Solutions for Today’s Payroll Problems

Surveys in many industries show that payroll can represent as much as 40 to 60% of a business’s operating expenses. Today, payroll is no longer just about complying with the rules and making timely payments.

Every employer faces countless rules and regulations that are constantly in flux and that regulate payments made by a marina or boatyard to its workers. Modernizing the payroll process can help avoid the potential traps created by mistakes and ommissions.

Potential Payroll Risks
Problems with a marina or boatyard operation’s payroll are all too common. Since issues can occur at any time, those responsible for payrolls need to be prepared for problems such as:

Failure to withhold and pay payroll taxes. Every employer is required to withhold federal (and often state) income tax from the wages of employees. Failure to pay these taxes after withholding them from an employee’s wages or salary usually leads to hefty fines and penalties.

Incorrect working hours. Tracking time can be challenging, especially for a small marina or boatyard.

Potential payroll problems often result for marinas and boatyards because of inacurate tracking of employees’ work hours or overtime. Common mistakes can result from:

• Employees working through breaks
• Incorrectly logging overtime hours
• Overlooking time required outside regular business hours for such things as training
• Not accounting for travel between work sites.

Using time-tracking software that integrates with the operation’s payroll system can ensure that employees’ hours are accurately logged and paid correctly, including all overtime payments as required under the new tax rules to enable workers to benefit from overtime pay.

Exempt or Non-Exempt

Guidelines under the Fair Labor Standards Act (FLSA) determine who must be paid overtime and who is exempt. Classifying an employee as “exempt” and failing to provide adequate overtime pay risks lawsuits by current or former employees who claim that they didn’t receive proper pay. Obviously, matching the operation’s job descriptions against the FLSA’s duties test is mandatory. After all, a title such as “manager” doesn’t automatically make a worker exempt. Their actual job duties do. When in doubt, classifying a worker as non-exempt is a good strategy.

Spouses, Kids and Business
Spouses who jointly own and operate a business and share in the profits and losses are considered “partners” in a partnership, regardless of whether there is a formal partnership agreement. The partnership is considered the employer of any employees and is liable for any employment taxes due on wages paid to its employees.

Note: If a spouse is an employee, not a partner, Social Security and Medicare taxes must be paid for him or her. The wages for the services of an individual who works for his or her spouse in a trade or business are subject to income tax withholding and Social Security and Medicare taxes, but not to FUTA tax.

The services of a child or spouse are subject to income tax withholding as well as Social Security, Medicare and FUTA taxes if he or she works for:

• A corporation, even if it is controlled by the child’s parent or the individual’s spouse
• A partnership, even if the child’s parent is a partner, unless each partner is a parent of the child
• A partnership even if the individual’s spouse is a partner
• An estate, even if it is the estate of a deceased parent

Seasonal and Part-Time Payroll
Part-time and seasonal employees are subject to the same withholding rules that apply to the marina or boatyard’s other employees. In other words, an employer must withhold federal income tax, Medicare and Social Security as well as pay state and federal unemployment taxes.

All employees, full-, part-time or seasonal, must complete a Form W-4, Employee’s Withholding Certificate, before their first shift for their employer to determine the correct tax withholding amount. Social Security and Medicare taxes are based on the amount of each payroll check up to the annual limits.

Employers are responsible for both federal and state unemployment taxes, which are based on the first several thousand dollars of an employee’s wages. Employers of seasonal labor must submit Form 941, Employer’s Quarterly Federal Tax Return, but only for the quarters when wages are paid and amounts withheld. Of course, Form W-2 must be provided for every employee.

Worker Misclassification
Employers have long preferred to treat workers as independent contractors, reaping payroll tax savings, no fringe benefits or other expenses associated with employees. By the same token, many workers have lowered their own tax bills by shifting from being an employee to being an independent contractor.

Whether on the federal or state level, the key question is usually the degree of control over the work and who exercises that control. To help, an employer can submit a Form SS-8, Determination of Worker Status for Purposes of Federal Employment Tax and Income Tax Withholding, for a worker classification determination. There is also the IRS’s 20-factor common-law test for employers to ensure they are in compliance with both federal and state laws.

Other Payroll Costs and Deductions
Among the responsibilities of every employer are other payroll costs that are based on legal requirements or optional benefits offered by the marina or boatyard. These can include:

Worker’s compensation insurance: All states require worker’s compensation insurance for workers in a boatyard or marina. Although most states make an exception for owners, shareholders or only employees, it is the states that set the rates for worker compensation insurance based on the industry, size and number of employees.

State disability insurance: California, Hawaii, New Jersey, New York, Rhode Island and Puerto Rico have mandatory requirements for employers to support programs that pay a portion of worker wages for work missed due to caregiving or a disability.

Paid leave: If an employer offers time off for personal days, vacation, sick days, parental leave or other purposes, these are part of the payroll process. Paychecks usually list compensation paid as part of an employee’s paid leave benefits, even when the employee’s pay is the same as normal.

Reducing Payroll Tax Penalties
Payroll tax penalties can be devastating. Fortunately, many payroll tax penalties can be avoided by ensuring that all employment taxes are collected, accounted for and paid to the IRS when required.

Reducing payroll tax penalties levied as the result of an IRS audit, or even those resulting from errors detected by the marina or boatyard itself, begins with simply asking the IRS to abate or eliminate the payroll tax penalty. Yes, the IRS has the discretion to waive penalties, especially if the penalty is the exception, not the rule.

Obviously, when avoiding payroll tax penalties, it helps to understand the basic rules for withholding payroll taxes, and paying over withheld amounts, on the wages of all the boatyard or marina employees.

Don’t forget that it is not only the marina or boatyard or its bookkeeper that can be held liable for payroll taxes withheld but not forwarded to the IRS. Anyone with the authority to pay the business’s bills, hire its workers or is an officer or shareholder in the operation can be held personally liable for unpaid employment taxes, nor is there immunity from liability if the business is a corporation or LLC.

Those Other Expensive Payroll Errors
Mistakes and even omissions can occur with any payroll and can involve either salaried or hourly employees. Among the common miscalculations are:

• Incorrect deductions, especially those for Social Security and health insurance premiums
• The already mentioned inaccurate calculations for overtime work
• Improper payments to employees who are on leave
• Missing pay for a new or newly promoted employee

Errors such as these can result in both overpayments and underpayments. Further compounding the potential for payroll problems are the many regulations on the federal, state and even local levels. Because the basic payroll calculation changes based on the amount, pre-tax deductions and the information provided on the worker’s W-4, Employee’s Withholding Certificate form, there are many error possibilities.  Mistakes in calculating taxes and required withholdings can result in audits for non-compliance under the frequently changing tax laws. In addition to creating issues for the employee, facing fines and penalties is an all-too-real possibility.

Paying the Piper Properly
Since human errors and manually processed payroll are frequently blamed for these and other mistakes, utilizing payroll software that automatically calculates the pay, tax deductions and overtime payments can avoid the financial impact on employees and an employer to potential penalties.

Today’s payrolls require understanding the basic rules for withholding payroll taxes and paying over all the withheld amounts on the wages of all the marina or boatyard operation’s employees. Keeping up to date with any changes to the payroll withholding rules, both federal and state, is also important.

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