March 24, 2010 | HR Compliance | Posted by Ascentis Thought Leadership
The Long Road to Compliance
On March 18th, President Obama signed the Hiring Incentives to Restore Employment (HIRE) Act. The act allows employers to hire qualified employees and not pay the employer part of the social security tax. As a payroll professional you may dread the new complications that will be inflicted on you but saving 6.2% may be worth the effort. So “Who qualifies?” you ask.
Qualified employees are those hired after February 3rd, previously unemployed for at least 60 days and of course not replacing existing employees. It sounds relatively simple, right? Just track these employees as they are hired and don’t pay the social security tax on their wages.
Not so fast. For starters, the bill is retroactive so unless you were politically prescient, you probably don’t have a list of qualified employees. Once you have assembled that list, you need to determine the portion of the wages that will be exempt from employer tax. To make things more complicated, only wages paid after March 19th are exempt and only up to the maximum $106,800. The 19th was a Friday, so with a little luck, if you have weekly or bi-weekly employees, this will match the end of a pay period and will make it easier to determine eligible wages. If not, tough luck! Be prepared to do some manual prorating or just forego a few days of tax exemption and start counting at the beginning of the next pay period. The latter is a good solution especially if you consider the time it will take for the seemingly small benefit you will get.
You now have a list of employees and you know the exempt amount of wages. So what’s next? Well at this point no one knows exactly: that is while the IRS works on the issue. It will probably come in the form of a change of the 941 to adjust what you’ve paid in excess in the second quarter. In all cases, don’t change anything for your first quarter payments!
What’s in store for me?
We hear you. All this may sound complicated, but really at the moment your job comes down to determining who’s eligible* so that when the time comes adjustment will be a breeze. Ascentis payroll software will be updated soon to let you track qualified employees. We will then provide you with ways to compute eligible wages. As usual, your client support rep will be the most helpful contact if you have any questions.
The healthcare reform just signed into law will add many other challenges. We’re following that closely to be sure you always have tools to stay compliant. This will be the same process again:
- Read the law and prepare for change
- Wait for the IRS (in most cases)
- Implement changes in the system
- Explain changes to our clients and make sure everyone is happy.
Next time you hear that a law has 1,990 pages, keep us in your thoughts!
*Eligible employees will have to sign an affidavit stating that they haven’t worked more than 40 hours during the 60-day period preceding employment. IRS is working on a form just for that, stay tuned.
Please see our updated comprehensive guide to HR compliance!
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