The Internal Revenue Service has provided guidance on the increase in the monthly “Excludable Transit Benefits”. The amendment is effective retroactively beginning on January 1, 2012 and extending through December 31, 2013. Employers should ensure the amount of taxable income and wages reported on 2012 Forms W-2s furnished to their employees and filed with the Social Security Administration reflect the increased transit benefit exclusion. This will avoid employers having to make corrections and file corrected W-2s.
Find answers to many frequently asked questions in Notice 2013-8.
Tracking Transportation Benefits
2013 PenSoft Payroll provides users the ability to create customized deduction to withhold transportation benefits based on IRS guidelines. Employers can generate custom defined reports to track benefit totals and prepare Social Security Administration (SSA) approved Forms W-2 containing accurate tax information.
There are important differences between employees and independent contractors, and it is the responsibility of employers to correctly differentiate between the two; or risk an IRS audit and potential penalties. These penalties include back taxes when it is determined that employers misclassify workers as independent contractors rather than employees.
To support whatever classification an employer determines based on IRS rules, employers should maintain detailed records to support such categorization for each affected employee. The IRS provides a summary of agency rules in this overview and more comprehensive instructions in Publication 15-A, Employer’s Supplemental Tax Guide.
The IRS uses several tests to determine whether workers should be classified as independent contractors vs. employees, which include:
1. Financial: A key test in this area involves whether any tools necessary to perform a particular function have been purchased by the employer or the worker. In addition, workers who have all of their expenses routinely reimbursed by an employer are more likely to be employees than workers who have unreimbursed business expenses. Employees tend to be more subject to restrictions in terms of their ability to seek outside business opportunities, whereas independent contractors typically market their services to other potential employers in the open market.
2. Type of relationship: Regardless of how a worker is classified, the substance of the relationship between the worker and the employer determines that worker’s status. Full or part-time status is immaterial. Benefits are usually indicative of an employer-employee relationship. Another gauge of this relationship is whether the worker is temporarily or permanently affiliated with the employer.
3. Behavioral: Control is a key test. When the worker has the ability to control how, when, and where assigned tasks are performed, that worker is more likely to be categorized as an independent contractor. When the employer has the right to determine these factors, the worker is typically an employee because that is indicative of an employer-employee relationship.
Ultimately, the burden is on the employer to ensure that independent contractors and employees are properly classified and that those classifications are properly documented in an ongoing fashion. Careful due diligence and adherence to IRS guidelines usually ensures that classification decisions can be successfully defended if an IRS audit occurs.
For many small business owners with few employees, the approach to time and attendance systems can be somewhat haphazard. Because you know your employees well – and they know you well – it seems like a low-maintenance manual system of tracking time and attendance should work.
While there is nothing wrong with trusting your employees to comply with such a regimen, it is in everyone’s best interest to implement a more efficient method of tracking time and attendance. Doing so has a number of benefits, from increasing productivity to reducing error and cutting costs. Here’s an overview of the benefits:
1. Increased productivity: An automated system can save everyone time, from the employees involved to management and the payroll staff. Not only can employees more easily document their hours and tasks, but management can also more quickly review and approve such information. Then, with the right system, information can be automatically transferred into the payroll system to make payroll a snap.
2. Reduced error: Any manual system has a built in potential for error. Most employees are honest and report their hours honestly; however, mistakes happen. And that potential for error exists at every point in the system with management and the payroll staff as well. Mistakes can be costly and time consuming to correct, so avoiding them in the first place is a win-win for everyone involved.
3. Cutting costs: It’s an unfortunate fact of life that payroll inflation can occur in the best-run small businesses. By automating payroll, problems such as time, theft can be virtually eliminated, saving your business money. Payroll automation also saves time for employees, managers and payroll staff that can be better used to actually grow your business. It’s likely no one will be sorry to see paper time sheets and time cards go.
As your business grows and more employees are hired, it can make sense to automate time and attendance systems and reap the benefit of a systematized process in this area.
For most small business owners, growing a business means hiring employees. When you hire, it’s not only important to find the right employee, but you must also comply with a number of federal, state and local employment laws. Not every law applies to every business fortunately; however, there are many laws, especially on the Federal level, which you must be aware of, and to comply with; or risk fines and penalties from the Federal Government.
The U.S. Department of Labor is the administrator and enforcer of a multitude of federal labor laws that cover such issues as wages, workplace safety and health, employee benefits, plant closings and layoffs, and garnishment of wages. Here’s an overview of several of the most significant federal employment laws; check with your state and locality to find out more about additional employment laws that may affect your business.
1. Fair Labor Standards Act: Stipulates the standards for wages and overtime pay that are mandated for most employees in the public and private sectors. For non-exempt employees – which exclude managers and waiters and waitresses – this means abiding by federal minimum wage and time-and-a-half overtime pay rules.
2. Occupational Safety and Health Act: Covers the health and safety of public and private sector workplaces; mandating that employers must maintain workplaces that are safe and free from hazards that are recognized and serious.
3. Workers’ Compensation: Includes several different laws, covering a variety of industries that provide for medical care and compensation for workers who are injured or killed on the job.
4. Employee Retirement Income Security Act: Provides and enforces rules for employers that offer employee benefits, including health and retirement benefits. Many of these rules mandate specific fiduciary, reporting, and disclosure requirements on employers who offer retirement plans, pension plans, and healthcare plans.
As you hire more employees and your business grows, it pays to learn more about federal, state, and local employment laws to ensure those are followed correctly.
With 2013 just underway, many small businesses may need to either implement or rethink the performance appraisal process as part of the business planning process. Without a well-thought out employee performance appraisal system, employers and employees alike may feel unclear about goals and processes; a situation that isn’t likely to increase either individual employee or company productivity.
Whether your business needs to begin, or re-evaluate performance appraisals for employees, there are some common themes to consider, including:
1. Set clear and measurable goals: In order to have something for the employer to evaluate and for the employee to achieve, there must be goal setting well ahead of the appraisal date. Any goals set should be clear, measurable and agreed to by the employer and the employee. At the time the goals are set, it’s also a good idea to discuss the employee’s career aspirations and what management expects in terms of performance.
2. Document progress and issues: During the year, both the employer and employee should document progress against agreed upon goals and any issues that may arise related to those goals and performance. That’s important, because these accomplishments and issues may fall through the cracks during the actual performance review. Also be sure to document what happens during the performance review meetings.
3. Schedule frequent meetings: Although the annual performance review tends to be a tradition in many companies, it isn’t a particularly useful tradition. Both employers and employees benefit from more frequent contact on the subject of goals and performance. When these meetings are scheduled in advance with a clear agenda, everyone involved is likely to be less stressed and more open to frank feedback and discussion.
4. Separate compensation and appraisals: Compensation can be such a hot button issue that it derails any meaningful conversations around goals and accomplishments, so when possible, separate the discussion of compensation from the performance appraisal itself.
Performance appraisals present an opportunity for employers and employees to establish goals, update progress and discuss important issues. With a solid system in place for performance appraisals, the process should be fairly routine.