Ascentis Blog

Information to help HR and payroll managers, recruiters, and compliance officers become more effective.

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Category Archives: Compliance

Unfortunately, in Payroll, There is a Use for Algebra!

Fran Lebowitz once said, “In real life, I assure you, there is no such thing as algebra.” Obviously she never worked in payroll and never had to calculate the taxable wages for the personal use of a company vehicle. Because whether it is for the personal use of a company car commuting home each night or an airplane to take a vacation, calculating the taxable income is nothing but algebra.

 

Because the personal use of a company car is subject to all taxes—FIT, FICA and FUTA on the federal level the IRS gives us four different accepted methods to determine this taxable income. Two of these methods are the General Valuation Method and the Annual Lease Value Method.

 

The first method does not use any algebra on the part of payroll. It calls the entire amount of the use of the vehicle as personal and forces the employee to deduct the business miles on their 1040 form. For example, an employee has a car valued at $18,000. The taxable wages are determined by using the IRS Annual Lease Value Table. On this table that vehicle is listed as $5,100 for the annual lease. Payroll adds the $5,100 to the employee’s gross wages and withholds all taxes… very simple, and no math for payroll. The employee has to deduct all the business miles — not so simple with lots of math and very expensive.

 

The second method applies to any employee and any car, but the employee must submit a log showing the amount of miles driven and substantiated for business use. And it requires the most amount of algebra! Taking the same $18,000 vehicle, you determine the amount of personal miles by subtracting the substantiated business miles from the total miles driven.

 

For example:

The employee drove the $18,000 car 14,741 miles, 13,201 were for business use. The remaining amount, 1,540 were the personal use miles. Dividing the personal use miles by the total miles determines the percentage of personal use. In our example that would be 10.44%. Apply that percentage to the amount on the annual lease value table for a taxable income of $532.44 for the year.

 

Now you can see why algebra affects taxable wages — if the log showing the substantiated business miles is not submitted, the taxable income is $5100. If submitted payroll must perform the calculations and the taxable income is $532.44. Guess which one payroll will end up doing?

 

But algebra isn’t just limited to company cars. If the employee uses a company aircraft for personal use such as a vacation that is also taxable income subject to all taxes. This is a multi-step type of calculation. The first step is multiplying the different Standard Industry Fare Level Formula (or SIFL) to different mileage amounts depending on the length of the trip. For example, the first 500 miles is charge at $.2655 per mile, but 501 to 1500 miles is charged at a SIFL rate of $.2024. That calculation is then multiplied by the percentage assigned to the aircraft by weight and type of employee. And finally the current terminal charge is added. To add to the complicated calculations, the rates are changed every six month.

 

So when it comes to company vehicles, the use of algebra in the “real world” of payroll is alive and well.

 

Vicki Lambert

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www.thepayrolladvisor.com

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Health Care Reform: Are You “Ready to Pay or Play?”

 

Even though most employers won’t face the “pay or play” decision until early next year, if there is any doubt in your mind that you are a “large employer” of 50 employees or more, the record-keeping you need to be doing is right now!

 

Additionally, the absolute “drop-dead” date for starting to track hours to construct a look-back period for variable schedule hourly employees, under most circumstances, is July 1, 2013 – fast approaching!  We need to be doing this for two reasons:  (a.) to calculate FTEs if you have any doubt as to whether you’ll reach large employer status during 2013, and (b.) assuming that you determine that you ARE a large employer (of 50 employees or more), to determine for each variable hour employee whether you’ll be required to offer them health insurance beginning in 2014.

 

Decision Tree Summary: Will You Pay a Penalty in 2014?

 

Ascentis can help!  Ascentis’ May 2013 Health Care Reform Master Class is dedicated to the reporting “building blocks” you need to understand to make the best “pay or play” decision for your organization.  Included within the session will be such topics as:

 

  • Determining large employer status
  • Estimating penalties that might apply to your company
  • Variable hour employees:  what to count, what to exclude, and when to do it
  • How to treat leaves of absence and other breaks in service
  • Special rules for special industries

 

 

Click here to view the on-demand class, or here to download the one-page health care reform bulletin on “hours counting and eligibility.”

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Does Your Open Enrollment Process Leave You Feeling Frustrated and Overwhelmed?

Learn the Secret to an Easy Enrollment and a Paperless Process

The amount of paperwork generated in traditional benefits enrollment is staggering. From distributing plan information and provider directories to collecting and verifying enrollment forms — the process can be overwhelming to an HR department that also has other, ongoing responsibilities.

 

Ascentis Employee Self Service (ESS) allows you to conduct enrollment online, thus eliminating the cumbersome and inaccurate paper process. Through online open enrollment, employees are connected to their benefit options. Upon HR approval, enrollment elections are applied to employee records and employees automatically receive an e-mail detailing their choices. Ascentis Carrier Connect electronically transmits the information to the appropriate providers.

 

The easiest, most comprehensive benefits management solution

 

Take a closer look at Ascentis ESS and see for yourself how easy it is to use, and how much time it will save your HR staff. Employees will love how much faster they can see the information they need, and increase the value your employees see in the benefits of working for you. HR managers will save time and money, and will be able to devote more resources to strategic planning instead of tedious data maintenance tasks.

 

CLICK TO VIEW DEMO

 

Get more information about Ascentis ESS and request a free, no obligation quote or just click here to read more about our human resources, payroll, recruiting, time and attendance, self-service and benefits management software solutions.

Or just give us a call at 800.229.2713 x7. We’re here to help you with any questions or to set up a custom demonstration built around your specific needs.

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Overtime Rules: Understanding a 75-year-old Sentence

The federal rule for paying overtime to employees is contained in the Fair Labor Standards Act (FLSA). This comprehensive law was passed by Congress and signed into law by President Franklin D. Roosevelt on June 25, 1938. With only a few minor updates, the rule has remained the same since Oct 24, 1940. The FLSA requires employers to pay employees not less than one and one-half times the employee’s regular rate of pay for all hours worked in excess of 40 in a workweek. A one-sentence law. Pretty easy, right? Think again.

 

To put that one-sentence rule into practice as an employer in today’s world is not quite as simple as it first seems.  The main cause for confusion with the law appears to be that over the 75 years since it was written the common understanding of the words used have spread, evolved and grown, but the actual terms used in the law have not changed at all.  A perfect example is the term “regular rate of pay”.

 

If you ask someone today to define the term “regular rate of pay” they might answer “the file rate an employee is paid,” or even “the rate the employee is normally paid.” And that seems logical. Being paid a standard rate is common practice in today’s workplace, but not so much back before 1938. To ensure that the employer paid the employee correctly under the new law, the “term regular rate of pay” was introduced.  But it was never meant to be a fixed rate. Under the FLSA this term is a calculated rate that must be recalculated every time the employee is paid overtime. It includes all payments made to the employee for services including certain bonuses, commissions, shift differential and other types of similar payments.

 

Remember, the thinking at the time the FLSA was written, during the Great Depression, was that employers would hire more employees if it were more expensive to work one-man extra hours because of overtime. But the powers that be were also concerned that if overtime were based solely on a fixed hourly rate, employers would pay the lowest rate possible and then pay the worker an extra sum to make up the difference. So, in essence, the employee would not really receive overtime. But this was avoided by requiring that all payments be included when calculating overtime. The broad coverage of the term meant that employees would receive the most money for the work performed.

 

But other terms in the one-sentence law are confusing by today’s standards as well. Take the term “all hours worked.” Back in 1938 this was a simple term because employees came to work, performed the work, and went home. But unlike in 1938, today’s employees work from home, attend meetings or receive training online, work while traveling in hotel rooms and airplanes and take advantage of the flexibility of the modern century. But that does not actually change the original goal under the FLSA, it just broadens it. Employers still must determine when the employee is working and include those hours in the overtime calculation even if it is from home, a hotel room, or an airplane.

 

As we have discussed this one sentence law can be tricky to decipher but it can and must be done to ensure compliance when paying overtime.

 

– Vicki Lambert

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www.thepayrolladvisor.com

 

To watch Vicki’s first presentation in a two part series on paying overtime under the FLSA, or to register for a live presentation of part 2, visit our 2013 Webinar Directory.

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