When do I make payroll deposits?

Monthly: The 15th of the following month.
Semi-Weekly: Wednesday, Thursday, Friday Paydays = By Following Wednesday
Saturday, Sunday, Monday, Tuesday Paydays = By Following Friday

When is tax money deducted from my account?

Every time you process payroll, your payroll services provider deducts this money from your account whether your payroll is weekly, biweekly, or monthly.

Does switching pay period frequency create tax implications?

No, since they are percentage-based the taxes and gross pay will be the same. However, the payroll processing fee could change.  For example, if you switch from weekly to bi-weekly, your employer would only be paying for 26 runs instead of 52.

How do you treat the last payroll period of the year, where earnings may be earned in December, but the pay date is in January of the following year?

The payroll would be reported in January.  According to the IRS, the pay date determines the quarter and year the income is reported.

What do I do if I receive a payroll tax notice from the IRS or a state agency?

You should forward the notice to your Abacus Payroll specialist so that it can be immediately addressed.

What happens if my company’s payday falls on a federal/bank holiday?

Federal law requires that all employees be paid on or before payday. Therefore, our software is designed to automatically change your pay date, should it fall on a banking holiday, to the day before the holiday. For example, if Thursday is your pay date, then each year we will date your employees’ checks/direct deposits for Wednesday of Thanksgiving week. It is important to stress that you must report your payroll to us two (2) business days prior to the actual pay date. Therefore, on Thanksgiving this would mean you having to report payroll/hours to us on Monday even if your regular reporting day is Tuesday.

How long should an employer keep payroll records?

The Department of Labor Fair Labor Standards Act states employers must preserve payroll records for at least three years. The IRS states employers must keep tax returns for four years after the date the tax return is due. Individual states may vary.

What is “New Hire Reporting” and why must my business comply?

Federal law requires every employer to report each new hire and rehire to a designated state agency, and requires all states to conform to a set of minimum standards for the information that must be reported. All employers in New Jersey and Pennsylvania are required to report basic information about employees who are newly hired, rehired, who return to work after separation of employment, or who are returning from a required leave of absence without pay greater than 30 days.  NJ employers can report this information online here and PA employers can click here. Failure to report a new employee could result in a fine up to $25 per violation. New employers should receive instruction booklets upon registration with the state.

Basic employee information that must be provided is as follows:

  1. Employee’s name
  2. Employee’s address
  3. Employee’s social security number
  4. Employee’s date of hire and birth
  5. Employer’s name and address
  6. Employers federal identification number

What forms do I need from new employees?

All new employees are required to file Forms W-4 and I-9 which are to be kept on file by the employer.  A new Form W-4 should be obtained when an employee’s filing status or exemption changes. Be sure to request and keep on file a completed Form W-9 from all non-corporate taxpayers to whom your company pays commissions, interest, rents, etc., totaling $600 or more, and also payments made to incorporated entities such as attorneys and providers of medical and health care services. These forms, along with PA Residency Certification for local tax purposes and a Direct Deposit Authorization form can be found in the Resources Center on our website.

Is there a benefit to waiting until the start of a new quarter to switch payroll providers?

Yes, if you are already outsourcing your payroll it is recommended you wait until a quarter break. The payroll outsourcing provider collects tax monies from you before sending it to the controlling authority (state or federal government, for example) starting the first week of the quarter. If you switch mid-quarter, the former payroll provider will have already swept some of your quarterly tax money, and will need to refund it. In the meantime, the new payroll provider will need to sweep all the tax money at once, often before the first company refunds the money. Depending on your situation, that may create cash flow problems for you. The most ideal time to switch is January 1st so that you are beginning the year with a clean slate. However, if you are preparing payroll in-house and are looking to begin outsourcing, there is no particular advantage to waiting.

If I switch payroll providers in the middle of a year, will I then have to provide my employees with two W-2s?

No. As an employer you are only required to disperse one W-2 to each employer for your given Federal Tax Identification Number.  At the time of the switchover, a conversion must be done in order to provide each employee with a consolidated W-2 at year-end that includes all year-to-date data.

What is Form 941?

Form 941 is a federal tax return prepared and filed quarterly by the majority of U.S. employers who withhold Social Security and federal income taxes from their employees. The due date for Form 941 is the last business day of the month following the end of the quarter. If tax deposits have previously been on time and for the full amount due, employers can take a 10-day filing extension. This form is used for all tax depositors; however, Schedule B, Form 941 is used for semiweekly and one-day depositors.

Form 941 reports the following information:

  • All wages, tips, and other compensation.
  • The amount of federal income tax withheld from wages, tips, sick pay, or other compensation.
  • Total wages and tips subject to Social Security and Medicare taxes.
  • Total deposits for the quarter, including balance due or any overpayment.

What is Form W-2?

Form W-2, Wage and Tax Statement, shows wages received during the calendar year (including tips and other compensation) and the amount of taxes withheld from those wages. At the end of each calendar year, all employers must furnish a Form W-2 to each employee who has worked for them during the calendar year. Even if the employee has no federal income tax withheld, the employer must still provide a Form W-2 if the wages were subject to Social Security and Medicare taxes. Employee W-2s must be postmarked by February 1st. The W-2 Wage Statement must be reported to the Social Security Administration by February 1st. You may request a 30 extension of time to file with the Social Security Administration by filing Form 8809.

What is the difference between exempt and non-exempt employees?

The difference between exempt and non-exempt employees is that exempt employees are not eligible for overtime (hours worked over 40 hours in one week) while non-exempt employees are eligible for overtime. . Exempt employees must be paid $684 a week or $35,568 annually.  Five categories of exempt employees are

  1. Executive – Owners, Shareholders, Vice Presidents, etc.
  2. Administrative – Managers, Supervisors, etc.
  3. Professional – Teachers, Lawyers, Computer Personnel, etc.
  4. Computer Employee – Computer System Analyst, Computer Programmer, Software Engineer, etc.
  5. Outside Sales – Majority of sales is done outside of the office.

How do you calculate overtime?

Yes, bonuses are considered supplemental wages and are taxable. As defined by the Internal Revenue Service (IRS) in the Employer’s Tax Guide, “supplemental wages are compensation paid in addition to an employee’s regular wages. They include, but are not limited to: bonuses, commissions, overtime pay, and payments for accumulated sick leave, severance pay, awards, prizes, back pay, retroactive pay increases, and payments for nondeductible moving expenses. “Bonuses” can be calculated in one of two ways. First is the percentage method, where the bonus/supplemental wages amount is directly taxed a flat rate of 22%. The second is the aggregate method, where the bonus is combined with the employee’s normal pay. Then the normal withholding amount based on IRS withholding tables for the sum of both amounts must be determined. Subtract what was already withheld from your last paycheck, and withhold the rest from the bonus amount. Signing bonuses are subject to FICA and FUTA taxes because the payments are related to the employment arrangement between the employer and employee and, therefore constitute “remuneration for employment” as described by §3121(a).

What are wage garnishments?

Garnishment is the legal term for a court-ordered involuntary transfer of earnings on an employee’s wages to satisfy payment of a debt. When wages are eligible for garnishment, the employer is notified and must withhold a certain portion of the employee’s earnings under law. Common grounds for garnishment include local, state or federal tax levies, child support or alimony, student loans, and private creditors. A garnishment on earnings typically means attachment on wages, salaries, commissions, bonuses, and income from a pension or retirement program as it is generally imposed on one’s entire earnings, not just after-tax salary.

What do I do about an employee’s pay at termination?

States have different laws pertaining to a terminated employee’s wages. For example, New Jersey, Pennsylvania, Delaware, Maryland, and New York all require employers to compensate the former employee no later than the next regularly scheduled payday for the pay period during which the termination or suspension took place. Other states, like Colorado, may require the employer to present payment at termination. If requested, wages can be paid by mail.

Do I need workers’ compensation?

In most states, it is required when you have one or more employees, and it is paid by the employer. Pricing is competitive and based on employee payroll, the number and classification of the employees, classification of business and past loss experience.

How do I know my payroll taxes are paid on time and correctly?

No matter what payroll service you use, insist that the IRS has your address as the “Address of Record,” and not your payroll company’s address. The significance here is that the IRS and controlling authorities at the state level send their notices and “tracers” to this address. These tell you, the taxpayer, when something is not right. You may then forward them to your payroll company and they can address them. As the taxpayer, YOU are responsible for paying your taxes. If the payroll company fails to address any issues, the IRS will expect you to pay your taxes AND any interest or penalties. Making sure your address is the Address of Record greatly reduces the chances of this happening.

What are my responsibilities as an employer in Pennsylvania or any other state that has local/city taxes?

There are several states that allow cities or counties to collect local taxes, and one of them is Pennsylvania. Pennsylvania Act 32 is a law that reforms and standardizes the local earned income tax system and requires uniform withholding of earned income taxes and remittance to a single local collector or Tax Officer.  Act 32 requires each employee to complete a Residency Certification form and employers must begin to withhold the local EIT from employees’ paychecks. Common for this area is the Philadelphia City Wage Tax. All Philadelphia residents owe the City Wage Tax regardless of where they work and non-residents who work in Philadelphia must also pay the Wage Tax.

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