New Technologies, Mobile Workers Among Critical Payroll Issues

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By Jamie Rathjen and Jazlyn Williams

Integrating emerging technology into payroll processes is among the top issues facing payroll professionals, members of Bloomberg Tax’s Payroll Library advisory board said March 14.

The board members, who held their annual meeting at Bloomberg Tax headquarters in Arlington, Va., also discussed other critical issues for payroll departments, including multistate compliance and tax reform.

Technological Advancements

Martin Armstrong, CPP, expressed interest in the processing of payroll transactions using blockchain technology, a secure method of recording data in a public and decentralized ledger system originally invented to track cryptocurrency transactions, such as those involving bitcoin.

“I do see blockchain, at least here domestically, as something we could use for same-day payments,” said Armstrong, vice president of payroll shared services for Charter Communications Inc. Under the blockchain method, same-day processing time frames probably would not be limited to the two processing windows in place under the Automated Clearing House system, he said.

Companies also are looking to the blockchain method to make large international payments, Armstrong said.

Adding robotic-process automation to payroll software also may be feasible, Armstrong said. The software would use artificial intelligence to perform payroll calculations immediately upon the input of certain values, such as hours worked.

The move toward robotic technology is going to change the type of people hired by payroll departments, said John Zach, global payroll director for Bloomberg LP.

As more payroll processes are performed and audited by robots, certain quality metrics “will go away because we won’t have people performing the tasks we’d measure them on,” Zach said.

Zach and Armstrong outlined some of the metrics their departments used to track the efficiency of department payroll processes, including those that measured employee performance and payroll statistics, such as cost per payment, paycheck accuracy rate, and administrative costs per employee.

Despite the desire to implement best practices, benchmarking currently is difficult because up-to-date information on the subject and on participating in benchmarking surveys is hard to find, said Barbara Youngman, CPP, strategic payroll leader for Toyota Industries North America Inc.

Multistate Taxation, Travel Rules Differ

The board members said there were a number of dimensions to multistate workforce compliance, to say nothing of each state’s own requirements.

New York audits, for example, tend to focus heavily on nonresident compensation, said Patrick McKenna, CPA, tax director for Prudential Financial Inc.

Employers are liable to withhold New York income tax for nonresident employees who perform services in the state for at least 15 days in a year, so they must keep accurate records of when employees work in the state and which days may be excluded from the total, such as days spent in job-related training.

Tracking mobile employees relies largely on self-reporting, which leaves room for inaccuracy, said Charlotte Hodges, CPP, payroll manager for Willis Towers Watson. A dual-reporting process that involves submitting a time card and an expense report can reduce the risk of inaccuracy, but for many multistate situations, there may not be an expense report that was submitted, she said.

Situations such as when an employee works from home in a different state from where their employer is located also may be complicated, Hodges said. State requirements vary regarding the taxation of work activities performed across state borders, such as telecommuting.

Leave and earned income tax credit policies present another set of multistate challenges, said Brent Gow, CPP, a payroll consultant.

Employers should pay close attention to which states require leave amounts accrued to appear on pay stubs, which states require certain notices, and whether there are penalties involved, he said.

For example, Pennsylvania imposes a $200 penalty for failing to provide the earned income tax credit notice with an employee’s Form W-2, Wage and Tax Statement. Additionally, Texas does not impose an income tax, but still requires a notice about the federal credit, Gow said.

Multistate taxation policies need to be standardized because keeping up with all the state requirements is difficult, Youngman said. “We’ve got a lot of retirees right now and they’re all going to leave California and go to Florida, and we have to keep track of that” while also educating them about each state’s taxation policies, she said.

Country requirements for international travel can be as difficult as the states’ policies, Zach said. For Canada in particular, employers need to know when to pay taxes on employees or have employees set up taxation numbers, he said.

Responses to Tax Reform

Employers also are figuring out how to adjust compliance strategies in response to the federal tax code overhaul, which was signed into law Dec. 22, 2017 (Pub. L. 115-97).

Payroll departments are responsible for ensuring that the vendors they use know what is and is not taxable because of tax reform, McKenna said.

The new law altered the taxability of several fringe benefits. Moving expense reimbursements, for example, are to be included as wages taxable to the employee.

Employers may decide to gross up the reimbursements to minimize employees’ tax burden, Armstrong said.

Employers were concerned with how changes under tax reform were reflected in the 2018 Form W-4, Employee’s Withholding Allowance Certificate, and how those changes may be reflected in later versions, said Lois Fried, CPP, a senior learning specialist for Automatic Data Processing LLC.

The 2018 Form W-4 retained the personal allowances worksheet used in the 2017 Form W-4 even though personal exemptions were eliminated under the new law. Further revisions are expected for the 2019 Form W-4.

Fred A. Basehore Jr., CPP, a senior manager at KPMG, said that he looked forward to the release of additional guidance, such as Publication 505, Tax Withholding and Estimated Tax. Such guidance, he said, would detail the effects of the new law on tax situations that are more complex than those incorporated into the revised online withholding calculator, which was released Feb. 28 by the Internal Revenue Service.

To contact the reporters on this story: Jamie Rathjen at jrathjen@bloombergtax.com and Jazlyn Williams at jwilliams@bloombergtax.com. To contact the editor responsible for this story: Michael Baer at mbaer@bloombergtax.com.

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