With the economy on shaky ground, the government (federal and state) is looking for ways to increase revenue. One of those way is strict enforcement of laws. The Department of Labor is adding 350 investigators to expand enforcement. This means that all records are subject to more intense scrutiny that ever before. Read on for information on how to protect yourself and your assets.
Major Department of Labor push on wage-hour enforcement. Secretary of Labor Hilda Solis says the Department of Labor is back in the enforcement business.
The problem: Everyday practices of 70% of employers result in unpaid “work” hours that the employer has no idea are unlawful, but that do, in fact, violate the Fair Labor Standards Act.
The focus: Hourly employees and first-level managers—typically “supervisors,” such as a customer service supervisor, stocking or maintenance supervisor.
The DOL solution: A huge jump in wage-hour audits. Another 350 investigators are being added—an increase of more than one-third—and DOL has proposed $241 million to pay for the expanded enforcement.
Typical examples of problems:
- ·???????? Punching in early (or out late). Tony punches in 15 minutes before start time. If you are audited, you would have to prove that Tony was not working, because DOL assumes that an employee who has punched in is working.
- ·???????? Downtime. Marina’s workday starts at 9, but she has a long drive and must drop off two children in different places, so she ends up getting in a little after 7:30, has breakfast at her desk and reads magazines. If a customer happens to call, or Maria suddenly remembers something she must attend to and pulls a file so she won’t forget, she is working and must be paid for the hour or portion of the hour when the client called and she pulled the file.
- ·???????? Chatting during breaks. Bill gets in a half an hour early to have a cup of coffee while he talks sports with coworkers. If, while chatting with coworkers, any business matters happen to creep into Bill’s chats, that is paid work time and all of the workers involved in the conversation must be paid for that time.
- ·???????? Checking emails from home. Before leaving for work, James, who lives over an hour away, checks his business email. DOL considers this unpaid work time.
- ·???????? Supervisors “pitching in” to help. Supervisor George is an exempt employee. He sometimes puts on headphones and takes orders for a few hours. If your company is audited, the DOL may decide that answering the phone is hourly work and reclassify George as a nonexempt employee. Once it does this, if DOL finds out that he worked more than 40 hours in the workweek, you will be hit with overtime backpay, penalties and interest, possibly several years’ worth.
To protect your company:
All hourly employees should:
- ·???????? Accurately record all work hours and to submit a timesheet or comparable record that they certify as accurate and submit in a timely manner
- ·???????? Require managers to review these records promptly to identify any inaccuracies
- ·???????? Prohibit employees from working while they are on break
- ·???????? Discipline employees for improperly clocking in or out
- ·???????? Require managers to report any and all suspected off-the-clock work so that it is paid—and steps can be taken to prevent off-the-clock work in the future.
- ·???????? If there is a wage-hour audit, have ready accurate, indisputable records of hours worked.
All exempt managers should:
- ·???????? Make sure that managers rarely do nonexempt work, and then only for a brief time.
- ·???????? Make sure that a exempt manager supervises at least two full-time employees, or DOL may conclude that the person is exempt simply to avoid overtime.
- ·???????? Give exempt managers the discretion to hire and discipline employees—two key functions of the exempt classification
- ·???????? Give exempt managers the authority to make decisions that affect the company to a certain level.
How does the DOL know if these situations are happening in your company? It doesn’t—unless you are audited, at which time the DOL will conduct lengthy interviews with employees.
Mileage Rate Changes:
The standard business mileage rate for Jan 1 through June 30 is 51cents/mile. From July 1 through December 31 the rate is 55.5 cents/mile.
The Social Security Administration is again sending name/SSN no-match letters out. The new notices have one mismatch per letter and are called “Decentralized Correspondence”. The SSA recommends responding to a no-match letter as listed below:
- ·???????? Check your records to see if there is a discrepancy in the records submitted to the SSA.
- ·???????? Ask the employee to check his or her records to determine if the information was accurately recorded/reported
- ·???????? Instruct the employee to contact the SSA to resolve any discrepancy
- ·???????? Provide the employee a reasonable amount of time to resolve the discrepancy (“reasonable” is not defined, but the “suggested” period is 120 days, the period used by E-Verify—but circumstances can change this: and
- ·???????? Document your efforts to resolve the matter.
Substantiating travel/lodging expenses. The IRS is ending the high-low method of substantiating travel/lodging expenses, most likely as of Oct. 1, 2011, when the government’s fiscal year begins, but that is only an estimate. Current high-low rates are acceptable through Sept. 30 (or Dec. 31, 2011 for calendar-year employees).
Payroll Tax Update
FUTA rate temporarily decreases on July 1. The current rate of 6.2% includes a temporary surtax of .2% that expires on June 30, 2011. Unless Congress extends the tax most employers will get a maximum credit of 5.4%, making their FUTA rate for the first three quarters .8%.
Unpaid payroll taxes? When payroll taxes are delinquent, designate new payments for current quarter taxes or the IRS will apply them to the earliest arrears or interest/penalties and impose new ones on unpaid current taxes. If your firm is in financial distress, try to stay current on taxes and ask for a waiver of penalties.
Can a payroll firm be held liable for a client’s unpaid payroll taxes? Yes and no. A payroll firm is unlikely to have any liability when the employer gives it specific directions about the amount of taxes to pay and when to pay them. However, a payroll firm can be liable when it has discretion over payments. The IRS notified its field agents that third-party firms that handle payroll and employment tax compliance for employers can be liable for penalties for unpaid and delinquent taxes. While this is not a new policy, it is likely a response to a recent incident when a payroll tax firm embezzled tax payments received from clients. An employer is ultimately responsible for the taxes and penalties. In either case, the employer and its responsible persons ultimately are liable for unpaid taxes and penalties.
1099 Pilot Program Extended The program allows paper providers of the 1098, 1099, and 5498 series to truncate all but the last four digits of ID numbers on the forms. Form 1098-C is not included in the program.
IRS Warning: backup separately by year If your company is audited, the IRS uses the electronic files for the audit. Small businesses are concerned that some requested files may contain data outside the period of the audit. The IRS could use the unrelated data for a “fishing expedition” or to access unrelated customer or private data outside the scope of the IRS audit or information request. To avoid this, the IRS recommends that you back up data files at the end of each tax year so you have a file with complete, but limited, data. Some software lets you provide a file in which data for any periods not under audit are condensed or archived.