Payroll Deductions: What - Ascentis › files › pdfs › On-Demand_PDFs › deducting... ·...

©2016 The Payroll Advisor1

Payroll Deductions: What You Can and Can’t Deduct

from Employee PayPresented on Wednesday, November 2, 2016

Housekeeping

©2016 The Payroll Advisor

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Credit QuestionsToday’s

topicSpeaker

To earn RCH credit you must


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Stay on the webinar, online for the full 60 minutes

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Certificates delivered by email, to registered email, by December 2nd

Our Focus For Today

Taxes

Child Support

Tax levies

Creditor Garnishments

Voluntary Wage Assignments

Uniforms

Lodging

Shortages/Breakage

Overpayments

Advanced Vacation Pay

Loans to employees

Employee purchases

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About the Speaker


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Vicki M. Lambert, CPP, is President and

Academic Director of The Payroll

Advisor™, a firm specializing in payroll

education and training. The company’s

website www.thepayrolladvisor.com offers

a subscription payroll news service which

keeps payroll professionals up-to-date on

the latest rules and regulations.

http://www.thepayrolladvisor.com/

Types of Deductions


Voluntary—Employee asks you to deduct…health insurance deduction for example

Involuntary—someone other than employee orders you to deduct…taxes for example

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Taxes8


Which are

mandatory, which

are a courtesy, and

which ones the

employee controls

Federal Income Tax


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Under what is called “Pay-as-you-go plan enacted in 1943

16th amendment to the Constitution—1909/1913

Federal Income Tax

Internal Revenue Code or IRC

Required by law to be deducted based on employee’s Form W-4 or supplemental tax rates

Nonresident aliens may have different rates or exemptions due to treaties

Federal Insurance Contributions Act (FICA Taxes)

Established in the 1930’s

Current rate is 6.2%

2016 Wage base is $118,500

Maximum to withhold for 2016 is $7,347.00

Employer matches dollar for dollar at 6.2% for 2016

Must be taken for all subject wages

Established 1960’s


No annual wage base

Employer matches dollar for dollar


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Social Security (OASDI) Medicare

Medicare


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Established 1960’s


No annual wage base

Employer matches dollar for dollar


Additional Medicare Tax


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Established 2013


For wages in excess of $200,000

No employer matching


Nonresident Aliens


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Services performed in U.S. that otherwise are covered employment under FICA are not excluded because the employee is a nonresident alien

However, “students” under F, J, M and Q visas are excepted from the definition of employment for FICA if in connection with the purpose for which the student is admitted to this country

Totalization agreements may come into play as well

State Income Tax


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Most employers are required to withhold state income tax from employee’s wages—9 states have no tax

Special forms for employee to claim exempt from state income tax

Special form for military spouse to use to claim exempt from state income tax

Forms for nonresidents of the state

Reciprocal agreement forms

For Example


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WI has agreement with IL

Resident of IL works in WI but does not want WI tax taken out—completes Form W-220—NO WI tax is withheld

Employer may but IS NOT required to withhold for IL

Wisconsin

Illinois

Works

Resides

Local Taxes


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Some are paid by the employee, some the employer and some are levied on both the employee and employer. However, not all are deducted from the employee’s wages but are still owed by the employer. Most are based on the payroll in some way.

May require determination of coverage such as county the employee lives in

Garnishments17


Child support: the

limits but not beyond

Tax levies: federal

and state

Creditor

garnishments: how

many can you honor

and how often

Voluntary

wage

assignments

for “payday”

loans: when

are they

required to

be honored

Federal Tax Levies


Publication 1494 is used to determine the amount exempt from levy

Changes each year

Use the exemptions and filing status the employee submitted on the Form 668-W

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What is Meant by Take Home Pay


Subtract the following in calculating take home pay: Taxes

Voluntary and involuntary deductions in effect before the levy is received

Increases in preexisting deductions beyond the employee’s control

Condition of employment deductions that come after the levy is received

Direct deposit is not counted

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State Tax Levies


CCPA limits do not apply to state tax levies under 15 USC 1673(b)(1)(c)

COULD BE 25% of disposable or the amount that exceeds 30 times the federal minimum hourly wage

COULD BE anything they want it to be

COULD come on a tax levy form or COULD be a letter

May have priority over creditor garnishments or may not

May be able to collect a fee

READ THE GARNISHMENT CAREFULLY

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Garnishments and the CCPA


Consumer Credit Protection Act (CCPC) limits the amount that can be deducted from “disposable pay” for child support and creditor garnishments

Limits apply if more than one garnishment is in effect

Does not apply to federal or state tax levies

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Limits on Child Support


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CCPA Limits:

50% of disposable earnings if employee has second family

60% if does not

Add 5% if in arrears to both

State may be lower

50% is the common amount

Disposable Earnings


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Disposable Income = gross pay - mandatory deductions.

Disposable income is the amount of earnings remaining after subtracting certain mandatory deductions from an employee's gross pay.

Disposable Earnings


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Mandatory deductions include federal, state and local taxes; unemployment insurance; workers' compensation insurance; state employee retirement deductions; other deductions determined by state law.

Note that disposable income is not necessarily the same as net pay. An employee may have a deduction taken from his pay that is not mandatory, such as union dues or a car loan payment.

Allowable Disposable Income


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Allowable disposable income is the maximum available for child support withholding. In most cases, the amount ordered to be withheld will be less than the allowable disposable income amount, and the ordered amount can be withheld without any problem. Even if the withholding order specifies a higher payment, the allowable disposable income is the most that may be withheld.

Creditor Garnishments


CCPA limits apply except where state is lower

25% of disposable or the amount that exceeds 30 times the federal minimum hourly wage

Some states have severe restrictions

Federal chart furnished-as of July 2009

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Creditor Garnishment Calculation


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Check the chart

30 times federal

minimum wage

State Limits


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State(s) RequirementDE, 15% of wages

IL 15% of gross wages or amount which disposable earnings exceed 45 times of the higher of

federal or state minimum wage

WI 20% of disposable earnings

AL, AZ, CA, CO, DC, GA, ID, IN, KS,

KY, LA, MD, MS, MO, MT, NE, NY,

OH, OK, OR, SC, TN, UT, VT, WYLesser of 25% of disposable or amount exceeds 30 times federal minimum wage

WALesser of 25% of disposable or amount exceeds 35 times federal minimum wage

CT, IA, ME, MN, NM, ND, VA, Lesser of 25% of disposable or amount exceeds 40 times the higher of federal or state minimum

wage

NV, NH, Lesser of 25% of disposable or amount exceeds 50 times the higher of federal or state minimum

wage

WV, Lesser of 20% of disposable or amount exceeds 30 times federal minimum wag

SD, Lesser of 20% of disposable or amount exceeds 40 times federal minimum wag

AK, FL, HI, States limits within code based on dollar amounts

AR, MI, NC, No limits set in code

MA, $125 exempt from levy each pay period

NJ $48 per week are exempt; 10% if wages exceed $7,500 per year

PA, TX Not permitted except in certain circumstances

RI Up to $50 are exempt from attachment

More State Examples


Alaska: Notwithstanding the increased exemption amounts provided for weekly disposable earnings and cash and other liquid assets, the exemption for weekly disposable earnings is $743 and the maximum monthly exemption for cash and other liquid assets is $2,970

Florida: up to $750 per week of the disposable earnings of a head of family are exempt from attachment or garnishment. Disposable earnings greater than $750 a week cannot be attached or garnished unless the employee agrees in writing;

Hawaii: The maximum that employers can withhold is 5 percent of the first $100 of disposable wages per month, 10 percent of the next $100 per month, and 20 percent of all sums in excess of $200 per month. Disposable earnings are the amount of earnings remaining after the deduction of any amount required by law.

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However, In North Carolina…


The courts of North Carolina are not permitted to order an employer to withhold wages for other types of debts such as car loans, credit card debt, and other personal debt items. While the North Carolina courts are not permitted to garnish wages based on these debts, creditors in other states may be able to get an order of garnishment under their own states’ laws. It is not a violation of the North Carolina Wage and Hour Act for an employer to withhold an employee’s wages if required to do so by law. If a court from another state issues a valid order under that state’s laws requiring an employer to withhold a North Carolina employee’s wages for payment of a debt, the employer does not violate the North Carolina Wage and Hour Act by obeying that order.

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State Fees


Collection of a fee for the employer is sometimes permitted—states with no provisions to collect fees include:

AL, AK, CO, CT, DE, HI, ID, KY, MD, MA, MS, MT, NE, NM, NY, OH, SC, VT, WV, WY

Some states have special provisions for fees such as:

IA only permits witness fees

NH only permits for collection of overpayment of SUI benefits

NC permits only for debts to public hospitals or public assistance payments

PA for collection of taxes only

TN permits for public employers only

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State Fees


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State Fees PermittedArizona $5 each pay period from nonexempt earnings

Arkansas $2.50 per pay period

California $1.50 for each payment

District of Columbia $2.00 for withholding order

Florida $5.00 for 1st deduction, $2.00 each deduction thereafter

Georgia $50 or 10% of amount paid into court (whichever is greater) but not to exceed $100 as reasonable attorney’s fees or expenses

Illinois 2% of amount to be deducted

Indiana Larger of $12 or 3% of total amount to be deducted ½ of fee from employee, ½ of fee from amount due creditor

Kansas $10 for each 30-day period

Louisiana $3 from nonexempt income each payment garnishment is in effect

Maine $1 per check issued and forwarded to creditor

Michigan $6 fee paid by plaintiff at the time a writ of garnishment is served

Minnesota $15 paid by creditor to employer at time of service of garnishment

Missouri Greater of $8 or 2% of amount withheld. Taken from employee’s wages

Nevada $5 paid by creditor to employer at time a writ of garnishment is served. Employer entitled to$3 per pay period not to exceed $12 per

month

New Jersey 5% for compensation towards expenses and services in processing each payment

North Dakota $10 paid by creditor when employer is served with garnishment summons

Oklahoma $10 from employee’s funds for answering a garnishment summons

Oregon $2 processing fee for each week a payment is made unless withholding reduces below minimums. Must collect after last payment is

made

Rhode Island $5 paid by employee for each writ of garnishment

South Dakota $15 for garnishee summons being served

Texas Lessor of actual costs or $10 from disposable earnings

Utah $10 for a single garnishment or $25 for continuing garnishment paid by creditor directly to employer

Virginia $10 for each garnishment summons served

Washington $10 processing fee for 1st disbursement and $1 for each subsequent disbursement. $20 for first payment; if continuing lien $10 at time

of second payment

Wisconsin $15 garnishee fee from creditor for each garnishment or extension

State Fees


May also be a fee to collect for the state or court or plaintiff in the case

Read the garnishment

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What if there is more than one?


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Handling multiple creditor garnishments is a matter of state law

Can be first in time—first in line

Usually cannot do more than one creditor garnishment at a time

Some states will allow the employer to hold onto garnishments to wait their “turn” while others do not

Garnishment will specify terms in most cases

Voluntary Wage Assignment


Are not the same thing as a court-ordered garnishment

Are voluntary so not covered under CCPA limits

Can be revoked at any time by employee so watch for this

State sets the limit and the rules

State can forbid employer to honor, especially for “small loans”

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Uniforms37


When the employer pays for

it and when the employee

furnishes it

Deducting for Uniforms


FLSA does not give credit against minimum wage for uniforms

Deductions for the cost of purchasing, renting or maintaining a required uniform are not allowed if the effect is to reduce an employee’s wages below the minimum hour rate for that workweek

States can have minimums as well

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Deducting for Uniforms—States


AK: may deduct security deposit for uniforms is based on written agreement, does not exceed actual cost and does not cut into minimum wage or overtime

CA: If an employer requires that an employee wear a uniform, the employer must pay the cost of the uniform.

MA: no deposit shall be required for a uniform and employer will pay for dry cleaning but not wash and wear

NJ: No can do

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Lodging40


Lodging: when is it

part of the

employee’s wage

and when is it a perk

Lodging

Value can be excluded if:

Furnished on business premises

Furnished for the employer’s convenience

Employee must accept as condition of employment

Does not apply if employee can choose additional pay instead


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For Employer’s Convenience

Must look at all the facts and circumstances

Must be done for a substantial business reason other than to provide additional pay

Even if contract calls for it

A written statement is not enough to prove fact


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Condition of Employment

Employee needs to live on the business premises to be able to properly perform their duties

Example: employee must be available at all times and could not perform required duties without the lodging


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Executive Housing


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Any type of “lodging” provided is usually wages unless for the “convenience of the employer” discussed earlier

Includes vacation homes, corporate “housing”, condos, boats in vacation places etc. especially for executives

Shortages/Breakage45


The employee came up

short so they have to

cover that right?

You broke it so you have

to pay for it, legal or not

Deducting for Breakage or Shortages


FLSA requires employees be paid minimum wage regardless of such items as cash shortages or breakage—cannot take below applicable minimum wage to take out of paycheck

States will differ depending on the state—some follow federal while others are more restrictive

Most states do not address the issue at all

Falls under anti-wage theft laws also

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State Requirements


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States RequirementAL, AK, AZ, AR, DE, DC, FL,

GA, ID, IL, IN, KS, MA, MI, MS,

MO, NE, NV, NH, NM, OR, PA,

RI, SC, SD, TN, TX, UT, VT, VA,

WA, WV

No provisions

CA, ME, MD, OH Does not permit deductions

CT, HI, WY Does not permit deductions to cover loss as result of customer wrongdoing

CO Permits if police and court actions are taken

IA, KY Not from a common till, cash box or registered operated by two or more

employees

LA, MT May if employee willfully or negligently damaged goods or proper or if

employee convicted of theft

MN, WI Not permitted unless authorized by employee or employee found guilty in

court

NJ For lost ID cards only

NC Must give 7 days notice/cannot drop wages below 85% of amount required

by Wage Hour law

ND, OK, Employee must authorize at time of deduction

Overpayments48


The employee was overpaid

so you can just take the

money back or can you?

Overpayments: FLSA Requirements


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DOL accepts inadvertent overpayments will occur

If the employer and the employee do not agree that the wages were overpaid or if employee refuses to repay the amount legal options must be considered

If both agree the wages were overpaid there are methods to recoup

May deduct principle even if it cuts into minimum wage and overtime

FLSA


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Interest, administrative costs or attorney fees may not be deducted if it cuts into minimum wage or overtime

The existence of the loan or advance must be verified to every extent possible

Wage and Hour Division addressed this issue in Opinion Letter No. 1916 in 1998

Recouping loan or advances on wages does not affect status as an exempt employee and does not violate salary basis requirement

Overpayments: The States


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Every state will vary

Must research wage and hour law as well as court cases

Most require prior notification as does the FLSA—there may be time limits as well

Most require permission in writing

California & New York don’t even try

IN—you are a creditor at 25%

MI—you follow all other current deductions

Advanced Vacation Pay52


The employee knows the

vacation hours were

advanced so we can take

them back when the

employee quits can’t we?

Deducting for Advanced Vacation


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Federal: If an employee is paid vacation before it is earned it is an advance on wages if the employee terminations

(Excerpt) In the situation where an employee is granted vacation pay prior to that individual’s established date of entitlement, with the understanding that the pay constitutes an advance on pay and the employee quits or is terminated before that date, employer may recoup the advanced vacation pay, even where such recoupment cuts into MW or OT pay as required

The States


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New York Example State: Always verify

vacation rules in addition to overpayment rules for each state

Usually falls under “overpayment rule”

CA & NY don’t even think about it!

Loans and Employee Purchases55


Loans: what terms can

be set while the

employee is still active

and what can be taken

when the employee

terminates

Employee Purchases:

active employees and

terminated employees

Loans to Employees


Federal: same as for overpayments and advance on wages

State: Same as for overpayments and advance on wages – be careful of terminating employees

Creditor garnishment rules may come into play when it comes to balloon payments and terminating employees

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California


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Under most circumstances CA law prohibits an employer from deducting from an employee’s wages any debt the employee may owe the employer.

Barnhill v. Saunders began with withholding for a loan upon termination

California State Employees’ Association v. State of California extended to cover overpayment of wages

Employee Purchases


Federal: same as for overpayments and advance on wages

State: to recoup costs usually follow same as overpayments or loans

Be careful of states where they restrict access to purchases

Employer cannot force employee to buy from them

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Are There Any Questions?


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How Can Ascentis Help Me?

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Ascentis Payroll has a number of different employee level configurations to help you comply with income tax and garnishment withholding. Whether you have a few employees that fall under these rules or lots of employees each with different and complex rules.

Income Tax Withholding

• Non-resident alien rules

• Wage exemption settings for all tax types (useful for student visas)

• Extensive local tax withholding with rules based on the home and work state combination

• Ability to add non-residency certificates for multiple states at an employee level Garnishment Support• Federal and state tax levies

• Configurable creditor garnishment calculations to support many states at a time

• Employee level maximum percentage limits

• Automatic calculations for multiple support orders

To earn RCH credit you must


61

Stay on the webinar, online for the full 60 minutes

Be watching using your unique URL

Certificates delivered by email, to registered email, by December 2nd

On-Demand Webinars

Watch from anywhere, at anytime, at no cost to you!

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