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Looking for a Way to Save Money?

Why not look in to a Health Savings Account (HSA)? HSA’s are designed to help employees manage their medical expenses and reduce health care expenses. Money saved in an HSA, if not used for medical expenses, remains with the employee for future medical expenses or as part of their retirement account. It is a way for employees to save money tax free and unlike an IRA there are no penalties if used at any time for qualified health care expenses.

HSA’s are tied to high deductible health insurance which means that employees will have to pay for medical care using their HSA until they spend their deductible. This provides both the employee and the employer added savings in premiums as high deductible plans are usually less expensive.

Here’s an example of how an HSA would work:

• John has elected to have a high deductible health insurance plan and will be saving $100 a month in premiums.

• John’s deductible with the new policy is $1200 which means that John will have to pay the first $1200 in medical bills before his insurance will make any payments towards his health care.

• John has calculated that he will need to deposit $100 per month into his HSA to cover the deductible.

• In order for John to get $100 in his HSA on a monthly basis, he only needs to have $80 come out of his paycheck because of the pre-tax status.

• John’s employer has received the same savings on the portion of the premium they have saved because of the high deductible plan.

• John’s employer has agreed to contribute $100 per month into John’s HSA.

• Between John’s contribution and his employer’s contribution, John will have $2400 in his HSA by the end of the year. With a $1200 deductible, John should have $1200 in his account at the end of the year that can be used for future medical expenses or for his retirement when he reaches age 65.

HSA’s are a great way to save on current health care expenses and at the same time, offer individuals a way to save for the future. It’s a no brainer.

Are You in Compliance With Federal and State Wage and Hour Laws?

Do all of your employees receive a salary? Are you certain that they all should be paid a salary? Why are you paying employees salaries instead of a per hour wage? The US Department of Labor sets specific guidelines on when to pay employees a salary and when to pay them by the hour. Are you familiar with these guidelines?

The Fair Labor Standards Act (FLSA) was enacted in 1938. It established a federal minimum wage, time and one half overtime and prohibited employment of minors. Unless an employee is exempt from this act, they must receive at least minimum wage for hours worked and received time and one half for hours worked over 40 in a week (168 consecutive hours). The current federal minimum wage is $7.25 per hour. Each state also sets a minimum wage. Employers must pay the higher of the two wages. Currently in the state of Florida, the minimum wage is $7.31 per hour. January 1, 2012 the Florida minimum wage increases to $7.67 per hour.

Who is exempt from overtime? Again, this is not determined by employers, the FLSA sets specific guidelines for these exemptions. The categories for exemptions are executive, administrative, professional, computer and outside sales.

Executive Exemption:
1. Employee is paid at least $455 per week
2. Primary duty is to manage the business or a recognized department
3. Customarily directs the work of two or more employees; includes the authority to     hire, fire, make recommendations that carry particular weight regarding employment status.

Administrative Exemption:
1. Employee is paid at least $455 per week
2. Primary activities are performing non-manual office work on matters of significance to the management or business operations of the firm or its customers which requires the exercise of discretion and independent judgment

Professional/Creative Exemption:
1. Employee is paid at least $455 per week.
2. Employee who primarily performs work requiring advanced knowledge/education and which includes consistent exercise of discretion and independent judgment.
3. The advanced knowledge must be in a field of science or learning acquired in a prolonged course of specialized intellectual instruction. Creative professionals perform work requiring invention, imagination, originality and/or talent in a field of artistic endeavor.

Computer Professional:
1. Employee is paid at least $455 per week or $27.63 per hour
2. Employee who primarily performs work as a computer systems analyst, programmer, software engineer or similarly skilled work in the computer field performing a) application of systems analysis techniques and procedures; b) design, development, documentation, analysis, creation, testing or modification of computer systems or programs; or c) design, documentation, testing, creation or modification of computer programs based on and related to user or system design specifications.

Outside Sales:
1. Does not have to make at least $455 per week
2. Employee performs sales work off the company’s premises and whose primary duties include making sales or obtaining order or contracts for services or for the use of facilities for which the client or customer pays.
3. The employee is customarily and regularly away from the company’s place of business while performing such duties.

If you are paying your employees a salary and they do not meet the criteria in one of the exemptions, then you do not meet the guidelines set forth by the FLSA and could be subject to fines and penalties. I strongly encourage you to audit your payroll to ensure that you meet these requirements. The Department of Labor is cracking down on small businesses in this area, please don’t be caught.

FICA wage base increases to $110,100 for 2012

FICA will increase to $110,100 in 2012. The wage base for 2011 is $106,800. This will effect 10 million tax payers in the US. Note that with the exception of pretax medical and tax free fringe benefits, there is no cap for Medicare.

Employees who are collecting social security and working at the same time are still required to pay FICA and Medicare taxes on their pay. This is a common question often asked.

October 21, 2011 No Comments

Florida Minimum Wage Increases by 36 cents effective January 1, 2012

Hot off the presses, Florida minimum wage is increasing by 36 cents per hour effective January 1, 2012.  This increase takes effect just seven months after a 6 cent increase on June 1, 2011.

What does this mean?

Employers are going to have to review payroll and make adjustments to anyone earning $7.68 and lower.

They should also evaluate all employees’ wages to see if the increase might cause other issues (morale, wage compression). For example, someone who is currently making $7.69 per hour and has been in their position for a while is not going to be happy when a newcomer joins the organization and earns the same rate.

This comes at a difficult time for small business owners. While trying to make ends meet and keep their doors open, they now must make adjustments to wages, increasing expenses and reducing an already dismal bottom line.

October 6, 2010 No Comments

So You Think You Can Make Them Independent Contractors?

You may want to think twice about doing it! 

The Internal Revenue Service has strict guidelines defining the difference between an Independent Contractor and an Employee.  It is estimated that over 3 million workers are illegally misclassified as Independent Contractors.  This is costing the Federal Government an estimated $300 Billion in tax revenue annually due to this misclassification. 

100 New Agents to crack down on small businesses. 

Earlier this year, President Obama agreed to fund an additional 100 IRS agents to assist in cracking down on the misclassification of workers.  It is estimated that this initiative will generate an additional $7 billion in revenue over the next decade for the US Government.  This audit will affect 6000 businesses.  Now is the time to evaluate your employment practices and ensure you have properly classified your workers.

Double Whammy – States join the Feds. 

States are joining the feds in this initiative and are sharing information resulting from audits.  One governing agency conducting an audit can cause a domino effect on the offending business.

Cutting costs illegally. 

Because of the economic times, businesses are looking for all ways to reduce cost.  Many companies are using outsourcing as a way to reduce payroll costs.  This is fine if done legally, however the numbers indicate many businesses are not following the IRS guidelines for proper classification.  Businesses can save as much as 30% of payroll costs by classifying workers as independent contractors.  This avoids paying payroll taxes, unemployment insurance and worker’s compensation payments.  With unemployment at an all-time high, many states have exhausted their unemployment pools and are resorting to assistance from the feds.

Test to determine if you are legal.

 In the past the IRS used a “twenty factor” test to determine whether a worker was an Independent Contractor or an Employee.  In 2006, the test was fine tuned and was reduced to 11 main factors categorized into three main groups; behavioral control; financial control; and relationship of the parties.

Behavioral Control shows whether there is a right to direct or control how the worker does the work.  The worker is an employee when the business has the right to direct and control the worker.  The business does not have to actually direct or control the way the work is done – as long as the employer has the right to direct and control the work.  Examples are if the worker receives extensive instruction such as how, when or where to do the work, what tools or equipment to use, what assistants to help with the work or where to purchase supplies and services.  If these situations exist, the worker is an Employee.  If the business provides training on procedures or methods and that the work is to be done a certain way, the worker is more than likely an Employee.

Financial Control shows whether there is a right to direct or control the business part of the work.  If the worker has a significant investment in the work they do, they may be an Independent Contractor.  If they are not reimbursed for some or all business expenses, they may be an Independent Contractor.  If the worker has opportunity for profit or loss, this indicates there is a viable business and could indicate that the worker is an Independent Contractor.

Relationship of the Parties illustrates how the worker and the business perceive their relationship.  If the worker receives benefits such as insurance, paid time off or pension, the worker is an employee.  If a written contract exists showing the relationship between the business and worker, Independent Contractor status may be appropriate.

Employee Status

When a worker is classified as an employee, the business must withhold income tax, social security and medicare taxes.  The employer is also responsible for their share of social security, medicare as well as unemployment taxes.  Employees are issued a W-2 Wage & Tax Statement.

Independent Contractor

When a worker is classified as an Independent Contractor, the business is not required to deduct or pay any taxes on the worker’s behalf and issues a 1099-MISC, Miscellaneous Income report.  The Independent Contractor is responsible for all payroll taxes both their own income tax as well as the self-employment tax.

Need some advice?

For more information on worker classification, assistance with a determination or a checklist to determine the status of a worker, contact Barbara Flynn, SPHR at People First Inc., www.peoplefirstinc.com.