The Payroll Report: April 9 to April 13


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Here is a roundup of payroll issues covered recently:

Federal

The Labor Department is to draft regulations to clarify a new law that bans employers from retaining employees’ tips, an internal memo posted April 9 on the department’s website said.

The clarification is required because the amendment to the Fair Labor Standards Act names managers and supervisors as the positions blocked from retaining tips, but neither occupation is defined in the act.

While the department works on regulations, it directed investigators to use FLSA rules governing exemption from overtime pay for managerial employees to determine if a given person is a manager or supervisor, the memo said.

Additionally, employers who pay the full minimum wage and do not use the FLSA’s tip credit may allow employees who are not tipped, such as cooks and dishwashers, to participate in tip pools with employees who receive tips.

A set of frequently asked questions related to the employer credit for paid family and medical leave were released April 9 by the IRS.

The 2017 tax law (Pub. L. 115-97) included a new Section 45S of the Internal Revenue Code establishing the credit, which is from 12.5 to 25 percent of the wages paid to qualifying employees on leave under the Family and Medical Leave Act, depending on how much of the employee’s normal pay is replaced by the benefit.

To be eligible for the credit, employers must provide at least two weeks of leave with compensation of at least 50 percent of employees’ regular wages. Under the law, employers may claim a credit for up to 12 weeks of leave for each employee who has worked for the employer for at least a year and whose annual income does not exceed $72,000.

No guidance was released on how to claim the credit. The IRS said it plans to issue more information.

Employers need transition relief for tax-free health savings account contribution limits that were reduced March 5 under the new tax law, American Payroll Association said April 6 in a letter to the IRS.

The maximum tax-free HSA contribution limit for individuals with a family high-deductible health plan in 2018 “was reduced from $6,900 to $6,850 ($50 difference),” the association said, adding that the change was applied retroactively to Jan. 1, 2018.

Under the new  tax law, the excess $50 in contributions became reportable as taxable income, the association said. IRS first released the 2018 contribution limits May 4, 2017, in Revenue Procedure 2017-37, but the new tax law changed how those limits are calculated.

Payroll operations were further complicated by whether “HSA contributions are paid by individuals in full at the beginning of the year or spread throughout the year,” the APA said. “A surprising number of accounts were fully funded at the beginning of 2018, at the $6,900 level.”

The APA requested “immediate transition relief” for employer-sponsored HSA qualified plans for employees for 2018, based on guidance issued by the IRS in 2017. “This relief is necessary to significantly reduce the administrative burden on employers and their payroll departments,” the association said.

The Labor Department’s new self-audit program for employers undermines state and federal laws and undercuts enforcement agencies, attorneys general of 10 states and the District of Columbia said April 11 in a letter to Labor Secretary Alexander Acosta.

The Payroll Audit Independent Determination program allows employers to self-audit their practices and report violations in return for settlements limited to back wages owed, undermining state and federal law and undercutting state and local labor enforcement agencies, California Attorney General Xavier Becerra (D) said April 12 in a news release about the letter.

Among the concerns raised in the letter were whether employers under investigation by state attorneys general or labor-enforcement authorities may participate in the program and whether the releases that workers must sign would “purport to waive an employee’s ability to recover back wages, damages, and other relief available under state or local law.”

State

Idaho Gov. Butch Otter (R) signed legislation (H.B. 527) March 20 that said franchisees and their employees are not to be considered employees of the franchiser except in specified circumstances.

Under the measure, which takes effect July 1, 2018,  franchisees employees of the franchiser unless they are described as such in the franchise agreement, or a court or other tribunal finds that the franchiser exercises control over the franchisee or the franchisee’s employees not customarily exercised by a franchiser.

Indiana extended the deadline for filing 2017 Forms WH-3, Annual Withholding Reconciliation, to April 30 from Jan. 31.

Filing the form on time is a recurring problem for the state’s employers, so the new deadline is meant to encourage compliance, a spokeswoman for the state revenue department said April 6.

The department recently found that the number of late filers warranted an extension, the spokeswoman told Bloomberg Tax. About 16 percent of state employers could take advantage of the grace period, a department official said April 12.

A Maryland bill (S.B. 853) that holds general contractors on construction projects liable for violations of state wage-payment laws by subcontractors, regardless of whether a direct contractual relationship exists, became law April 5. The measure takes effect Oct. 1, 2018.

The measure also requires a subcontractor to compensate a general contractor for any wages, damages, interest, penalties, or attorney’s fees owed because of the wage-payment violation, except in some  circumstances.

Tennessee updated its filing requirements for wage and premium reports for unemployment insurance purposes under a bill (H.B. 1825) signed April 2 by Gov. Bill Haslam (R). Effective Jan. 1, 2019, all employers are to file the reports electronically; previously, the threshold was 10 reports.

The law also changes how the state’s wage base is adjusted. Under current law, the wage base may be adjusted twice a year, on Jan. 1 and July 1. The adjustment is based on a reading of the unemployment trust fund's balance made six months before, on the previous June 30 or Dec. 31.
The measure deletes the provisions that contain the twice-annual adjustment dates and delay the adjustment by six months. Future Tennessee wage base adjustments are to be made Jan. 1, based on a Dec. 31 fund reading, a spokesman for the state Department of Labor and Workforce Development told Bloomberg Tax on April 12.

By Jamie Rathjen

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