Let’s say I’m paying an employee $15 an hour. What is their actual cost to the company?

It depends.

The employer pays taxes on top of the employee wages. For example there is Medicare on all wages, Social Security on the first $106,800 (for 2010), the Federal Unemployment rate of .8% on the first $7,000 of the employee wages and the state unemployment rate which is probably capped on the first $10,000 to $25,000 of wages. A rule of thumb we use, without going into detail, is about 12% of their rate of pay. So, if the employee is paid $15 an hour, it costs the employer $16.80 an hour. However, if you have a high unemployment rate (5% or higher or you state unemployment wages are not capped), this will change this equation.

The employer also needs to factor in workers’ compensation insurance which is required in most states. Depending on the industry, this can add anywhere from 2% to 33% on top of the 12% factored in above. An employee in the roofing business may be costing the company 45% more in taxes and workers’ compensation over the rate paid to the employee because of high workers’ compensation insurance.

If there is a match retirement program such as a SIMPLE plan or a 401K plan, the employer match will need to be factored.

Then there are soft costs: Vacation, Sick, Personal and other paid time off. There may be health insurance and other fringe benefits. There is the administration cost just to handle these aspects. If you as the the employer link employee paid hours directly to what you are able to bill, there is the unbillable time in which you are paying the employee, but cannot recapture from your customer.

Truly, employees are an investment for your company. The additional costs are sometimes hidden and can be a surprise. However, I think the additional benefits are sometimes hidden as well.

Know your costs – minimize the surprises.

Sincerely,

Bryan Dear

www.payrolldept.biz

Retirement plans are a great benefit for employees – they come in all shapes in sizes and one plan may look very different from another plan. SIMPLE IRA plans are relatively simple compared to 401K plans, but they are not without complication. If you have less than 100 employees, establishing a SIMPLE retirement plan is one of the lowest cost retirement plans an employer can offer.

From a payroll perspective, it goes something like this.

The employee may contribute up to $11,500 a year in 2010 and if they’re fity or older, may contribute an additional $2,500 for a grand total of $14,000 for the year.

In general, the employer must match up to the lesser of the employee’s contribution or 3% of gross compensation for the year. Gross compensation includes bonuses, overtime pay, vacation, sick and personal use of auto in addition to regular pay. However, gross compensation must be reduced by Section 125 deductions (Cafeteria plans such as pre-tax AFLAC, FLEX spending, Dependent Care, etc.). A good rule to determine gross compensation is Box 1 wages from the W2 plus the employee’s Simple Contribution. This definition of gross pay becomes important in determining the 3% match from the employer if the employee has contributed more than 3%.

The employer does have a couple of additional options. They may reduce their match from 3% to 2% two years out of every five years. The employer may elect to just contribute 2% to every employee retirement account regardless of whether they contribute or not.

How much should an employee contribute? One very general rule of thumb is for employees to contribute 10% of their gross pay a year. If the employer is kicking in 3%, then the employee would contribute 7% of their compensation.

The employee contribution must be made within thirty days after it is deducted from pay. The employer contribution can be made at that time, but the employer may also wait to make their contribution until the filing of their tax return. Regardless of when the employer makes the contribution, the match amount should be compared to the W2 Box 1 amounts and employee simple contribution to determine what the match should have been so that adjustments can be made.

Employee withdrawls after age 59 and a half are subject to federal and state income taxes. Employee withdrawls prior to that time are taxed for the full account value with an additional 10% tax thrown in with some limited exceptions. Employee contributions are deducted pre-tax for federal and state taxes, but not FICA and Medicare.

Employer plans can be set up with the big guys such as Vanguard and Fidelity or they can be set up with a local broker who may provide more guidance and personal service. There’s usually a greater fee with a broker which is found in higher asset fees.

SIMPLE plans are a great way for an employer to enter the retirement benefits arena. They are relatively easy to set up and provide a wonderful vehicle to help provide employees with a retirement plan.

Keep it simple,

Bryan Dear

www.payrolldept.biz

I’m not sure where my house key is and that’s because we don’t lock our doors. I mean really, what would a thief take? Our TV? Our furniture? They could take the laptop, but even there we don’t keep much personal information on it and we certainly don’t keep passwords on a file in our computer. If someone did break into our house, we would at least have the option to start changing account information to prevent loss of data or money from falling into the wrong hands.

It’s a different set of rules for the cyber world. You may not realize your identity has been stolen. It’s a much quieter theft. The theft can occur from somewhere you have no control over.  It can be scary to realize how much information is available in the electronic world that concerns you. And there you sit comfortably at home or at the office thinking that all is safe and secure when in reality the stuff is about to hit the fan.

So what are you to do? Drop out of society? Do you move all of your electronic data to paper and create a tremendous amount of inconvenience for yourself while still making yourself vulnerable to a different kind of theft from paper? I doubt it. What follows is a game plan for your life when it comes to data protection.

You are entitled to a free credit report from one of the three credit agencies once a year (beware of the free credit report agencies that want you to sign up for a paying service). You may go order this free service by going to www.annualcreditreport.com

Review your report carefully for accuracy noting any activity from creditors that you did not initiate.

You may place a “Fraud Alert” on your credit report by calling any one of the following agencies – a call with one will place the alert with all three agencies. The number is: Equifax – 800-525-6285 / Experian 888-397-3742 / TransUnion 800-680-7289

We here at The Payroll Department, Inc. deal with incredibly sensitive information. From a thief’s perspective, we are a gold mine. We do everything we can to keep your data confidential including multiple firewalls, strong passwords, data encrpytion as well as many dual controls in the office. And still, we are vulnerable. Recently, our software vendor, Paychoice, was attacked and our online clients were provided with a phishing email noting they needed to update their software. If you have one iota of doubt about whether something is from us, contact us. We would not ask you to download something from an email without contacting you by phone, fax or written notice.

I don’t sleep well when I think our data could be hacked. It’s an amazing world full of grace, but evil lurks there too.

We’ll protect from evil – we’ll love the grace – and we’ll keep our data safe.

Sincerely,

Bryan Dear

www.payrolldept.biz

When you run a payroll every two weeks, you can reliably compute twenty six payrolls a year (26 x 2 = 52 weeks). If you pay salaried employees on this bi-weekly schedule, you may have taken the annual salary (e.g. $52,000 and divided by the 26 weeks for a bi-weekly salary of $2,000 per payroll). This is all fine and good for most years.

However, every so often there are twenty seven payrolls because three hundred sixty five days divided by fifty two leaves a remainder of one day. Leap year enters into the equation so really it’s only every eleven years or so that twenty seven bi-weekly payrolls will occur in your payroll calendar.

Do you pay the salaried person for the “extra” payroll ? In the first example, you could pay your salary person the additional $2,000 and proceed as normal. Many employers, however, believe they have contracted with their salaried employee an annual salary or a monthly salary. The reasoning goes that the fact that there happens to be an additional payroll should have no bearing on their annual or monthly salary.

If you choose to forgo paying your salaried employees, you’ll want to be very clear in your communications with them including providing them with plenty of notice so they can plan their finances accordingly. Look ahead in the calendar.

January 1, 2010 falls on a Friday. Depending upon your bi-weekly pay schedule, next year might be the 27 payroll year. Or if you move January 1,2010 to December 31, 2009, you may have 27 payrolls this year (2009).

Take a peek at your calendar for this year and the next. If you see twenty seven payrolls, you’ll have a head start on whichever way you proceed.

Cheers,

Bryan Dear

www.payrolldept.biz

The letter can almost look innocent except for the return address. A notice that an audit is coming down the pike can produce many different reactions (denial, procrastination,and probably the most common, a kind of fear). But fear not.

 It’s amazing how many different audits we see. There are retirement plan audits by the IRS, there are Department of Labor audits from both the federal and the state agencies, there are state department of revenue audits and then there is the plain jane IRS audit of the company tax return that inevitably pulls in the payroll information.

In these audits, we find they look for regulation compliance (are the proper forms being prepared correctly and submitted in a timely manner), is there unpaid overtime, are S Corporation owners claiming enough wages, are there contractors who should be treated as employees, are there employees who don’t have a legal status to work  and do the numbers line up with what’s claimed on the tax returns?

While the chance of being audited is relatively low from any of these agencies, there is a decent chance at least one of them will find you because there are so many of these agencies. And if you have chosen to raise the red flag such as forgoing paying overtime to your employees or not claiming wages as an S Corporation owner, there’s a better than even chance that you will be audited.

So what do you do? It’s really pretty simple.  Do what’s right – pay your overtime, file your tax returns on time, make your payments on time and when you have a question as to what’s the right way to do something, ask someone who deals in this all the time.

Audits can be an inconvenience or a real pain. Good record keeping and doing what’s right will greatly reduce the pain factor. If you business model can’t afford to do what’s right, question your assumptions.

Here’s to having an audit-free business. Preparing for one will certainly allow for better sleeping.

Cheers,

Bryan Dear

www.payrolldept.biz

It’s springtime in the Rockies…again. Snow, sunshine, wind, rain, then repeat. We seem to get all four seasons packed into one day.

It’s also a Friday and Fridays make me think of payday. While our clients pay each day of the week, Fridays is payday for more than half of our clients. If you don’t offer direct deposit to your employees, you are costing yourself some inconvenience both for yourself and your employees.

As an employer, there is no check to reconcile with the bank with a direct deposit and no outstanding check to track down. Many employees expect direct deposit when they start a new job – it’s assumed and certainly not brought up in a job interview. They are very surprised when they find out their pay comes to them in a check – an unpleasant surprise. This means a trip to the bank (and a line if they wish to make that deposit on Friday). The bank will frequently put a one day hold on a paycheck versus no hold on a direct deposit. I know my wish list doesn’t include unnecessary travel to anywhere including the bank teller line.

Do yourself a favor – provide direct deposit as the default option for how your employees receive their paycheck. It’s easier for you and it’s easier for the employee.

Happy Fridays,

Bryan Dear

www.payrolldept.biz

Whenever a business has employees, there’s payday. Many employers with one or two employees, will pay the same day the pay period ends without much thought to the future precedent being established.  The business or organization grows and another employee is added. No big deal – just cut two checks. Perhaps the employees (exempt or not) are paid a salary. It’s a piece of cake to pay the employees. Any cheap payroll software  can track these efforts.

Ahh, but if the employer is doing well and hires more employees then minor complications may begin to surface. Some of the employees may be paid hourly. Benefits, if not offered before, may begin to trickle in such as holidays, vacation pay, or a simple retirement plan.

The employer is beginning to feel a little pressure with gathering the time and cutting the checks the same day the pay period ends. If delays occur which inevitably they will, the employee is going to be frustrated because their expectation is not being met because payday was delayed by a day or even by hours. Direct deposit is not even going to be a consideration because you need at least a day and preferably at least two days prior to check date before paying. Yuck.

So do yourself a favor. Pay bi-weekly ( every other week and a lot different than twice a month). End your pay period on the same day such as a Sunday, and pay on Friday. You can do something other than payroll right after the pay period ends, still have plenty of time to pay your employees, offer direct deposit and reduce the risk of error because of a rushed process.

A semi-monthly pay period, even with a five day delay, such as ending the pay period on the 15th and paying on the 20th is still problematic. Overtime, without a good time and attendance system, is difficult to calculate, payoll is processed at different times in the week, weekends and bank holidays can either cause a rush to process the data or delay the check beyond the employee’s expecations. If you do choose semi-monthly pay schedule, consider a delay of seven days between the period end date and the check date to give your organization enough time to process your payroll.

Regardless of which method you choose, you’ll be glad you at least gave the pay period and check date some thought before you hired any employees because changing expectations with your emloyees is rarely fun.

It’s very easy to say “Payday is every other Friday for the two week period ending the previous Sunday.”

Happy paydays,

Bryan Dear

www.payrolldept.biz

Spring forth, spring forward, spring out, spring cleaning, spring, sprang, sprung. It’s quite the word. I don’t think other languages have quite the word that we have for spring with it’s many meanings and connotations. But feel free to correct me. I love to learn about the hidden meanings of words.

And what would a blog be without some reference to spring. Out with the old, in with the new. Out with our older software, in with our new software. Although the outing and inning will take place over 18 months. It’s the cleaning times. I feel for those in the two climate world of wet and dry seasons. How would I ever know to start the cleaning or changing process. Spring provides a reason for change .

And change – heard here before – is the root of capitalism – perhaps too swift at times. It’s how we make a move to our next level. It’s why we stumble because we move too fast. It’s also why relationships grow and die. Either both parties change and grow and the relationship strengthens or the parties go in different directions or one just doesn’t change. To paraphrase, perhaps by standing still, you are the one that’s changing.

Spring it on,

Bryan Dear

www.payrolldept.biz

How do you handle a moment of anger? Almost all of us would probably take back moments of conversation and actions in our past when they were dealt with in anger. And so when the moment of anger is directed at you, how do you handle it?  Believe it or not it’s a chance to shine: even if the only one who will see that brilliant light is yourself. I have always admired the airline employees who are on the front line when flights are cancelled – especially when it’s not weather related. These men and women have to deal with multiple waves of anger with many people who just cannot escape from their trap of anger.

So back to that moment when the conversation is unpleasant, even if it’s not you who created the situation, you are bearing the hit. How do you deal? You may already know many of the tools of the trade. Just to reiterate, here  are some on my list:

Let the person talk (or vent) and let them finish. Remind yourself to breathe and for me, the most difficult reminder – Don’t Take it Personally! After you have allowed them to vent

Transfer them to another person to work with them in which case they will need to re-state the problem. This second venting almost always is less heated and a solution can be found – or

Tell them you need a little more time to problem solve and you will call them back in a specified time period. It’s important to call them back within that promised call-back time, but again, having already vented once, they will be in a better place to work with you – or

Re-state the issue to the person asking them to verify and clarify what you have just heard. You allow them a chance to slow their anger while showing that you are listening.

And to me – it’s all about listening. By listening to their issue, you show you care and you show you are prepared to take action which could resolve their issue. We all have experienced a customer service issue in which they didn’t care about my complaint, didn’t take time to listen, didn’t do anything that showed they cared. Yuck.

It’s rarely a great moment when we deal with someone in anger. But we have all been there on the other side. Remember it’s a great time to review that Stimulous > Response rejoinder. The more time we give ourselves to respond to a situation, the better we can provide a response that we’re proud of. It’s not unheard of that the anger will turn into appreciation – and that is a reward.

We have such terrific relationships with our clients and customers that we rarely deal with anger, but I would be remiss if I said it never happened. We should listen, we should resolve the issue to the best we can with a goal that you feel we did “the right thing.”

Payroll is our service – and true service is what we provide.

I am,

Bryan Dear

www.payrolldept.biz

Everyday we get to make decisions. And sometimes the decision is to put a decision off until another day. I find this particularly appealing on what are usually classified as minor decisions. Of course that bird comes home to roost when I least wish to deal with it. And so my aim is higher – deal with the minutia before leaving the office. 

Bolder certainly sounds good. I know it can be a little more painful when bolder doesn’t work out as planned. So then there should be some quotation about staying bold when bolder didn’t work before – a continuation of the bolder course. 

Durango’s 4^th annual independent film festival was held last week and according to initial reports, went very well. I know I had a great time seeing five different film blocks over the four days. This is not the hooty-tooty kind of film festival such as the ones at Telluride, Colorado or Sundance, Utah. It’s a festival for our community. There were films shown from all over the country and many of the producers came and spoke with the audience. I am grateful that we have a community that’s ready to go out on a limb and put something like this together. 

Payroll thought for the day - don’t ignore those IRS notices. From our viewpoint they are dealt with within five business days of receiving them. Take the bolder action and deal with them – or better yet let us deal with them. 

Sincerely,

 Bryan

www.payrolldept.biz