

IRS Releases 2011 Highly Compensated Employee Limits in IR-2010-108

In IR-2010-108, the Internal Revenue Service (IRS) announced that for 2011 the Highly Compensated Employee Limitation under §414(q)(1)(B) of the Internal Revenue Code of 1986 will remain unchanged. 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 Remains at $110,000

For 2011, an HCE is anyone who was a “5-percent owner” at any time during 2010 or 2011 or anyone who received in excess of $110,000 in compensation during 2010 and, if elected by the employer, is in the top twenty percent of employees based upon compensation. The HCE limit was $110,000 for 2008 and 2009.

Look-back Provision Impacts HCE Testing Period

Since the law includes a look-back provision, employees who earned more than $110,000 in 2009 are generally considered HCEs for 2010 plan year testing, employees who will earn more than $110,000 in 2010 are generally considered HCEs for 2011 plan year testing, and employees who will earn more than $110,000 in 2011 are generally considered HCEs for 2012 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 2010 and 2011 or get further information at Important Facts and Figures.

This week’s question comes from Anne, a company president. We just received a Notice of Change in Filing Frequency from the Massachusetts Department of Revenue (DOR). What is a Notice of Change in Filing Frequency? Answer: In Massachusetts, employers are required to deposit payroll taxes on one of four filing frequencies:

• Depository
• Monthly
• Quarterly
• Annual

Frequencies Are Based upon Taxes Paid

These frequencies are based upon the amount of tax paid in a twelve-month period. For payroll taxes, the amounts are as follows:

• Depository is greater than $25,000
• Monthly is between $1,200 and $25,000
• Quarterly is between $100 and $2,500
• Annual is less than $100

Consequently, when the amount an employer is expected to pay passes one of the thresholds, the DOR will change the filing frequency.

DOR Mails Notices to Affected Employers

Each year, the DOR mails notices to employers whose frequency will change for the next calendar year. This notice is called a Notice of Change in Filing Frequency.

Forward Notices to Vision Payroll

Although Vision Payroll will review each client’s filing frequency in January, employers who receive a notice can send a copy to Vision Payroll if they wish to have their filing status change on file.

This week’s question comes from Andrea, an HR director. We hired an employee who qualified for the HIRE Act Incentives, including payroll tax forgiveness. We had to lay him off temporarily and don’t know if he still qualifies under his previous layoff or if he needs to requalify. What is the impact of temporary layoff on the HIRE Act incentives? Answer: Under the Hiring Incentives to Restore Employment Act (HIRE Act), employers who hire certain unemployed workers are exempt from certain employment taxes and may receive other tax benefits. In order to qualify under the HIRE Act, employers are required to “get a statement from each eligible new hire certifying that he or she was unemployed during the 60 days before beginning work or, alternatively, worked fewer than a total of 40 hours for someone else during the 60-day period.” Workers who are temporarily laid off may or may not have to requalify and fill out a new Form W-11 or the Spanish-language equivalent, Form W-11(SP).

IRS Addresses Issue in Information Letter 2010-0198

The Internal Revenue Service (IRS) addressed this issue in Information Letter 2010-0198. According to the IRS:

An individual who is already a qualified employee and who experiences a short term or temporary interruption in his or her performance of services continues to be a qualified employee unless the interruption constitutes a termination of employment. Whether a short term or temporary interruption of an employee’s performance of services constitutes a termination of employment depends on the facts and circumstances. In the case of an individual who was previously employed as a qualified employee and whose employment is terminated, the employee will have to again meet the requirements for qualified employee status at the time the employment relationship is reestablished.

Documentation Is Key to Support Employer Position

Vision Payroll recommends that employers document thoroughly why a “temporary interruption” was not a termination of employment if they do not requalify an employee under the HIRE Act. Consultation with a qualified labor law attorney to determine when employment terminates is strongly recommended.

This week’s question comes from Kevin, a business owner. We’ve been charged an employer surcharge in South Dakota for the first three quarters of 2010. What is the status of the South Dakota employer surcharge for Q4 2010? Answer: An employer surcharge is not in effect for Q4 2010 in South Dakota.

UI Trust Fund Balance Determines if Surcharge Is in Effect

The surcharge automatically goes into effect when the UI Trust Fund balance is below $11 million at the end of any quarter. The balance was $27.7 million on September 30, 2010.

No Surcharge Projected for Q1 2011

The South Dakota Department of Labor projects that the Trust Fund balance will be $25 million on December 31, 2010, so the surcharge would not be in effect for the first quarter of 2011.

Contact Vision Payroll for Further Information

Contact Vision Payroll for further questions on the South Dakota employer surcharge.

This week’s question comes from Tyler, a sales manager. We provide all our sales reps cell phones for business and personal use. In the past, the sales reps had to pay income tax on their personal-use portion of the cell phones. Now I hear they don’t have to pay on personal-use portion anymore. What is the status of taxation of cell phones? Answer: Effective for tax years beginning after December 31, 2009, cell phones are no longer designated as listed property.

Cell Phone Change Effected by Small Business Jobs and Credit Act of 2010

With the signing of the Small Business Jobs and Credit Act of 2010 (HR 5297) into law by President Barack Obama, the definition of listed property no longer includes “any cellular telephone (or other similar telecommunications equipment)”. The impact is that employers no longer must include the value of the personal-use portion of cell phones in an employee’s gross income.

Contact Vision Payroll for Further Information

Contact Vision Payroll if you have further questions on the changes to the classification of cell phones.

This week’s question comes from Katy, an HR administrator. We know we need to capture the cost of health coverage and report it on Form W-2, starting in 2011. How do we determine the cost of health insurance to report on Form W-2? Answer: Employers are required to use rules “similar to the rules of §4980I(d)(1)”, which are the rules used to calculate the cost to qualified beneficiaries who elect COBRA coverage.

Further Guidance for Reporting the Cost Health Insurance on Form W-2 Is Expected

As further guidance from the Internal Revenue Service (IRS) becomes available in this area, Vision Payroll will provided updated guidelines for calculating the amount to be included on Form W-2.

This week’s question comes from Terry, a small business owner in New York City. My net pay is the same every week, but last week’s net pay changed. Upon further review, the difference is because the withholding tax for New York City increased from the week before. Why did my NYC withholding go up? Answer: Effective September 1, 2010, new withholding tables went into effect for New York City withholding.

Increase Affects Employees Earning $500,000 or More per Year

The change in withholding affects taxpayers who make $500,000 or more per year. Tax must be withheld according to Publication NYS-50-T.2, Revised New York City Withholding Tax Computation Rules.

New York State and Yonkers Withholding not Affected

The New York State personal income tax rates, Yonkers resident personal income surcharge tax rate, and Yonkers nonresident earnings tax rate have not changed. Employers should continue to use the methods in Publications NYS-50-T (dated 1/06) and NYS-50-T.1 (dated 1/10) to determine the amounts to be withheld for these taxes.

Vision Payroll Has Updated Withholding Tables in Use

Effective September 1, 2010, Vision Payroll is using the revised withholding calculations for all affected taxpayers.

This week’s question comes from Eric, an HR manager. I know there are changes to flexible spending arrangements (FSAs) because of health care reform. How does health care reform affect reimbursements for over-the-counter medicines in FSAs? Answer: The Patient Protection and Affordable Care Act (PPACA) made changes to reimbursements for over-the-counter medicines in the following types of accounts:

• Flexible Spending Arrangements (FSAs),
• Health Reimbursement Arrangements (HRAs),
• Health Savings Accounts (HSAs), and
• Archer Medical Savings Accounts (Archer MSAs).

Over-the-Counter Medicines Generally Are No Longer Reimbursable

Generally, the cost of an over-the-counter medicine or drug cannot be reimbursed from the account unless a prescription is obtained. The change does not affect insulin, even if purchased without a prescription, or other health care expenses such as medical devices, eyeglasses, contact lenses, co-pays and deductibles.

Change Is Effective for 2011

The new standard applies only to purchases made on or after Jan. 1, 2011, so claims for medicines or drugs purchased without a prescription in 2010 can still be reimbursed in 2011, if allowed by the employer’s plan.

IRS Provides Guidance on New Rules

The Internal Revenue Service (IRS) recently released Notice 2010-59 to provide guidance to employers and employees on the impact of PPACA and how it revises the definition of medical expenses as it relates to over-the-counter drugs.

Rev. Rul. 2003-102 Obsoleted

In conjunction with this change, the IRS also released Rev. Rul. 2010-23, which obsoletes Rev. Rul. 2003-102. This ruling provided guidance on employer reimbursements of amounts paid by an employee to purchase nonprescription medicines or drugs.

Employees Need to Plan for Changes When Making 2011 Elections

Vision Payroll recommends employees start to plan now to account for the impact of these changes on how they will make their elections under these types of plans.