We’ve gathered information about new laws and changes concerning payroll. This is what we discussed in a payroll seminar in September.
COVID 19 Sick Pay
(WATCH FOR UPDATES: currently scheduled to expire 9/30/21.)
COVID Sick Pay reimbursement is/was available for employers with fewer than 500 full-time employees beginning March 2020. It was mandatory in 2020 for employers with 50 to 500 full-time employees, optional for those with under 50. For 2021, it is optional for all employers under 500 full-time employees.
In effect, the government fully funds (up to wage limits) the pay for two weeks for an employee that either has COVID, is exposed to someone with COVID, or a parent forced to stay home when kids are sent home from school or daycare. Beyond that, the government funds 2/3 of pay for ten weeks. If an employee can telework, there is no funded pay. The funding is done through your payroll tax returns.
Recommendation: I think we’d all agree that if anyone actually has COVID, we don’t want him or her working. Some of you have cut back on the paid leave to only be available those who have a positive COVID test, but not for exposure to someone or child care duty. Be sure that you treat ALL your employees under the same rule.
Opportunity: A variation of this credit is available on your 1040 for self-employed during both 2020 and 2021.
Employee Retention Tax Credit (ERTC)
(WATCH FOR UPDATES: Although scheduled to continue for the rest of 2021, proposed legislation would end this program as of 9/30/21 to pay for the Infrastructure Bill).
This has been another government windfall for about a third of our payroll clients. For those that do get money, it’s significant – into six figures for some (based on payroll). Although the deadline to file for this is three years, we know all of you want your money now. Please pass along to your employer friends that this is available – sometimes unexpectedly. As originally passed March 2020, you couldn’t have PPP and ERTC, but Congress changed that December 2020. Some who thought they didn’t qualify now may qualify.
Amount of Credit for ERTC:
- For 2020, it was 50% of eligible wages, up to $5,000 credit per year per employee
- For 2021, it is 70% of eligible wages, up to $7,000 credit per QUARTER per employee
- ERTC can’t be paid on family members (broadly defined) of the majority owner.
Eligible Businesses for ERTC:
- Reduced Gross Receipts Test: For 2020, a significant decline in gross receipts is down 50% or more for a calendar quarter vs. the same quarter of 2019. For 2021, the test is down 20% from the same quarter of 2019 (not 2020). In 2021, as an alternative, you can also use the prior quarter vs. the same prior quarter of 2019 for the test.
- Government Order Test: “the trade or business is fully or partially suspended due to an order from an appropriate governmental authority…” In Tennessee, that’s generally late March 2020 through late April to early May. If you were able to fully operate and work remotely (most offices), you weren’t affected.
- This is new: “Recovery Startup Businesses” are businesses that began after 2/15/20 and aren’t affiliated with any other business. Maximum benefit is $50,000 per quarter, only in Q3 and Q4 of 2021.
For the above, you can’t claim the ERTC on the same wages you used for PPP forgiveness.
Unusual Audit Activity
- About six years ago TN mandated that all employers with over five employees use the e-verify system to check the work status (i.e., correct Social Security number) as the new employee started work. The TN website listing violators shows mostly action against restaurants and C-stores, but others have been checked, too. The rule is that the employer must check the work status through the E-verify system within 3 days of hiring – a much shorter period than the weeks until you get their payroll info to us. Generally, we’d recommend the e-verify be done by your hiring manager.
- A client had a child labor audit this spring for having a 15-year-old working outside of permissible hours. The owner wasn’t aware that this employee was under age – the local manager hired them, but the owner was stuck with the fine. The owner is rather certain that the audit was initiated by a disgruntled staff member. That’s part of the lesson too – your employees may not know how to show up for work but they do know government phone numbers.
Quick Items to Remember
- The daycare credit has been significantly enhanced for 2021.
- The W-4 form (employees report their withholding status) was significantly changed at the beginning of 2018. It was bad before, now it’s impossible for most to understand.
- Giving an employee a flat amount of money for auto or phone use is fully taxable to them unless you have an “accountable plan.” That means you have to have receipts or a mileage log of some kind to show that the employee actually spent the money.