Archive for August, 2010

Making the Right Choice

Tuesday, August 31st, 2010

Making the Right ChoiceThere are many choices you face when deciding what products and services are right for your business regarding your timekeeping, payroll and human resources needs. Whether you have one employee or hundreds of employees in multiple locations, making the wrong decisions can have disastrous consequences.

Our advice; don’t box yourself in by selecting “big-box” solutions that limit your choices and future growth or migration needs. We’ve found that these solutions may sound easier, but in the long run you will pay more and get less.

Our philosophy is to ask questions first, helping us to gain an understanding of your needs and what you are trying to accomplish. We then select from our wide range of products and services crafting a solution that fits YOUR needs. We stick to our core competencies which are timekeeping, payroll and HRIS solutions. For everything else, we partner with local vendors that bring expertise in their respective industries to the table. This provides our Clients with the widest possible range of solutions to choose from, experts to guide them, and local, in-person implementation, support and training.

In most cases, organizations we work with have grown throughout the years by having a personality of their own. They usually have some interesting and quirky ways of incenting employees which makes them unique. We like to think of them as stars – lots of angles and edges. When you try to fit a star into a box, you either have a lot of wasted space, (you’re paying for things you don’t use) or you have to “settle” for a smaller box which does not provide all of the bells and whistles you’re looking for.

Our experts will custom tailor a solution that will fit your needs without the “wasted space” of products and services you don’t need. Our implementation team ensures a smooth transition including in-person training that is tailored to you and your “angles and edges”. On-going service is provided by your personal Client Account Manager who gets to know you and your special needs.

All of this may sound too good to be true, but we deliver on our promises as evidenced by our 30 day and annual customer survey rankings. Surveys from over 300 new Client starts over the past year and one half show a 92.5% customer satisfaction rating after only 30 days on our service. Better yet, over 97% of the customers surveyed said they would recommend PCS to their friends. It gets better. Our annual surveys show customer satisfaction increases with time to 97% and 98.5% respectively. It’s why we’ve earned an A+ rating with the Minnesota Better Business Bureau and are known as the company that cares.

If you’re already a customer, thank you! Please take a moment to review your current services with your Client Account Manager or your Sales Representative. We’ve added quite a few products and services internally and via partners. Don’t miss out on the opportunity to create new efficiencies throughout your organization.

If you’re not a PCS customer, give us the opportunity to show you the PCS difference! Visit our website at www.pcspayroll.com and review our solutions. Then schedule a time to meet with one of our consultants. We promise you won’t be disappointed!

Submitted by:

Bob Willbanks
Sales and Marketing Manager
Payroll Control Systems
6040 Earle Brown Drive
Suite 250
Minneapolis, MN 55430
Cell: 612-298-1176
Fax: 763-513-5968
bwillbanks@pcspayroll.com
website: www.pcspayroll.com
blog: www.truthinpayroll.com

Joe’s Jottings – August 2010

Tuesday, August 31st, 2010

Joe ReillyBy: Joe Reilly, President
Payroll Control Systems

As I’ve said in my notes before, “you can’t do it alone.”  I know many of you who are our newer clients that have recently started your businesses have often thought, “How am I going to do this?”  It’s actually easy, once you realize that you can’t…and don’t need to…do it alone.  Those of you who have “been around,” know exactly what I mean!

On my recent vacation, I had a chance to reflect on what circumstances led up to my being recognized with the Entrepreneur of the Year Award.  I realized that every step of the way, from the beginning, I was assisted in one way or the other by friends, family, past employees, past business associates, and in some unusual circumstances, by strangers.  Collectively, let’s call all of these folks “incidental helpers.”

True, there are “nay-sayers” out there.  And yet, most people WANT to see you succeed.  That’s why sports teams have cheering fans…the fans want to see the team succeed!!  Your incidental helpers can do more than cheer…their help can be direct; it can be financial, emotional, physical or strategic, through appropriate “introductions.”  It can be long term or short term, and from a lesser degree to a greater degree.

In the final analysis, my point is that we all need to rely on others to accomplish our goals, whether they be business or personal.  PCS’s goals are being achieved through the team efforts of our staff.

Whether personal or professional, I wish you the best success in achieving your goals through the help of your unique “incidental helpers!”

Regards,

Joe Reilly

The Tax Man Cometh

Monday, August 30th, 2010

Tax CreditsSubmitted By Shannon Scott

Most of you have heard the term “tax credit”, but did you know how it can decrease your tax burden and put more cash back into your business? Each year large and small companies forfeit millions of dollars because they do not take advantage of the tax credits available to qualifying employers. Many of these credits go unclaimed due to the complexity and time consuming factors that impact the process. There are many types of tax credits available to your company on the Federal, State and local level. For the staffing industry, the federal hiring credits such as the Work Opportunity Tax Credit (WOTC), HIRE Act credits and FICA Tip Tax Credit can result in huge dividends. These credits are available by simply doing what you do every day; hiring and placing employees.

These tax credits can provide up to $9,000 per employee in Federal Income Tax Credits based on the category for which the employee qualifies. These credits can be taken in the year earned, carried back one year or carried forward 20 years.  They can be demographic or geographic in nature.

Most companies believe they are taking advantage of this program through their regular tax deductions, however, that is simply not the case.  If your new hires are not completing and signing an IRS Form 8850 upon hire, you are not processing these tax credits.

This program, although very beneficial, can be almost impossible to administer in house. Processing and qualifying these credits takes a very good understanding of how tax incentives are applicable to a particular industry, location or employee base. In some cases, extensive background and address history research must take place in order to verify these credits.  Tax credit processing companies throughout the United States assist you in identifying these credits and calculating the amount for which an employee qualifies. Most of these companies work on a contingency fee basis, so there is no financial risk to your company and the fees are tax deductible.

Taking a proactive approach in identifying these credits can significantly increase your tax credit yield.  The application process will help you screen your new hires and identify their tax credit potential. After all, this program was put in place to encourage you to hire these employees.

Recent tax law changes have increased the use of these credits to businesses who could previously not take advantage of the incentives along with extending the program itself. The WOTC credit was extended for 3.5 years with liberalized rules for hiring disabled veterans and workers in “outward migration counties.” Under the pre-2007 Small Business Act law, most general business credits, such as the work opportunity tax, could not offset a taxpayer’s Alternative Minimum Tax (AMT) liability. With the enactment of the 2007 Small Business Act, this changed for credits earned after January 1, 2007.  The WOTC credits earned after January 1, 2007, will now offset AMT. A taxpayer is subject to AMT whenever their tentative minimum tax exceeds their regular tax.

There are many good resources available for learning more about the types of credits and how these credits can help reduce your tax burden. Information can be found on most search engines along with the IRS Website (www.irs.gov).  Tax time is fast approaching and it is not too late to help reduce your 2007 tax liability.

-Shannon Scott is the CEO & President of TaxBreak

Please contact George Shamblin at gshamblin@taxbreakllc.com for questions about the tax credit program available through PCS via TaxBreak.

George Shamblin
Corporate Account Executive
TaxBreak
2010 Club Drive, Ste. 100
Gadsden, AL 35901
205.305.7968 Cell
256.549.7554 Fax
www.nationaltaxcredit.com

Legal Disclaimer: This article is intended for informational purposes only and by no means should replace or substitute other legal documents (governmental or non-governmental) reflecting similar content or advice. If you have any questions concerning your situation or the information provided, please consult with an attorney or an HR Professional.

Health Care Reform Act — what do you need to do now?

Monday, August 30th, 2010

Health Care ReformBy: Larry Morgan, MAIR, SPHR, GPHR
Hanratty & Associates

The Patient Protection and Affordable Care Act and the Health Care and Education Reconciliation Act were passed in March 2010 and provide new guidelines for employers and health care insurers. The Health Care Reform Act is complex and many of the changes will be phased in over the next several years.

The following is a guide to help navigate the initial health care changes. As items are likely to change through technical corrections and further clarification, we’ll focus on the most significant items that will take effect in the next few years. This article will address key changes between now and 2012 and should not be viewed as a comprehensive listing.

Existing plans are “grandfathered”
As of March 23, 2010, all plans that were in existence are “grandfathered” for certain provisions. Immediate changes may not be required, although compliance down the road must occur. Collectively bargained plans that were in existence as of March 23 are also grandfathered, although the employer and union may jointly agree to modify terms prior to the expiration date.  Therefore, existing plans (as of March 23) may maintain current coverage levels until the first of plan year (generally January 1) to make any changes.

Plans may lose their “grandfathered status” if the changes to the plan significantly alter the current benefits with items such as:

  • Elimination of all or substantially all benefits to diagnose or treat a particular condition
  • Increases to an individual’s percentage coinsurance requirements
  • Increases in fixed dollar cost-sharing such as deductibles and out-of-pocket expense items
  • Increases in copayments in excess of the greater of the rate of medical inflation plus 15 percentage points or $5 as adjusted for medical inflation
  • Decreases in the employer contribution of the cost of any tier of coverage by more than 5 percent of this contribution in effect on March 23, 2010
  • Certain changes to lifetime and annual benefit changes that would adversely affect plan participants

Dental and vision coverage
The health care changes do not impact “stand-alone” dental and vision plans. If a dental or vision plan is integrated within the medical plan, it may be included with these changes.

What’s in effect right now?
Here are some changes that employers should be aware of that went into effect when the plan was enacted on March 23, 2010. These changes also affect grandfathered plans unless noted.

  • Based on a federal tax law change, Minnesota and Wisconsin employers no longer have to charge imputed income to employees covering non-dependent children to age 26 as of March 30, 2010.If desired, employers may voluntarily allow employees to bring children onto plans regardless of student, tax dependent or marital status now. However, grandfathered plans do not have to cover adult children until 2014 if they are eligible for coverage through their employer’s own plan.Employers may need carrier approval, although most major carriers have already agreed to allow this. If allowed, this change requires notification to employees and a 30-day enrollment period.
    In the past, in order to be covered, dependents had to qualify under Section 152 of the tax code, which required children to be financially dependent, live at home at least five months during the year or be a full-time student if over age 19. Under the recent changes, tax dependency and student status are no longer required. Section 152 was not modified, but Section 105 of the tax code was changed to provide tax-preferred treatment.

    It is important to note that spouses of children and grandchildren do not qualify unless the grandchild qualifies as a tax dependent under Section 152. This can become complex based on individual tax circumstances. Consultation with a tax expert may be required.

    Adding children to the plan based on this change is also viewed as a qualifying event (the IRS allows midyear changes if they meet certain criteria such as marriage, birth or adoption, divorce, death, loss of job, etc). Employees are allowed to adjust their flexible spending account contributions within 30 days of this change, provided the contribution change is related to the addition of the child.

    A new program will provide reinsurance for age-qualified persons for claims between $15,000 and $90,000 until 2014. This affects retirees ages 55-65 who are not eligible for Medicare. It is likely that the allocated funds will be spent prior to 2014.

  • Small businesses may qualify for tax credits to assist with medical care if they employ 25 or fewer employees and contribute 50 percent or more of the cost of coverage. The tax credit may be up to 35 percent of the company’s contribution toward health care. A full tax credit is available for 10 or fewer employees if average wages are less than $25,000.
  • Persons currently on Medicare Part D prescription plans may receive a $250 rebate from the federal government to assist in covering the “donut-hole” gap in coverage until 2014. No action is needed by employers on this issue.
  • A “high risk pool” for persons otherwise uninsured and who have pre-existing conditions will be established until 2014. This program will provide an additional safety net for persons that otherwise may not be eligible for coverage.  No action is needed by the employer on this program.
  • While already in place within Minnesota statutes, employers in all states must provide a reasonable break time and private location — other than a restroom — for employees to express breast milk for one year after a child’s birth. No wage payment is required for time not worked.

What happens in fall 2010?

  • As mentioned above, dependent coverage changes with plan years following Sept. 23, 2010. Health care plans are now required to extend the age limit of children of employees up to age 26 if this action was not performed earlier. For most employers, this will be Jan. 1, 2011. Eligibility is extended to children, regardless of tax-dependent status.Employers may voluntarily allow children on the plan through the calendar year in which they attain age 27 and not subject the employee to imputed income.A parent’s employer’s group health plan is not required to offer coverage to a child who has group health coverage available through the child’s employer. This exception changes in 2014, when group health plans will have to offer coverage to children to age 26 regardless of the child’s eligibility for coverage through the child’s employer.Coverage does not extend to the spouse of a child or the employee’s grandchild.
  • Employers should review W-2 data fields with payroll providers to ensure that they may meet the requirement for health care costs to be reported, effective Jan. 1, 2011.
  • Employers should notify employees of a change to flexible spending accounts effective January 1, 2011. (See note below under Jan. 1, 2011.)

What happens with the first plan year following Sept. 23, 2010?
Several changes go into effect once the plan renews or is modified (as defined earlier under the grandfathering provisions). The following are some of the significant changes:

  1. Plans cannot deny coverage based on pre-existing conditions for children under age 19.
  2. Emergency services must be covered at “in-network” levels.
  3. Lifetime limits on dollar value of coverage are prohibited.
  4. Insurers are prohibited from rescinding coverage except for cases involving fraud or an intentional misrepresentation of material facts.
  5. Plans must provide minimum coverage required for checkups and preventative care (no copayments or other cost-sharing may be allowed). NOTE: Under current Minnesota law, minimum coverage levels are generally required and this will not be a significant change.

Jan. 1, 2011

  1. Effective as of calendar year 2011, employers must track the employer and employee health care contributions for reporting on W-2 statements. This includes medical, dental, vision and applicable HRA payments. This does not subject the employee to additional taxation. This will not affect most employees until January 2012 when W-2s are released for tax year 2011. An employee who terminates early in 2011 may request the W-2 upon termination.
  2. Flexible Spending Account administration will be modified effective Jan. 1, 2011, as employees are no longer allowed to claim over-the-counter medications unless accompanied with a doctor prescription. Other non-prescription items, such as Band-Aids, contact lens solution, etc. are still allowed (a full list of allowable expenses exists on the IRS website). Prescribed medication and Insulin continue to be eligible for reimbursement.
  3. A new long-term care program called Community Living Assistance Services and Support (CLASS) will be provided as a national, voluntary insurance program. This will be a 100 percent employee-paid, salary-reduction program. The plan will pay $50 per day for community living expenses if the participant is too disabled for normal daily activities. As details are disclosed, employers may need to establish a new paycheck entry field to allow for pretax deductions and data feeds to the program.
  4. HSA distributions not used for qualified medical expenses will have a taxation rate change from 10 percent to 20 percent.

This is just a review of the major changes from the health care reform bills. Employers must be aware of upcoming changes and monitor issues as they may be subject to change.

Submitted By:

Larry Morgan, MAIR, GPHR, SPHR
HR Advisor
Hanratty and Associates
v 763-746-7861
f 763-746-7841
c 952-210-0742
larrym@hanrattyassoc.com
www.hanrattyassoc.com

Legal Disclaimer: This article is intended for informational purposes only and by no means should replace or substitute other legal documents (governmental or non-governmental) reflecting similar content or advice. If you have any questions concerning your situation or the information provided, please consult with an attorney or an HR Professional.

Employee vs. Independent Contractor – Tips for Business Owners

Monday, August 30th, 2010

Employee SpotlightThe misclassification of independent contractors isn’t a problem just during tax season, as state unemployment compensation and workers’ compensation offices increasingly are acting year-round as “the eyes and ears” of the Internal Revenue Service (IRS), (according to Ronald E. Wainrib, president of Ronald E. Wainrib & Associates in Franklin, Mass.) The phrase “1099 workers” is a shorthand reference to independent contractors, and refers to a federal tax form (Form 1099-MISC, rather than the W-2) used by employers to report payments to independent contractors.

Many companies have fallen into the most common time for misclassifications – which occurs when an employee leaves a position on good terms and then fills in on a temporary basis as an “independent contractor” for a month or two while the employer searches for a replacement. The worker often ends up doing exactly what the person did as an employee. One month turns into two, then four, and before long the employer is not working as hard to fill the position. The question then arises whether the person is classified properly.

Patterns can be difficult to change, but it is up to the employer to communicate and act clearly if they want to make someone an independent contractor who in the past was an employee. That person no longer should be:

  1. Attending team meetings
  2. Be going into an office regularly
  3. Be expected to work certain hours

Also, the individual:

  1. Shouldn’t have company business cards
  2. Shouldn’t be referred to as an employee

The IRS views a status that switches from Employee to Contractor or Contractor to Employee to both be red flags for tax fraud, and possible FLSA violations. Either way, an IRS and/or FLSA audit may be triggered, resulting in additional tax and penalties – not to mention the inconvenience of your business interruption to facilitate the audit and address the issues. Penalties for one misclassification may be thousands of dollars depending on the length of time and the amount of pay.

As a small business owner you may hire people as independent contractors or as employees. There are rules that will help you determine how to classify the people you hire. This will affect how much you pay in taxes, whether you need to withhold from your workers paychecks and what tax documents you need to file.

Here are seven things every business owner should know about hiring people as independent contractors versus hiring them as employees. (From IRS Summertime Tax Tip 2010-20)

  1. The IRS uses three characteristics to determine the relationship between businesses and workers:
  2. - Behavioral Control covers facts that show whether the business has a right to direct or control how the work is done through instructions, training or other means.
    - Financial Control covers facts that show whether the business has a right to direct or control the financial and business aspects of the worker’s job.
    - Type of Relationship factor relates to how the workers and the business owner perceive their relationship.

  3. If you have the right to control or direct not only what is to be done, but also how it is to be done, then your workers are most likely employees.
  4. If you can direct or control only the result of the work done — and not the means and methods of accomplishing the result — then your workers are probably independent contractors.
  5. Employers who misclassify workers as independent contractors can end up with substantial tax bills. Additionally, they can face penalties for failing to pay employment taxes and for failing to file required tax forms.
  6. Workers can avoid higher tax bills and lost benefits if they know their proper status.
  7. Both employers and workers can ask the IRS to make a determination on whether a specific individual is an independent contractor or an employee by filing a Form SS-8, Determination of Worker Status for Purposes of Federal Employment Taxes and Income Tax Withholding, with the IRS.
  8. You can learn more about the critical determination of a worker’s status as an Independent Contractor or Employee at IRS.gov by selecting the Small Business link. Additional resources include IRS Publication 15-A, Employer’s Supplemental Tax Guide, Publication 1779, Independent Contractor or Employee, and Publication 1976, Do You Qualify for Relief under Section 530? These publications and Form SS-8 are available on the IRS website or by calling the IRS at 800-829-3676 (800-TAX-FORM).

Links:

Publication 15-A, Employer’s Supplemental Tax Guide (PDF)
Publication 1779, Independent Contractor or Employee (PDF)
Publication 1976, Do You Qualify for Relief under Section 530? (PDF)
Form SS-8, Determination of Worker Status for Purposes of Federal Employment Taxes and Income Tax Withholding (PDF)
Submitted By:

Jean Austin, SPHR
Manager of HR Services
Payroll Control Systems
Office: 763-746-1942
Cell: 612-770-6187
jaustin@pcspayroll.com
www.pcspayroll.com

Legal Disclaimer: This article is intended for informational purposes only and by no means should replace or substitute other legal documents (governmental or non-governmental) reflecting similar content or advice. If you have any questions concerning your situation or the information provided, please consult with an attorney or an HR Professional.

Understanding Your Workers’ Compensation Experience Modification Factor

Sunday, August 29th, 2010

Computing Workers Comp ModAre you interested in learning about how your workers’ compensation insurance premium is calculated? Your experience modification factor, or mod, is an important component used in calculating your workers’ compensation premium. Understanding the mod factor calculation and the data utilized provides you with the information necessary to determine how to control your mod to reduce your workers’ compensation premium.

Who calculates the mod factor?
Most states use the National Council on Compensation Insurance (NCCI) to collect data and calculate the experience modification factor. NCCI is a private corporation funded by member insurance companies. The following states have their own government-run rating bureaus that are separate from the NCCI: California, Delaware, Indiana, Massachusetts, Michigan, Minnesota, New Jersey, New York, North Carolina, Pennsylvania, Texas and Wisconsin.

How is a NCCI mod calculated?
Calculating the experience modification factor is complex, but the underlying theory and purpose of the formula is straightforward. Your company’s actual losses are compared to its expected losses by industry type. The formula incorporates factors that take into account company size, unexpected large losses and the difference between loss frequency and loss severity to achieve a balance between fairness and accountability.

What is a credit vs. a debit mod?
The mod factor represents either a credit or debit that is applied to your workers’ compensation premium. A mod factor greater than 1.0, a debit mod, means that losses are worse than expected in your peer group and a surcharge will be added to your premium. A mod factor less than 1.0, a credit mod, means the losses are better than expected in your peer group, resulting in a discounted premium.

What is the experience rating period?
Your new mod year is calculated using loss and payroll data for an experience rating period. The experience rating period typically includes data for three policy years, excluding the most recently completed year. For example, the January 1, 2010-2011 mod factor is recalculated as early as six months prior to the new policy term—data would be used for the January 1, 2006-2007, January 1, 2007-2008 and January 1, 2008-2009 policy periods. The data for the January 1, 2009-2010 would be excluded.

Three years of data is used to provide a more accurate reflection of the losses, smoothing out the impact of any bad or good year of losses.

The actual loss data is separated into primary and excess pools. Primary losses—the first $5,000 of every loss—measure frequency. Excess losses—amounts in excess of $5,000—measure severity. The formula penalizes loss frequency by including all loss amounts in the calculation. The reason for this is that these types of claims can be controlled through proactive loss control programs. Losses in excess of $5,000 are capped at levels that vary by state. This minimizes the impact of any single large claim.

Expected losses are then calculated by utilizing your payroll data by state and class code, and applying the Expected Loss Ratio (ELR). The ELR is provided by each state rating bureau. These figures are also broken down into expected primary losses and expected excess losses.

How do your losses compare?
The final mod calculation compares your actual primary and excess loss figures to those expected for a company of the same size and industry type. To understand how workers’ compensation losses to your business compare to state industry averages, contact us to review your experience modification worksheet.

How can your broker or agent help you control your mod?
Your mod factor has a direct impact on your workers’ compensation premium. The key to controlling your insurance costs is through accident prevention and claims management.

  • The mod is calculated based on data reported to the rating bureau by past insurers. Incorrect or incomplete data can cause incorrect mod factors. Your broker/agent can review the losses and payroll data to make sure the calculation is complete and accurate.
  • Losses remain in the experience rating formula for three years. The experience modification factor is influenced more by small, frequent losses than by large, infrequent ones.
  • Develop a sound safety program, Return to Work program, and loss prevention procedures to reduce loss frequency. Many broker/agents offer Risk Control teams for help with your programs.
  • An effective self-inspection and accident investigation program are critical to managing claim frequency.
  • Work with your broker/agent to manage outstanding reserves and focus on efficiently resolving open claims.
  • Report all claims to your carrier immediately.
  • Take an aggressive approach to providing light duty to all injured employees upon their release from treatment.
  • Set safety performance goals for supervisory roles. Success in achieving safety goals should be used as one measure during performance appraisals.
  • Your broker/agent should help you train employees in their responsibilities for safety and enforce compliance with these responsibilities.
  • Frequently communicate with employees, on a formal and informal basis, regarding the importance of safety and claims management. Contact your broker/agnet for ideas.

How can your experience rating save you money?
Establishing a proactive safety program is an effective way to reduce losses, which impacts your mod and workers’ compensation premium.

About the author:

Bearence Management Company has the Risk Control and Claims Management experience to help you advance safety and control your workers’ compensation premium. Contact us today at 612-436-5600.

Submitted by:

Irv Cohen, CIC | Property & Casualty
Bearence Management Group
111 Third Avenue South, Suite 400 Minneapolis, MN 55401
Tel 612-436-5626  Cell 612-991-5896
icohen@bearence.com www.bearence.com

Legal Disclaimer: This article is intended for informational purposes only and by no means should replace or substitute other legal documents (governmental or non-governmental) reflecting similar content or advice. If you have any questions concerning your situation or the information provided, please consult with an attorney or an HR Professional.