This is the third and final article in our series on Payroll Myths and Mistakes adapted from a webinar I conducted on the same topic. We have examined Myths # 1 through 9 in the prior articles as well as the greatest Payroll Myth of all, that being that none of the requirements we are reviewing in this series apply to your small business. So let’s begin today with:
Myth # 10 – I-9, ‘sly-9’, “I know he’s illegal, but only illegals will do this work.”
As ICE arrives on the scene, your workers scatter to the wind while you, their employer, are stuck there and the first demand will be ‘show us the I-9 forms, and also those W-4 forms!” The U.S. Immigration and Customs Enforcement (formerly the Immigration and Naturalization Service) requires a form I-9 for every employee.
Originally designed to discover foreign nationals ineligible to work in the U.S., Form I-9 must be completed, up-to-date and ready for inspection at any time for every single employee in your company hired after November 8, 1986 — citizen or not. As of April 3, 2009, you must use the new mandatory Form I-9, which has been updated to meet new Department of Homeland Security (DHS) regulations. Employees may now only present unexpired identification documents as proof of their eligibility.
The current penalty is $1500 per day for each employee for whom Form I-9 is not on file. But keep in mind, that penalty may be nothing compared to the bureaucratic briar patch you’ll be tossed into for employing an unauthorized worker, whom you must still pay and properly report their earnings even though they do not have a valid Social Security number!
By the way, you must also maintain a I-9 for every current employee and keep it for three years after the hire date or one year after an employee leaves or is terminated, whichever is longer.
Myth # 11 – “Who can afford Workers’ Compensation, I just lay off my injured workers.”
If that is your philosophy, you are looking at the classic double whammy, akin to hitting your thumb with a hammer twice in a row. In most states not having workers compensation coverage on your employees carries with it both ‘civil’ and ‘criminal’ liabilities, but laying off an injured worker simply because they file a claim or first notice of injury is a serious violation of the law.
Workers compensation law vary significantly from state to state; over the last 15 to 20 years many states have completely re-vamped their systems from an adversarial ‘court’ based system to an ‘administrative’ or ombudsman based system that attempts to alleviate the complainant-respondent system. The result has been reduced costs in many states for Workers Compensation and Employer Liability coverages.
One of the primary goals of Workers Compensation coverage is the protection of your business, it’s not just about injured employees. In most states an injured employee only has the recourse of Workers Compensation when such coverage is available. This means that the employee cannot sue an employer in ‘regular court’ as a tort claim for perhaps an amount in excess of 10 to 20 times the amount that is specified by Workers Compensation statutes. But in exchange for this ‘limit of liability’ Workers Compensation normally carries with it what is known as a ‘presumptive’ clause or provision whereby when a claim or injury is filed, it is presumed to be factual and true. An employee generally is not required to prove that the injury occurred, or resulted from some job-related cause.
Whether your state funds employer based coverage via a ‘state fund’, ‘private insurance carriers’, or even self-insurance (own risk) status, essentially every employer has a liability to provide this coverage. The premiums you pay depend on the category and wages of your employees. The limits of the coverage are typically in conformity with the amounts required by state statute.
Of special attention to many small businesses these days is coverage for employees based in one state, but who are working in another state on temporary assignment, even while traveling in a different state. Without adequate workers' compensation insurance, if one of your employees is injured on the job, you may be held personally liable for both the cost of their medical care and for the lost wages while the employee is unable to work.
Myth # 12 – “What do you mean we made a mistake in our W-2 forms, how in the “#&**” did that happen?”
The W-2 is the most common tax form employers file and also suffers the most frequent errors in terms of both simplicity, like which box to use, as well as complexity like improper computation of values. But believe it or not, mismatching of names and social security numbers is the most common W-2 filing error, and when this occurs the result is improper crediting of wages and contributions for employees with the Social Security Administration. The fundamental principle in W-2 reporting is that ‘accuracy counts.’
Believe it or not sometimes these Social Security contribution errors don’t get caught for years, until an employee goes in to file for Social Security and notices there is an entire year’s missing wages from their benefits computation. By that time it takes considerable time to go back and research and correct the errors – because as we all know, government moves as slow as molasses in the wintertime.
The Social Security Administration (Business Services Division) provides both a phone number and a website you can call for social security number verification. The phone number is 1-800-772-6270. For web access begin by going to the website: http://www.ssa.gov/employer/ssnvs_handbk.htm which is the SSA’s electronic handbook about how to register and set-up on-line access for verification purposes.
Other problems commonly associated with W-2 form submission include the printing of $ (dollar) signs in the boxes. The scanners typically read this symbol as a number “8” and add value to the amounts that shouldn’t be included. Always print W-2 forms with a standard font, the recommended font is 12-point Courier. Believe it or not, the IRS Section Chief suggests placing the numbers in the middle of the boxes as the top filing tip she recommends. (No kidding.)
Myth # 13 – “These guys can’t even read, I’m not putting up those posters!”
Employment-related Posters are not artifacts of the Industrial Age or required only in factories. The federal government takes its requirement very seriously that you prominently display the poster publicizing the federal minimum wage and overtime pay standards. Even in your small office, it must be placed where employees will see it as they come and go from work.
If convicted, the penalty for any person willfully violating any provisions of the FLSA, including the posters, may be a fine of not more than $10,000 or imprisonment for not more than six months, or both. That certainly makes it worth the risk of a poster clashing with your wallpaper or other office decor.
Myth # 14 – “OBAMA Care, No Way…”
What’s that, are you talking about the “Affordable Care Act”? Well the US Supreme Court has upheld two court challenges dealing with at least two major provisions of the Affordable Care Act. And so it is the ‘law of the land.’ The Affordable Care Act is very complex and convoluted, so we will only cover a few of the requirements that may impact you and your small business clients.
Obviously the first question everyone asks is if they ‘must provide health insurance’ to their employees and the answer can only be ‘that depends’. Small businesses with fewer than 50 full-time equivalent employees are NOT required to provide health care insurance under the Act, but there are tax incentives available if they choose to do so.
Since its passage, there have been a number of administrative and ‘rule making’ modifications that impact implementation of the Act to its full extent. Due to these delays in the implementation certain timelines which impacted the Employer mandate have been modified; for example, employers with 50 – 99 full-time equivalent employees now have until 2016 to offer health insurance benefits to their employees, thereafter they will be subject to a penalty of $2000 per employee, starting with their 31st employee.
Employers with 100 or more FTEs are also still under a gradual phase-in rule. Under these provisions, during 2015 large employers with 100 or more FTEs only need offer 70% of their employees coverage to avoid the ‘tax’, but they will need to offer 95% of their employees coverage as of 2016.
Small businesses must make certain to calculate their ‘full-time equivalent employees’ correctly to avoid ACA penalties. A full-time employee is someone who works more than 30 hours per week on average. An easy way to determine whether you have 50 or more full-time equivalent employees is to take the total number of hours worked in a given month by your employees and divide that number by 173.33. This will give you the number of full-time equivalents.
But employers must also insure that any health coverage plan they adopt and offer to their employees meets the ‘minimum value’ test for coverage or they risk federal penalties: All employer-sponsored health insurance plans must provide what is known as minimum value.
A minimum value plan will cover at least 60% of the total permitted cost for benefits expected with the plan, based upon deductibles, co-pays and other details regarding the plan.
Myth # 15 – “What, another IRS tax form to fill out this (and every) year?”
We are back to Government folks, how would we possibly have something called the ‘Affordable Care Act’ administered by the federal government, and the IRS no less, and it not require ‘paperwork’. It just wouldn’t be a government bureaucracy without paperwork would it?
Starting in tax filing season 2016 (for tax year 2015), under the Affordable Care Act (ACA) employers with 50 to 99 full-time equivalent (FTE) workers are required to file new tax forms detailing what individual employees are being charged for their employer-sponsored health coverage plans. This form requires you, the employer, to measure every FTE’s total monthly out-of-pocket costs for health coverage.
Form 1095-C requires you, the employer, to measure every FTE’s total monthly out-of-pocket costs for health coverage.
But this is ‘our’ Federal Government folks, I mean why have only One form when you can have Two forms at Twice the Expense and Bureaucracy!
And so we have the Form 1095-C that is a transmittal of coverage offering, can it get more ridiculous than this – of course it can. But the Feds have an answer to our considering this paperwork a total waste of time. Do the paperwork and file it, or get fined, up to $2000 per employee.
So those are my 15 Payroll Myths and Mistakes, along with some tips to help you avoid the most disastrous of the bunch. Hopefully you have learned a few things, and had a good time while doing it, because we all know (in the words of Mary Poppins) that ‘a spoon full of sugar helps the medicine go down.’