Who should you hire?

The Economist says that the single biggest problem in business today is unsuccessful hiring. Hiring mistakes can cost a large company $1.5 million or more a year and countless wasted hours. This statistic becomes even more startling when you consider that the typical hiring success rate is only 50 percent.

I read someplace else that it’s estimated the average hiring mistake costs employers 15 times the salary of the incorrect hire. When you include salary, lost productivity and opportunity costs, this is a reasonable estimate.

Despite the challenges and importance of hiring the best person who will have the best fit for your organization, most business owners dread the task of preparing a help wanted ad, receiving resumes and then interviewing possible candidates. As we provide payroll processing for many businesses, we can tell which companies are doing a good job of hiring, based on turnover rate.

A simple way to speed up the process of selecting applicants for an interview is to conduct a pre-interview over the phone. In fact you should never have a face to face interview if you haven’t already screened the person over the phone.

There are five simple questions you should ask that will help you determine how good a fit the prospective employee will be. They are designed to be open-ended questions, and they have nothing to do with the specific tasks of the job.

  1. What are your career goals?
  2. Please describe one of your biggest accomplishments or something you’re particularly proud of in your career.
  3. Please describe one of your bigger career disappointments/mistakes and how you handled it.
  4. Why should your company name here hire you as a job title here?
  5. Please tell me in your own words what you think this position is really about?

Ask the questions, and then shut up. Don’t lead them, and don’t offer to rephrase the question. The best candidates will also be the ones who are the most serious, the most prepared, and the most open about their past successes and failures. Each phone interview should take less than 15 minutes.

After finishing the questions and hanging up the phone, rank the candidate on a scale of 1-10. The only people you should meet for a face to face interview are the ones that ranked a 9-9.5.

Employee or Independent Contractor?

It’s critical that business owners correctly determine whether the individuals providing services are employees or independent contractors. If you have any doubts, contact a payroll service provider such as Manager’s Payroll for advice.

There are three categories of facts that provide evidence of the degree of control and independence:

  1. Behavioral: Does the company control or have the right to control what the worker does and how the worker does his or her job?
  2. Financial: Are the business aspects of the worker’s job controlled by the payer? (these include things like how worker is paid, whether expenses are reimbursed, who provides tools/supplies, etc.)
  3. Type of Relationship: Are there written contracts or employee type benefits (i.e. pension plan, insurance, vacation pay, etc.)? Will the relationship continue and is the work performed a key aspect of the business?

The consequences of making a misclassification mistake can be costly. If you classify an employee as an independent contractor and you have no reasonable basis for doing so, you may be held liable for employment taxes for that worker.

5 Smart uses for your flex-spending account

A flexible spending account offered through your employer, and administered by your payroll service, is a great fringe benefit that lets you pay medical and child-care expenses with pre-tax dollars.

Make sure you take full advantage of it when deciding how much to contribute — because the amount you can set aside for health-care expenses is now limited to $2,500, a rule change from the health-care law that took effect in 2013.

Another big change now permits some employers to allow employees to carry over $500 from one year to the next, although not all plans have made this change.

Here are 5 suggestions for using up your balance of available funds:

  1. Prescription eyeglasses – use the pre-tax dollars from you FSA to cover the cost of quality frames, even if you don’t have a vision plan with your employer.
  2. Orthodontics – flex plans can be used to cover the cost of braces for yourself or your kids.
  3. Weight-loss programs – if prescribed by a doctor to treat obesity, the cost of this program can be reimbursed through your FSA.
  4. Lasik and laser eye surgery
  5. Also remember that the cost of all prescribed drugs can be reimbursed through your FSA.

Healthcare payroll rules changed for Cafeteria Plans

If you offer a Sec. 125 cafeteria plan to your employees, take note that the IRS has expanded the permitted election rules for health coverage under this plan. Notice 2014-55 permits a cafeteria plan to allow an employee to revoke his or her election under an employer’s group health plan during a period of coverage in either of two situations in order to purchase a qualified health plan through an Exchange established under the Affordable Care Act. Consult the notice for a detailed explanation of the situations.

Business passion does not equal payroll processing

Like most business owners, you started your business with passion. Unfortunately, also like most owners, that passion tends to get lost somewhere along the way, usually about the time you find yourself mired down in complex administrative work…like payroll or employee issues. You should spend your workdays making your business successful, making it an industry leader, brainstorming and innovating new ideas. You shouldn’t waste time on back office tasks. Consider all the reasons why using a payroll service is your best option…

Outsourcing payroll preserves your time – Not only do you have to stay up to date on ever changing IRS and state revenue regulations, but processing payroll also takes a great deal of time—all of which take your focus off your core business.

Save money and be compliant – It takes concentration to stay current on ever-changing mandates and software updates. It’s always best to leave payroll compliance to the experts, so you can avoid penalties and fees.

Eliminate employee complaintsHave you ever had trouble paying your employees on time? Did you make a mistake that you have to go back and correct? These issues can be avoided by using a payroll service provider.

Keep yourself in business – Don’t waste anymore time trying becoming an expert payroll processor. Get back to your passion; get back to your business.

Payroll service tips for filling out a W4

We find many errors on form W4 from our client’s employees. Some require the form to be redone, while other mistakes are probably costing the employee undue hardship with income tax owed at the end of the year. Here’s a few tips to consider:

  1. How do I know if I’m exempt from withholding? You can take a pass on withholding if you owed no tax last year and expect to owe nothing this year, either. (This means zero tax liability for the year, not whether you owe tax or get a refund when you file.) The reality is that very few employees are exempt.
  2. How do allowances work? The number of allowances you claim controls how much will be withheld from your paycheck. The more you claim, the less money that is withheld; the fewer, the more of your salary is sent off to the IRS. Choose wisely because you could be penalized for grossly exaggerating your allowances to avoid payroll tax.
  3. Married couples should consider the total number of allowances between them, and then divide this by two. Otherwise they are bound to face a larger than expected tax bill at year’s end.
  4. A new W4 should be filled out when you get married, divorced, have a baby, start a new job, or if you receive a very large tax refund, or end up owing a significant amount.

Compensation and the S-corp Shareholder

In working with business owners for many years, I’ve seen just about every variation possible when it comes to owner (shareholder) compensation verses distributions or draws. According to the IRS, “Distributions and other payments by an S corporation to a corporate officer must be treated as wages to the extent the amounts are reasonable compensation for services rendered to the corporation.” In other words, the IRS considers no or low salary to a shareholder who is also an officer, and active in the business, an attempt to evade payroll taxes.

The penalty for failing to pay payroll taxes is 100% of the taxes owed, and the IRS is made aware of this when the S corporation files a tax return that reports little or no compensation to its shareholder/officer. The IRS can and will go after the corporation and the shareholder to collect payroll taxes on officer compensation. In determining if the shareholder evaded payroll taxes, the IRS will consider the following:


  1. Did the officer/shareholder provide substantial services? An officer of a corporation who does not perform any services or performs only minor services and who neither receives nor is entitled to receive any remuneration is not considered an employee of the corporation. Therefore, to determine if the officer is an employee, it is important to look at the services the officer performed.
  2. Is the compensation reasonable? Zero pay, or unusually low pay, that is not justified by services performed are examples of unreasonable compensation. Several factors determine reasonableness of compensation: the employee’s qualifications; the nature, extent, and scope of the employee’s work; the size and complexities of the business; a comparison of salaries paid; the prevailing general economic conditions; comparison of salaries with distributions to shareholders; the prevailing rates of compensation paid in similar businesses; the taxpayer’s salary policy for all employees; and, in the case of small corporations with a limited number of officers, the amount of compensation paid to the particular employee in previous years. The IRS will ask, “What did the shareholder/employee do for the S corporation?”

As you can imagine, documentation is the key for taxpayers to justify their position if the IRS questions payments to shareholder/employees. Have well-drafted employment agreements; use a consistent approach each year to determine pay and bonuses, etc. By doing so, you can show that compensation plans were adopted in good faith, and the payments are in fact reasonable.

Employees are Exempt or Non-Exempt

A surprising number of payroll service providers, and business owners don’t know or understand the key differences (or implications) of determining whether employees are exempt or non-exempt. Having a good understanding of the rules can save you a lot of hassle down the road.

The typical guideline is that hourly employees are non-exempt, while salaried employees are exempt. This however is not true in several cases, as the correct classification is determined by the actual job duties and salary level, not the job title, job description, or method of payment.

Administrative employees: To qualify as exempt, administrative employees must meet all of the following requirements:

  1. Paid at least $455 per week on a salary or fee basis.
  2. Primary duty must include:
    1. The exercise of discretion and independent judgment regarding matters of significance.
    2. Performing non-manual or office work related to the management or general business operations
    3. Performing work that is directly related to academic instruction or training at a school system or educational institution

Executive employees: To qualify as exempt, administrative employees must meet all of the following requirements:

  1. Executive employees must be paid a salary of at least $455 per 40-hour work week.
  2. They must regularly direct the work of at least two or more full time employees.
  3. Must have the authority to hire and fire other employees, or their recommendations must be given particular weight as to the employment status of other workers.
  4. Primary duties must be management of the business or of a customarily recognized department of the business.

Any employee who owns at least 20% of the business in which he/she is employed is considered exempt.

Computer Employees: This would be defined as a salaried, highly skilled computer professional, and the work must consist of one of the following:

  1. They must apply system analysis techniques and procedures including consulting with users to determine hardware, software, or system functional specifications and design, development, documentation, analysis, creation, testing, or modification of computer systems or programs.
  2. They must also be paid at least $27.63 per hour.

Outside Sales Employees: To qualify as exempt, outside salespeople must meet all of the following requirements:

  1. Primary duty must be selling tangible or intangible items, or
  2. Obtaining orders or contracts for services
  3. They must customarily work away from the employer’s place of business.

Professional Employees: The traditional “learned professions” are generally exempt. These include lawyers, doctors, dentists, teachers, architects, and clergy. Also included are registered nurses (but not LPNs), accountants (but not bookkeepers), engineers who have engineering degrees or the equivalent and perform work of the sort usually performed by licensed professional engineers, actuaries, scientists (but not technicians), pharmacists, and other employees who perform work requiring “advanced knowledge” similar to that historically associated with the traditional learned professions.

Determining an employee’s exemption status is critical. If indeed the employee is nonexempt, they must be paid an overtime premium for hours worked over 40 hours, regardless of the method of compensation (hourly, salary, commission, etc.).

Additional FUTA Tax Assessment

Federal law, via IRS Code Sec. 3302 provides for a reduction in the amount of FUTA credit employers may take when a state has outstanding federal loans for two or more years. For the 2013 tax year, there are14 states with outstanding federal loans (by credit reduction, they mean increased taxes).

If your business operates in Delaware, Arkansas, California, Connecticut, Georgia, Kentucky, Missouri, New York, North Carolina, Ohio, Rhode Island, Wisconsin, or Indiana, you will pay higher FUTA payments per employee for the 2013 tax year, resulting in a net increase in your FUTA taxes due. Therefore, similar to last year, you will notice an additional tax due, albeit modest, in January 2014, for the 2013 payrolls.

As a part of the services that Ashgrove Payroll provides to our cleints, we will deduct the additional FUTA amounts due from thier account and file form 940 on their behalf. As the tax year progresses and additional information becomes available, further communications on this topic may be provided.

Has your state tax deposit frequency changed?

State Withholding Tax Deposit frequencies are necessary in order to file and pay our clients taxes on time. Because we don’t received information from the state or federal tax agencies directly, it is the client’s responsibility to provide Ashgrove Payroll with this information.

What is a state withholding tax deposit frequency?

When money is withheld from your employee’s check(s) for state taxes, that money is called state withholding tax. A deposit frequency is the rate in which you we required to remit withholding tax to the appropriate agency.

How is my deposit frequency determined?

How often you file and pay withholding tax depends on the size of your payroll. The larger your payroll, the larger the withholding and therefore the more frequently you will report and pay the tax.

How do I find out what my state deposit frequency is?

Every employer that is required to withhold tax from their employee’s check(s) must register with the appropriate state agency. At that time you will be assigned a deposit frequency. The agency also performs periodic reviews of your account and may change your deposit frequency. When this occurs, the agency will notify you directly of the change. Ashgrove Payroll does NOT receive a notification from the state.

I have been a client for years, why are you asking for this information now?

Ashgrove Payroll has always required that you provide the most current information, including deposit frequencies, to ensure your taxes are paid and filed accurately.

I have received a deposit frequency change notification. What do I do now?

Fax all deposit frequency notifications received from the state directly to Ashgrove Payroll at 866-432-6140

What if I did not receive a notification of change?

Due to the importance of having the correct frequency for your company, we recommend that employers contact their state agencies annually to determine if their frequency has changed for the upcoming year.