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Posts Tagged ‘Employment’

Three Tips for Employers Outsourcing Their Payroll

November 1, 2011 2 comments

Three Tips for Employers Outsourcing Their Payroll Special Edition Tax Tip 2011-05, September 2, 2011 via IRS.GOV

Outsourcing payroll duties to third-party service providers can streamline business operations, but the IRS reminds employers that they are ultimately responsible for paying federal tax liabilities. Recent prosecutions of individuals and companies who – acting under the guise of a payroll service provider – have stolen funds intended for payment of employment taxes makes it important that employers who outsource payroll are aware of the following three tips from the IRS:

Employer Responsibility – The employer is ultimately responsible for the deposit and payment of federal tax liabilities. Even though you forward the tax payments to the third party to make the tax deposits, you – the employer – are the responsible party.If the third party fails to make the federal tax payments, the IRS may assess penalties and interest. The employer is liable for all taxes, penalties and interest due. The IRS can also hold you personally liable for certain unpaid federal taxes.

Correspondence – If there are any issues with an account, the IRS will send correspondence to the address of record. The IRS strongly suggests you do not change the address of record to that of the payroll service provider. That could limit your ability to stay informed of tax matters involving your business.

EFTPS  – Choose a payroll service provider that uses the Electronic Federal Tax Payment System. You can register on the EFTPS system to get your own PIN to verify the payments.The IRS web site – http://www.irs.gov has more information on the responsibilities of employers outsourcing payroll, payroll service providers and EFTPS.

via Three Tips for Employers Outsourcing Their Payroll.

for more information about online payroll services: www.netWorthPayroll.com

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Kilpatrick Townsend & Stockton LLP – North Carolina to Require Employers to Use E-Verify

North Carolina has joined the growing list of states that will require private employers to verify the eligibility of their new hires to work in the United States through E-Verify, a federally administered online system for confirming the identity and employment eligibility of individuals. The new statute, signed by Governor Perdue on June 23, 2011, will phase in its E-Verify requirement over the next two years, eventually applying to all North Carolina employers with twenty-five or more employees.

The New Legislation

The new law will require all North Carolina employers with twenty-five or more employees to enroll in and use E-Verify to check the eligibility of employees to work in the United States. The law applies only to new hires and does not require employers to verify the immigration status of their existing workforce through E-Verify. The law also specifically exempts seasonal temporary employees employed for ninety or fewer days during a consecutive twelve-month period.

The E-Verify requirement will be phased in gradually, depending on the size of the employer. The E-Verify requirement will become effective on October 1, 2012, for employers with 500 or more employees. Employers with 100 to 499 employees will become subject to the requirement on January 1, 2013, and employers with twenty-five to ninety-nine employees will be covered by the law on July 1, 2013.

Once the law takes effect, employers who fail to verify a new hire’s employment eligibility through E-Verify will face civil penalties from the North Carolina Department of Labor, regardless of whether that employee is indeed authorized to work in the United States. The size of potential penalties will vary based on the number of employee verifications the employer failed to make as well as whether the failure constitutes a repeat violation. For any violation, an employer will also be required to submit an affidavit stating that, after consultation with the affected employee, it has requested a verification of the employee’s work authorization through E-Verify.

Potential Legal Questions

Opponents of the North Carolina statute could potentially argue that it is preempted by federal law. Federal immigration law prohibits states from “imposing civil or criminal sanctions” upon those that employ unauthorized aliens, except through “licensing or similar laws.” Although the United States Supreme Court recently upheld Arizona’s E-Verify law in Chamber of Commerce v. Whiting, the Court emphasized that the Arizona law is enforced through suspension of business licenses, rather than through civil or criminal penalties.

The North Carolina law presents a substantially different question from that resolved by the Supreme Court in Whiting. On the one hand, North Carolina’s new statute arguably runs afoul of federal law because it is enforced through civil penalties. On the other hand, the North Carolina law does not directly penalize the employment of unauthorized aliens; rather, it penalizes employers for failing to use the E-Verify system, even if those employers employ no unauthorized aliens. As North Carolina’s law departs from the model of the Arizona E-Verify law that survived a Supreme Court challenge, the new law could face its own legal challenges.

Practical Implications

Employers in North Carolina that have twenty-five or more employees should prepare to enroll in and use the E-Verify system, if they are not already participating in that system. E-Verify compares information provided by a new hire on Form I-9 with information in the federal government’s databases to verify the individual’s identity and eligibility to work in the United States. Although E-Verify is a free service, participating employers will incur costs in using it as a result of the time it takes the employer’s personnel to be trained in the use of E-Verify, to enter data into the E-Verify system, and to respond to E-Verify determinations that information supplied on a new hire’s Form I-9 does not match government records.

via Kilpatrick Townsend & Stockton LLP – North Carolina to Require Employers to Use E-Verify.

Steps For Adding Payroll Services To Your Business

If your small business is growing, and it’s time to add an employee, you may be wondering just where to start to begin this process (our focus for this blog is NC because that’s where we are located, your state requirements may differ). Most of the time, your payroll service provider will give you a checklist and packet of forms to complete in order to add employees to your payroll. There are three major components that will be needed to set your company up for payroll services.

First, you will need a Federal EIN, otherwise known as an Employer Identification Number. You may have already received this when you started your business but if you are a sole proprietor, you may need to apply for a new number:

http://www.irs.gov/businesses/small/article/0,,id=97860,00.html

Secondly, you will need a State Withholding Tax Id Number. If you already collect and file Sales and Use Tax, the number will be the same and you just need to call the state and add withholding tax to that existing number.  To apply for a new NC withholding account number, you can apply online here:

http://www.dornc.com/electronic/registration/index.html

Third, you will need a new NC Unemployment Security Commission account number to collect and remit state unemployment insurance withholding:

https://www.ncesc1.com/business/web604/web604Main.asp

Now that the main peices for the employer portion are out of the way, let’s take a look at what forms the employees will need to provide in order to receive payroll wages. The employer must retain these documents for their records for each employee:

W-4 Form (Withholding Allowance)

I-9 (Employment Eligibility Verification)

NC-4 (State Employee’s Withholding Allowance Certificate)

In NC, employers must also provide New Hire Information to the state. A form can be mailed or you can report your new hires online at www.NCNewHires.com.

For more information about whether a worker is an Employee or Independent Contractor, see: Employee or Independent Contractor?

Contact netWorth Bookkeeping Services for more information about our  easy, affordable, online payroll services

Are Unpaid Internships Legal?

With the down economy, many companies are looking to “hire” unpaid interns as a way to save money. I recently came across this article which explains the “do’s and don’t’s” of unpaid internships, which includes a link to the new federal criteria so I thought I’d share:

http://www.nytimes.com/2010/04/03/business/03intern.html

From the Article:

“If you’re a for-profit employer or you want to pursue an internship with a for-profit employer, there aren’t going to be many circumstances where you can have an internship and not be paid and still be in compliance with the law,” said Nancy J. Leppink, the acting director of the department’s wage and hour division.

Ms. Leppink said many employers failed to pay even though their internships did not comply with the six federal legal criteria that must be satisfied for internships to be unpaid. Among those criteria are that the internship should be similar to the training given in a vocational school or academic institution, that the intern does not displace regular paid workers and that the employer “derives no immediate advantage” from the intern’s activities — in other words, it’s largely a benevolent contribution to the intern.”

The 6 Criteria:

• The training given in the internship must be similar to what would be given in an educational setting, or vocational school

• The training should be for the benefit of the trainee

• The trainee’s work not replace workers who are regularly paid

• The employer receives no immediate advantage from the trainees’ activities, and the employer’s operations may actually be impeded on occasion

• At the end of the training, the trainees are not necessarily entitled to a job

• Both the trainee and the employer understand that the trainee is not entitled to wages during the training period.

See Also: Compliance Assistance – Fair Labor Standards Act (FLSA)

Are NC Unemployment Insurance Policies Preventing New Hiring?

Recently, a client of mine was considering hiring a temporary employee to help out on a big job they had coming up.  They found the right person and were all set to move forward and hire the worker.  Everything was going well… until they realized that the worker was currently collecting unemployment benefits from being previously laid off from their last job.

What does that matter?  In the state of NC, there is a six month period that a person has to be employed in order to qualify for new unemployment benefits.  However, if a worker has an already established or open claim, and they are hired by a new company, there is no minimum time required before they are eligible to receive unemployment benefits from their “last employer” (even if it is a temp job).   That would mean that if my client were to hire this person temporarily, even for a week, when that job ended, that person could reopen their claim and it would be collected on THEIR unemployment insurance fund, not the employer they were originally collecting from before that.

Because my client is a new business, and has a small payroll that they just started, they have little money accrued in their unemployment insurance fund.  This situation would would have raised their rates and they would have had to keep paying that higher rate into the system to pay off the claim from this temporary worker for years.  Instead of being able to put an unemployed person to work, even if just for a few months, they were unable to hire this person, who is now just  still collecting benefits from their original unemployment claim.

This is a very unfortunate policy because there are millions of people that would love an opportunity to work, even a temporary job, which can lead to permanent employment in some situations.  Additionally, there is always the possibility a new employee won’t work out, even if they are hired permanently.  Employers are aware of the burden they take on when they hire someone who is currently collecting unemployment benefits and may be deterred from doing so.  The system that is designed to help unemployed workers is actually hurting their chances of being rehired by small businesses.  No wonder our state unemployment rate remains so high.

An individual who has established a claim, returned to work and become unemployed again during that one year period, may reopen an existing claim. For reopened claim purposes, the last employer is the one for whom the claimant most recently worked prior to reopening an existing claim, regardless of the duration of the job.

via ESC NC Business Services: UI Information – Claims.

1099-Misc Forms Explained

1099-Misc is a type of information return required by the IRS for income reporting purposes to track payments made to independent contractors. These are usually people who provide services to your business such as accounting, general construction contractors, service technicians, attorneys, landlords, etc. who are NOT employees of your business.   These payments may also include mileage reimbursements and materials provided.

According the IRS:

What is nonemployee compensation? If the following four conditions are met, you must generally report a payment as nonemployee compensation.

  • You made the payment to someone who is not your employee;
  • You made the payment for services in the course of your trade or business (including government agencies and nonprofit organizations);
  • You made the payment to an individual, partnership, estate, or, in some cases, a corporation; and
  • You made payments to the payee of at least $600 during the year.

The biggest challenge is making sure you know how to properly classify independent contractors and employees.   This will help avoid penalties for not withholding income tax from these payments if they are deemed to have been employees.

In order to determine tax payer status, ID information, and 1099 eligibility, you must obtain a FORM W-9 from each of your subcontract vendors.  It is a good policy to adopt that you do not issue payments to new vendors until you have their W-9 form on file.  That way, you will not be scrambling at year-end to get information such as their tax ID and address in order to process their 1099 forms or to know if they are exempt as a corporation.  1099 Forms are due to each recipient by January 31st and to the IRS (form 1096) by February 28th.

New Changes to the 1099-Misc Rules :

Few people are aware of new changes to the 1099 Rules that were passed with the Healthcare Reform Bill. Under the old rule, non-employee compensation for services that totaled more than $600 per year required having a 1099 form issued. Also, under the old rule Corporations were exempt so you wouldn’t have to issue a 1099 to PCs-R-Us, INC.  if they fixed your computer, for example.

The new rule states that beginning in 2012 payments that total $600 or more (at once or cumulative) made to ANYONE for ANYTHING, including corporations for services AND GOODS must be issued a 1099-misc form. You read that right! If you are a business, and you purchase more than $600 worth of supplies at Staples or Walmart, you will be required to issue them a 1099 form at year end.  There are currently attempts at repealing this provision which have so far, (as of this writing) have been unsuccessful.

The IRS has also created a new 1099-K form requirement which is already in effect for 2011.

There are actually many various 1099 forms for different types of payments and you should always consult with a qualified accountant or tax professional for specific help in this area for your business.  Feel free to contact us for more information.