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Federal Law - Frequently Asked Questions

Payroll has become a complicated subject, encompassing a wide range of issues.  To shed a little light on some of the issues that affect our clients most often, we have compiled some of the most common questions we receive and provided the answers to them.   We hope that you will find this general information useful. 

• When do I have to pay my employees overtime?
  
  An employee is classified as either exempt or nonexempt.  Exempt employees are those who are in positions which are narrowly classified by the Fair Labor Standards act as executive, administrative or professional in nature and meet certain other criteria.  All others are nonexempt.  Nonexempt employees (regardless of whether they are paid a salary or an hourly rate) are entitled to overtime pay of at least 1.5 times their regular rate of pay for all hours actually worked over 40 hours in a workweek.  Hours paid for sick time, vacation, etc. need not count toward the 40 hours worked total.  This applies regardless of whether your pay period is one week, two weeks or any other period. Some states may require additional /special overtime calculations.
   
• Are there rules about when I must pay my employees?
  
  Yes. State law mandates how soon an employee must be paid after the end of the payroll period or after termination.
   
• How does direct deposit (DD) of my employees’ pay work?
  
  When your employee submits a DD request form, we enter the bank information into the employee’s file.  On the following paydate, the employee will still receive his/her pay on a paper check and a DD “prenote” is created.  It makes a $0.00 transfer to the employee’s bank account(s).  If the bank does not notify us of any problems with the transfer, the employee’s next pay will be direct deposited according to his/her instructions.
  
  In order for your employee’s pay to be in his/her bank account on payday, we need to process that payroll two banking days prior to payday.  The electronic transfer process takes approximately 48 hours.
  
  If an error is made on an employee’s pay record, which has already been electronically transmitted, the pay record can be reversed.  The reversal will debit (reduce) the employee’s account(s) and return the funds to the employer’s bank account.  However, some banks post the original credit (increase) to the employee’s account at the beginning of the day and post the debit to take the funds back at the end of the day.  If the employee should withdraw the funds on the paydate, there may not be sufficient funds available at the end of the day to cover the return.
   
• Besides withholding taxes, what deductions can I make from my employees’ paychecks?
  
  Each state’s Department of Labor governs the allowable deductions that may be withheld from an employee’s payroll check.
   
• How is unemployment tax calculated?
  
  As an employer, you are taxed for both federal and state unemployment taxes.  This is an employer expense and is not withheld from your employees.  Federal unemployment tax  (FUI) is generally .8% (.008) times the first $7,000.00 that is paid to an employee in a calendar year.
   
• How are my employees’ bonus and commission checks taxed?
  
  Bonuses and commissions are considered supplemental pay and are subject to supplemental withholding.  Since FICA and Medicare do not have multiple rates, it is the federal, state and local income tax, which are primarily affected.  Bonuses and commissions may be paid in the same check as regular earnings or separately.  If they are paid on the same check, the entire earnings can be taxed as usual based on the applicable tax tables.  If they are paid separately, special rules apply.  Federal law requires that they be taxed either at the supplemental flat rate (currently 25%) of the earnings or according to the aggregate method.  The aggregate method simply adds the supplemental earnings to the most recent (or current) earnings and taxes them together according to the tax table.  The tax on the combined earnings is the amount that must be withheld on the two checks.  Each state governs the applicable withholding rate for bonus payments.
   
• What are the benefits of Pre-tax deductions from my employees’ paychecks?
  
  Deductions such as cafeteria plans Simple IRA’s and 401(k)’s, if made under qualified plans, are exempt from certain payroll taxes.  The following chart summarizes the taxability of the deductions:

Making these deductions on a pre-tax basis results in more take-home pay for the employees, and in the case of cafeteria plan deductions, also results in a savings in the employer’s share of FICA and Medicare taxes and unemployment taxes.  Each state governs the taxability for withholding and unemployment.

• What should I do when I receive a court order to garnish my employee’s wages?
  
  There are three types of orders you might receive: a creditor garnishment, a child support withholding order or a tax levy.  When you receive any of these, please forward the complete order to us.  Child support withholding must begin within 14 working days after the withholding order is mailed to you.  We will begin the garnishment with the next payroll.  Each payroll, we will determine whether your employee has enough earnings to satisfy the garnishment and will withhold accordingly.  We will also include a check for you to mail to the appropriate agency.  There is a small fee associated with setting up the deduction and with processing each deduction.  In the case of a garnishment or child support order, you are entitled to deduct a fee from the employee’s check to compensate you for the expense of complying with the order.  Should the employee terminate his employment with you, you are obligated to inform the court of that fact within 10 days after termination.
   
• Which governmental forms do I need to forward to APS?
  
  Each time you hire an employee, please give us a completed Employee Information form.  It should include all the information we need to pay the employee.  For your own files, you will need a completed W-4 (for withholding federal tax), appropriate state withholding certificate (for withholding state and local taxes) and an I-9 (from the Immigration and Naturalization Service).
  
  If you are not on our tax service, the only tax forms you need to send us are the appropriate state withholding forms/coupons.  8109 coupons (for federal tax deposits).  Additionally, any state unemployment rate changes/notices.  It is very important that you send these forms to us as you receive them.  These are controlled forms and no substitutes are allowed.  We cannot guarantee that substitute forms will be accepted by the taxing agencies and there may be additional fees imposed if we do not have your preprinted forms.  You do not need to send us the other forms you receive during the year.  Our payroll software produces the other forms we need.
   
• What should I do if I receive a notice or refund check from a taxing agency?
  
  If you receive a notice from the Internal Revenue Service or a state agency regarding payroll taxes, please fax or mail a copy of the notice to us as soon as possible.  We will review it and determine if you need to respond.  Please do not simply assume that the notice or refund check must be accurate without checking with us first.  Often, notices are issued in error and we can resolve the problem for you.
   
• What is the current minimum wage?
  
  Current federal minimum wage is $6.55 per hour although each state governs its own minimum wage rate. If a state does not have a minimum wage rate or has a lower rate, federal law supercedes the state. Typically, you must pay whichever rate is most advantageous to the employee.
   
• How do I handle my employees’ tips for payroll?
  
  If your business is in the service industry, your employees may receive tips.  Whether you operate a restaurant, hotel, beauty salon, or other type of business, if an employee receives at least $20.00 per month in tips, he/she is required to report to you all tips he/she receives.  These tips are added to the salary or wages paid and taxed as any other income.
  
  Like any other employee, your tipped employee is entitled to the benefit of the minimum wage.  The difference for tipped employees is that you may use the amount of tips received to pay part of this minimum wage amount for you.  If your employee regularly receives more than $30.00 per month in tips, you are allowed to take a credit of up to $4.42 per hour when paying wages to that employee.  Thus, you may pay him/her as little as $2.13 per hour rather than the current minimum wage of $6.55 per hour.  For you to take advantage of the tip credit, your employee must actually receive (and report!) enough tips to bring his total compensation (wages + tips) to at least the current minimum wage times the hours he actually worked.
  
  Occasionally, your tipped employee may not receive enough tips to bring his/her compensation up to the minimum wage.  In this case, you are required to pay him/her the amount of “tip make-up” necessary to bring his/her compensation to the minimum wage. Our payroll software will make this calculation for you automatically.
   
• If I want to use APS for my payroll service, do I have to wait until the beginning of a quarter?
  
  No, APS can convert your data from any software at any time. We work very closely with you from the initial meeting to ensure a smooth transition. Your first payroll will be delivered to you by one of our representatives. Don’t wait, come aboard today!