Module 1: Payroll Concepts Introduction to Payroll in the United States... 1-2 Documents Employers Request... 1-2 Social Security Numbers... 1-2 Methods of Paying Employees... 1-3 Withholding Taxes... 1-3 Social Security... 1-4 Medicare... 1-4 Unemployment Insurance Tax... 1-4 Disability Insurance Tax... 1-5 Employee Benefits... 1-5 Introduction to Payroll... 1-5 Challenges... 1-6 The Payroll Process... 1-6 1.1 Employee/Independent Contractor... 1-6 Employee Classification... 1-7 Backup Withholding... 1-14 Statutory Employee/Nonemployee... 1-15 New Hire Reporting... 1-18 Social Security Numbers... 1-20 1.2 Fair Labor Standards... 1-22 Fair Labor Standards: Concepts... 1-22 Exempt/Nonexempt Employees: Concepts... 1-23 Exempt/Nonexempt Employees: Definition... 1-24 Minimum Wage... 1-34 Tips... 1-36 Regular Rate of Pay... 1-37 The Workweek... 1-40 Overtime... 1-45 Work Hours... 1-47 Other FLSA Provisions... 1-51 2010, API Fund for Payroll Education, Inc. All rights reserved. 1 No portion of this text can be reproduced without prior permission of the API Fund for Payroll Education, Inc.
1.3 Employment Forms... 1-61 Employee Forms... 1-61 PayTrain 2010 2
Module 2: Payroll Calculations 2.1 Calculation of Regular Pay... 2-2 Calculate Regular Rate of Pay... 2-2 Calculate Tip Pay... 2-3 Calculate Pay for Time Worked... 2-4 Calculate Other Pay... 2-5 2.2 Calculation of Overtime Premium... 2-7 Calculate FLSA Overtime Premium Pay... 2-7 Calculate Salaried Overtime Premium Pay... 2-8 Calculate Commission Overtime Premium Pay... 2-9 Calculate Piecework Overtime Premium Pay... 2-10 2.3 Calculation of Gross Pay... 2-12 2.4 Calculation of Federal Income Tax... 2-12 Taxable Wages... 2-12 Federal Income Tax Withholding... 2-15 2.5 Calculation of Social Security and Medicare Taxes... 2-22 Employee Taxes... 2-22 Employer Taxes... 2-28 Other FICA Tax Issues... 2-30 2.6 Calculation of AEIC... 2-35 2.7 Calculation of Voluntary Deductions... 2-38 Calculate Other Deductions... 2-38 Non-Tax Deduction Reporting... 2-39 2.8 Calculation of Involuntary Deductions... 2-41 Withholding Orders... 2-41 PayTrain 2010 3
Child Support... 2-42 Federal Tax Levy... 2-53 Creditor Garnishment... 2-58 Other Withholding Orders... 2-63 2.9 Calculation of Net Pay... 2-75 Calculate Total Deductions... 2-75 Calculate Total Payroll... 2-76 Calculate Net Pay... 2-76 PayTrain 2010 4
Module 3: Fringe Benefits 3.1 Fringe Benefit Rules... 3-3 IRS Regulations Impacting Payroll... 3-4 IRS Requirements... 3-4 Special Accounting Rule... 3-7 3.2 Nontaxable Benefits... 3-8 Section 132 (Income Exclusion Basics)... 3-8 No-Additional-Cost Fringe Benefits... 3-8 Qualified Employee Discounts... 3-9 De Minimis Fringe Benefits... 3-10 Working Condition Fringe Benefits... 3-12 Qualified Transportation Fringe Benefits... 3-13 On-Premises Athletic Facilities... 3-16 Qualified Retirement Advice... 3-17 Qualified Moving Expenses... 3-17 3.3 Employer-Provided Benefits... 3-19 Awards and Prizes Income/Exclusion... 3-19 Personal Use of Company Vehicles... 3-21 Group-Term Life Insurance... 3-26 Whole-Life Insurance... 3-30 Split-Dollar Life Insurance... 3-31 Personal Use of Company Aircraft... 3-33 Educational Assistance... 3-34 Business Travel Expenses... 3-37 Meals and Lodging... 3-49 3.4 Other Payments... 3-51 Advances and Overpayments... 3-51 Back Pay Awards... 3-54 Bonuses... 3-59 Commissions... 3-61 Death Benefits... 3-61 Disaster Relief Payments... 3-61 PayTrain 2010 5
Jury Duty Pay... 3-63 Leave-Sharing Plans... 3-63 Retroactive Wage Payments... 3-65 Taxable Tips... 3-65 Repayment of Employer-Provided Loans... 3-71 Loans to Employees... 3-71 Sick Pay... 3-72 Reporting Responsibilities... 3-77 Stock Options/Purchases... 3-79 Employee Stock Purchase Plans... 3-80 Stock Awards... 3-86 Workers Compensation... 3-87 Dependent Care Assistance... 3-88 Severance... 3-90 Golden Parachute... 3-90 Club Memberships... 3-91 Adoption Assistance... 3-93 Differential Military Pay... 3-96 3.5 Cafeteria Plans... 3-97 IRC Section 125 Components... 3-97 IRC Section 125 Elections... 3-99 Flexible Spending Arrangements... 3-111 3.6 Retirement Plans... 3-115 Qualified Plans... 3-115 Calculate Deferred Compensation Contributions... 3-116 Deferred Compensation Regulations... 3-120 Deferred Compensation Regulations (401(k), 403(b), 457(b))... 3-121 Tax-Sheltered Annuities (403(b) Plans)... 3-129 Deferred Comp Plans for Public Sector, Tax-Exempt Entities... 3-132 Nondiscrimination Testing 401(k) Plans... 3-134 Nonqualified Plans... 3-138 3.7 International Payments... 3-153 Expatriates/Resident Aliens... 3-153 Foreign Earned Income Exclusion/Expatriate Taxation... 3-155 Totalization Agreements... 3-158 Resident/Nonresident Alien Taxation... 3-160 Tax Treaties... 3-167 Purpose of Form 8233... 3-168 PayTrain 2010 6
Form 8233 Requirements... 3-168 Impact of Visa Status on Taxation... 3-168 3.8 Health Benefits... 3-172 Health Benefits Basics... 3-172 Health Savings Accounts... 3-179 Health Reimbursement Arrangements... 3-180 COBRA Continuation... 3-186 PayTrain 2010 7
Module 4: Payroll Reporting and Employment Taxes 4.1 Tax Deposit Requirements... 4-2 Lookback Period... 4-2 Tax Deposit Frequency... 4-4 Calculate Federal Tax Deposits... 4-9 Tax Deposit Methods... 4-10 Purpose of Form 8109... 4-11 Federal Tax Forms (An Overview)... 4-16 4.2 Quarterly Returns... 4-18 Purpose of Form 941... 4-18 Form 941 Reporting/Filing Requirements... 4-18 Form 941 Line-By-Line Reporting Requirements... 4-22 Employment Tax E-File System for Forms 940, 941, and 944... 4-27 Schedule B Reporting/Filing Requirements... 4-31 Schedule B Line-By-Line Requirements... 4-32 Multiple Worksite Reporting... 4-36 4.3 Annual Returns... 4-37 Forms W-2, W-3, and Electronic Filing... 4-37 Federal Unemployment Tax... 4-61 Forms 1099... 4-78 Other Annual Returns... 4-83 4.4 Correcting Returns... 4-89 Purpose of Form W-2c... 4-89 Form W-2c Reporting/Filing Requirements... 4-90 Purpose of Form W-3c... 4-94 Form W-3c Reporting/Filing Requirements... 4-94 PayTrain 2010 8
Purpose of Form 941-X... 4-95 Form 843 Purpose and Reporting/Filing Requirements... 4-114 4.5 Other Reporting Requirements... 4-116 Taxation and Reporting of Wages Paid to Deceased Employees... 4-116 Calculate Withholding for Wages Paid to Deceased Employees... 4-117 Purpose of Form 4070... 4-117 Form 4070 Requirements... 4-117 Form 8027 Requirements... 4-118 Purpose of Form SS-4... 4-118 PayTrain 2010 9
Module 5: Record Keeping and Payroll Practices 5.1 Payment Methods... 5-2 Payment by Check or Cash... 5-2 Payment by Direct Deposit... 5-4 Payment by Payroll Card... 5-11 Escheat... 5-13 Other Payment Regulations... 5-14 5.2 Payroll Practices... 5-15 Payroll Processing... 5-15 Confidentiality... 5-27 Legislation Impacting Payroll... 5-30 Procedures and Practices... 5-44 Disaster Recovery/Business Continuity Plans... 5-49 5.3 Record Keeping... 5-51 DOL Record-Keeping Regulations... 5-52 IRS Record-Keeping Regulations... 5-57 USCIS Record-Keeping Regulations... 5-61 HIPAA Record-Keeping Regulations... 5-62 5.4 Systems... 5-69 System Processes... 5-69 System Selection and Implementation... 5-77 Other System Issues... 5-89 5.5 Penalties... 5-91 DOL Penalties... 5-92 IRS Penalties... 5-92 PayTrain 2010 10
Module 6: Payroll Accounting 6.1 Accounting Terminology... 6-1 Accounting Principles... 6-2 Accounting Periods... 6-7 Balance Sheet and Income Statement... 6-8 Asset, Liability, and Expense Accounts on Financial Statements... 6-13 6.2 Account Classification... 6-16 Account Classifications... 6-16 6.3 Journal Entries... 6-18 Purpose and Recording of Payroll Journal Entries... 6-18 Recording and Posting Payroll Transactions... 6-20 Purpose and Recording of Accruals and Reversals... 6-23 6.4 Reconciliations... 6-27 Repayment of Wages... 6-27 Reconcile General Ledger Payroll Accounts... 6-30 Reconciliation of Output Reports... 6-31 6.5 Internal Control... 6-32 Internal Controls... 6-32 Audits External and Internal... 6-37 Sarbanes-Oxley Compliance/SAS 70... 6-38 PayTrain 2010 11
Module 7: Management and Administration 7.1 Customer Service... 7-2 Definition... 7-2 Responding Efficiently to and Resolving Customer Requests... 7-2 7.2 Communication... 7-7 Communicate Effectively... 7-7 Effective Communication Techniques... 7-9 Effectively Manage Interpersonal Relationships... 7-15 7.3 Procedures and Policies... 7-15 Develop, Implement, and Organize Department Processes... 7-16 Documenting Processes... 7-16 The Payroll Department s Objective... 7-18 7.4 Management... 7-19 Basic Management Skills (An Overview)... 7-19 Planning and Organizing... 7-20 Staffing... 7-22 Time Management Techniques... 7-25 Directing Employees... 7-28 Payroll Staff s Skills and Abilities... 7-34 Prepare Job Descriptions... 7-36 Interviewing Job Candidates... 7-39 Training Resources... 7-40 Delegate Appropriately... 7-41 Employee Performance Evaluation and Development Plans... 7-42 Strategic Planning... 7-43 Budgeting... 7-45 Business Planning Concepts, Methods, and Resources... 7-47 Team Building Techniques (adapted from Tuckman s team development model)... 7-49 Management Theories and Skills... 7-52 PayTrain 2010 12