Multistate Taxation, Paid Leave Among Key Payroll Concerns

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By Caitlin Reilly

Tracking employee travel across state lines to guard against an increase in income tax audits in some states is a top-of-mind concern for payroll professionals, members of Bloomberg BNA's Payroll Library advisory board said March 29.

The board members, who held their annual meeting at Bloomberg BNA headquarters in Arlington, Va., also discussed other critical issues for payroll departments, including data security, mergers and acquisitions, overpayments and the uncertainty around the Trump administration's plans for health care and tax reform.

Tracking Travel: At Risk

Knowing where and when employees travel for work purposes is increasingly important as the frequency of state income tax audits increases, several board members said.

Getting employees to track their time correctly was a challenge faced by payroll professionals, said Patrick McKenna, CPA, tax director for Prudential Financial.

When employees self-report travel as a percentage of time spent in various states that may leave the employer vulnerable during an audit, McKenna said. If the employee incorrectly reports time, “the company's at risk, that employee's at risk,” he said.

To mitigate the risk, McKenna plans to work with accounts payable to track the travel of top executives through travel expenses. The process mirrors the methods used by New York state during audits, he said.

Checking flights and hotel receipts is another good way to track multistate tax compliance, said Fred Basehore, CPP, senior manager for KPMG's international executive services and employment tax practice.

Barbara Youngman, CPP, said she audited internal travel systems to ensure employees correctly reported their whereabouts. Employers in New York and Connecticut had increases in audits, she said.

Short-term international travel may pose similar challenges for payroll, said John Zach, global payroll director for Bloomberg LP.

As little as one day spent in India may result in taxation and Canada continues to be a hot topic for compliance, Zach said. Employees who work in Canada for more than 10 days a year must obtain a tax identification number, and employers have stricter reporting requirements.

A House bill ( H.R. 1393) introduced in March would make multistate compliance easier for employers, board members said. Under the Mobile Workforce State Income Tax Simplification Act of 2017, proposed March 7, states would be prohibited from imposing tax liabilities on nonresident employees working in the state for up to 30 days.

Under the measure, employers also would be allowed to rely on employees' self-reported time and travel to calculate tax and withholding liabilities, McKenna said.

The measure is similar to House bills dealing with mobile workers that were introduced over the past several years. At least two of the bills advanced to Senate committees, but no action was taken. In the last congressional session, the House passed H.R. 2315 on Sept. 21, 2016. The bill was sent to the Senate Finance Committee but the measure did not advance.

Paid Time-Off Rules Differ by State

Adapting to the changing landscape of paid-leave requirements may prove challenging to payroll professionals, especially when an employer already has paid-leave policies in place, said Brent Gow, CPP, director of global payroll consulting and compliance for Starbucks Coffee Co. State and municipal laws around paid parental leave were particularly complicated because the requirements and funding models differed from jurisdiction to jurisdiction, he said.

For example, employer-provided bonding leave, which employees may take to bond with new children, may not necessarily fulfill state or city paid-parental leave rules, Gow said. The cost of the leave, whether covered by employer or employee, differs by state and city, he said.

In California, New Jersey, New York and Rhode Island, paid parental leave was integrated into state disability insurance, which is funded through a payroll tax on employees.

In some cases, state requirements saved employers money if they already offered and funded parental leave for employees, Gow said.

However, parental leave in San Francisco must be funded directly by the employer. Employers also would cover the cost of paid family leave through a tax on payroll amounts, under a Washington, D.C., bill approved by the D.C. Council and sent to Congress in February.

In an address to Congress in February, President Donald Trump said he wanted to ensure new parents had paid family leave. Federal requirements could add another wrinkle to the paid-leave compliance challenges.

In general, board members listed the uncertainty around how President Trump's agenda may affect payroll as a potential challenge. Changes to health care and tax reform were most often cited as areas that could affect payroll.

Additionally, the automation of more payroll processes is one area Martin Armstrong, CPP, said he was investigating. A type of decision science software, Robotic Process Automation, would allow data for payroll transactions to be pulled automatically, instead of input by someone, said Armstrong, vice president of payroll shared services for Charter Communications, Inc.

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