While Congress debates how to stave off the fiscal cliff, New Jersey, New York, Delaware and 15 other states are suddenly facing higher payroll taxes. Under the provisions of the Federal Unemployment Tax Act (FUTA), a Federal tax is levied on employers covered by the Unemployment Insurance (UI) program at a current rate of 6.0% on wages up to $7,000 a year paid to an employee. The law provides for a credit against that tax liability of up to 5.4% to employers who pay state taxes timely under an approved state UI program. In states meeting the specified requirements such as New Jersey, New York, Delaware and Pennsylvania employers pay an effective Federal tax of 0.6%, or a maximum of $42 per covered employee, per year.

The credit against the federal tax may be reduced if the state has an outstanding UI loan. Since the recession many states have lacked the funds to pay unemployment insurance benefits and have exercised their ability to obtain loans from the federal government. To assure that the states repay these loans, the federal government partially recovers those monies by reducing the FUTA credit it gives to employers, which is the equivalent of an overall increase in the FUTA tax. When a state has an outstanding loan balance on Jan. 1 for two consecutive years and does not repay the full amount of the loan by Nov. 10 of the second year, the federal government will reduce the FUTA credit until the state repays the loan. The reduction schedule is 0.3 percent for the first year and an additional 0.3 percent for each succeeding year until the loan is repaid. Delaware is in the first of year of the reduction schedule so the credit reduction is 0.3 percent retroactive to the beginning of 2012. New Jersey and New York are in the second year of the reduction schedule so the credit reduction is 0.6 percent retroactive to the beginning of 2012. Pennsylvania was one of 5 states that was able to pay its loan balance during 2012 and is no longer a credit reduction state.

Meanwhile many states, including New Jersey, are imposing increased rates, interest assessments, higher wage bases or surcharges at the state tax level in an attempt to make their plans solvent. Please contact us if you have any questions.

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On October 16th, 2012 The Social Security Administration (SSA) announced there will be a $3,600 increase in the Social Security and Disability Insurance taxable wage base for 2013. In addition, there will be a 1.7% cost of living increase for the more than 55 million people collecting Social Security benefits.

With the Social Security wage base increase to $113,700 for 2013, the maximum 2013 OASDI tax payable by each employee is $7,049.40, or 6.2 percent of the wage base. In 2012 each employee is paying 4.2% but this rate is set to expire at the end of the year unless Congress passes legislation to extend the 4.2% rate. Currently the employer pays 6.2% of gross pay as well.

The Medicare portion of the Federal Insurance Contributions Act tax continues to apply to all taxable wages earned, and the rate remains at 1.45 percent.  Starting in 2013, the Medicare tax will increase to 2.35% for employees with wages greater than $200,000.  The employer portion of the Medicare tax will not increase.

Automated timekeeping is the process of electronically tracking employee work hours and pay. It is accomplished using electronic time clocks and software to collect and process the data. The electronic clocks can be setup to read fingerprints, proximity badges, key fobs, or they can be activated by computer or telephone.
Streamlining payroll procedures is more valuable than meets the eye. It is an essential tool for all businesses. The compliance environment is becoming more demanding in the face of increased regulations. Companies are working with narrower margins. Automated timekeeping provides a wide array of tangible and intangible benefits that mitigate the challenging environment. Many of the advantages are both immediate and tangible.

Advantages at a glance

• Reduce Labor Costs – Employers can expect reduced employee labor by simply switching to an automated timekeeping system.
• Reduce Clerical Work – The time required to prepare payroll will decrease while minimizing the cost of human error.
• Employer Compliance – Employers who do not accurately track employee labor hours face a substantial financial and legal threat if a labor dispute were to arise.
• Employee Behavior – Whether it’s salaried or hourly employees, organizations using automated timekeeping will find employees are more punctual and accountable for their hours. Employers can find tremendous savings by eliminating costly employee habits, such as “buddy punching,” leaving early, arriving late, long lunches, extended breaks, and so on.
• Employee Morale – Employees will be much happier not having to worry about remembering in and out punches from the previous week or whether they are getting paid accurately for their time. They may also appreciate the greater consistency with which pay policies can now be enforced.
• Schedule/Manage Your Workforce – Conveniently plan and track staff coverage across the entire organization. Make supervisors far more effective with convenient tools that promote employee accountability, adequate coverage, and control.
• Manage Growth – Without properly managing employees, growing the company profitably becomes far more complicated and costly. Once the process is in place, there is no incremental cost of administration for adding employees.

Compliance
Employees are classified as exempt or non-exempt with non-exempt employees entitled to overtime pay. It is recommended by labor attorneys that even employees exempt from overtime should keep time records in case their classification is ever found to be in error. Complying with federal and state labor regulations can be complex. Employers have long been saddled with the burden of maintaining detailed time and attendance records. As a practical matter federal and state wage and hour departments didn’t always expect small businesses to have detailed time sheets for each employee for every day worked. As technology has improved there has been a greater expectation of compliance. Historically a labor department receiving a complaint from an employee that claims he didn’t get paid overtime would require less detailed backup then is required today. Investigators now want to see for that employee, his time in and time out detailed on a daily basis for the period in question along with time out for lunch. Having that information verified electronically provides a concrete defense.

Please consult a local labor attorney for more information or for specific questions about your compliance responsibilities.  If you need a referral to a local labor attorney please give us a call.

Management Productivity
A company’s investment in payroll is typically the largest operating expense. Automated timekeeping is the first step to understanding and effectively managing that investment. There any many ways to track payroll including categorizing by department, location, job, division or customer. Combinations of these categories can be tracked as well. There is certain to be some way of tracking payroll that is of value to any company. 941 Payroll can help implement a one-time setup process for this and provide real time reporting that will be always available going forward. Reports are created in Excel or many other formats that may be requested.

How it Works
Electronic time clocks come in two forms, standard terminals or web based timekeeping. Standard terminals offer easy data collection through a card swipe, PIN or biometric (fingerprint) scans. Setup is very simple and data is transmitted to the database up to three times per day. Web-based timekeeping solutions allow employees the flexibility to clock in/out over the Internet without any special hardware. Data reporting and editing is done through the web and employee time data is always accessible. In addition, employees can view their time cards online.

Choosing a Timekeeping Solution

• Review the Benefits – Visit the 941 Payroll website to download a spreadsheet to estimate the savings available for your company at www.941payroll.com/timekeeping/calculate-savings/
• Try the Online Demo – With a variety of timekeeping features and programs, selecting a timekeeping device can take quite some time, especially if product demos require the involvement of the vendor. This site, however, offers instant access to our live online demo. Take advantage of this tool and you’ll better understand how user-friendly our product is and whether or not it will meet your needs. The demo can found at www.941payroll.com/free-demo/
• Select a Time Clock – Once you’ve decided to automate your timekeeping solution, selecting the “best fit” time clock for your organization is the next step. Ask yourself some basic questions: How would you like to collect punches from employees? Biometrically? Through a badge swipe? Over the phone or Web? Via proximity badge? Consider is how your data will be sent to the Web from your office location? Your office should already have some sort of connectivity set up, whether it be your company fax line, your existing phone system, or your network.

If you think automated timekeeping might be right for you 941 Payroll offers a 30 day free trial.  Click here or call us at 877-941-9419.