
October, 2003	The Payroll News	Volume 1, Issue 5
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The Latest News, Tips and Tools For Payroll and Tax Issues

Payroll Taxes

A child support enforcement privatization pilot program … (read more)

Employers doing business with a nonresident contractor … (read more)

Statistics

The pay frequency used by the largest number of respondents’ organizations (68.0%) and the pay frequency of their largest payroll (56.0%) is ... (read more)

Employee Benefits

Cafeteria plans, outlined in Section 125 of the Internal Revenue Code (IRC) … (read more)

*** Payroll Taxes

State-by-State, Maryland

Maryland Child support. A child support enforcement privatization pilot program has been established within the Department of Human Resources. DHR is now authorized to contract with a private company to perform all aspects of child support enforcement in Baltimore City and Queen Anne’s County, including collecting and disbursing support payments. The pilot program expires on 9-300-9 [H.B. 564, L. 2003; S.B. 524, l.2003].

EFT. Effective 7-1-03, electronic funds transfer (EFT) is required for any single withholding tax payment of $10,000 or more (previously $20,000 or more). There payment methods are available: ACH Credit, ACH Debit, and Direct Debit (if the business uses bFile, the Comptroller’s Internet filing service) [H.B. 935, L. 2003].

Nonresident contractors. Effective 7-1-03, employers doing business with a nonresident contractor under a contract that is reasonably expected to be $50,000 or more must withhold 3% of the contract price until 30 days after the nonresident contractor has: (1) completed the contract: (2) requested in writing that the Comptroller issue a tax clearance certificate; and (3) provided a received copy of the request to the employer required to withhold the payment. This does not apply to owners who contract for improvement of residential real property that they occupy (or intend to occupy), or the improvement of real property if the total value of the improvement is less than $500,000 [H.B. 935, L. 2003; ReveNews, Summer 2003.]

Student/part-time withholding exemption. Students or other part-time employees can claim exempt from state and local income tax withholding if they expect to have less than $7,800 in income for tax year 2003 (7,700 for tax year 2002). The exemption is claimed on line 3 of Form MW507, Employee’s Maryland Withholding Exemption Certificate (online at www.marylandtaxes.com) [News Release, 6-30-03].

State-by-State, Pennsylvania

Credit Card Payments. Businesses can now pay delinquent withholding taxes by credit card (American Express, Discover, MasterCard, or Visa), along with current payments. The vendor charges a 2.5% fee, based on the tax due, for processing the transaction. [Pennsylvania Tax Update, No 104 2003]

*** Statistics

Payroll Processing

A majority of all respondents (63.4%) indicated that their payroll function is a unit within the accounting or finance department of their organization.

About two-thirds of payroll departments (68.2%) use the batch method to input payroll data and 36.4% input payroll online.

The pay frequency used by the largest number of respondents’ organizations (68.0%) and the pay frequency of their largest payroll (56.0%) is “biweekly.”

Outsourcing Payroll

A majority of organizations (57.8%) that outsource their payroll processing began using a service bureau between 1990 and 1999.

Nine out of ten organizations that outsource their payroll processing (90.4%) do not plan to bring payroll processing in-house in the future. Of the 9.6% who plan to bring payroll processing in-house, most will do so because of cost, flexibility, and/or system integration.

Expatriate and Foreign National Employees

About 15% of payroll units indicate paying expatriate employees in an average of 5 foreign countries.

A similar percentage (15.5%) pay nonresident alien employees. These organizations pay an average of 171 nonresident alien employees (and a median of 5).

Survey of Salaries and the Payroll Profession, APA 2003

*** Employee Benefits

Serving Up Cafeteria Plans to Employees

Cafeteria plans, outlined in Section 125 of the Internal Revenue Code (IRC), allow employees to choose between a “menu” of at least one cash/taxable benefit and one qualified/nontaxable benefit. The theory is that employees will choose what they actually use, decreasing unnecessary benefits and saving employers money. In addition, since employees pay for qualified benefits with pre-tax money, they see an increase in their paychecks. Employers must also determine what kind of cafeteria plan to offer: a premium-only, flexible spending arrangement, or full cafeteria plan. The amount of administrative work increases with each type of cafeteria plan. If you do the premium-only plan, it’s a minimal amount of work. When you get into the flexible spending accounts, it becomes a little more work, but it is certainly manageable, and of course, you can outsource that section. And if you go for a full-blown cafeteria plan-yes, there’s a lot of work involved in that.

Premium-only plans. These plans, known as POPs or premium conversion plans, are used by employers that require their employees to contribute towards benefits, usually health insurance. A POP plan generally does not offer a menu of benefits to choose from. It merely allows employees to pay for their share of the benefit costs on a pre-tax basis through a salary reduction in the amount of the required contribution. They are permissible under Section 125.

Flexible spending arrangement. Many cafeteria plans offer this type of benefit program known as an FSA, flexible spending account, or reimbursement account. FSAs give employees the chance to pay for certain covered healthcare and dependent care expenses with pre-tax dollars provided through salary reduction. As the employees incur covered expenses, they are reimbursed up to the amount that will be contributed during the plan year through salary reduction. By using pre-tax dollars to fund the FSA, the employee reduces his or her out-of-pocket expenses by the amount of the taxes that are saved.

Full cafeteria plan. Usually offered by large employers, full cafeteria plans may contain elements of POPs and FSAs along with various benefits.

Michael O’Toole, Esq and Kathleen Sturgeon, Paytech, October 2003

With all payroll tax related questions please contact Natalie Berman, CPA at nberman@nbaccorp.com
With payroll questions please contact Sepi Jahed, CPP at sjahed@custompay.us
With employee benefits questions please contact Boris Foxman, RFC at bfoxman@custompay.us