Important Payroll Issues For Medical Practices

February 28, 2005

How Mishandling SSNs Can Land You in Court; If the Social Security Administration (SSA) doesn’t sue you—the employee will?

Mishandling Social Security Numbers (SSNs) or reporting an incorrect one for an employee may result in penalties for the employer and lost Social Security benefits for the employee.

You may not request the documents listed on Form I-9 that applicants can use as proof of identity to establish their right to work in the U.S. Applicants must choose these of their own volition. If they submit an SS card, you can make a copy; if they do not, you cannot ask for it.

However, after someone is hired, you can request a Social Security card to copy for payroll records. A good time to request it is when a new hire submits a W-4. If the W-4 is submitted with the I-9, have someone else in your firm request the SS card so you are not accused of requesting the SS card for I-9 purposes.

The best approach is as follows:

  • Personally verify each new employee’s SSN by asking to see a Social Security card. Photocopy the card for your records. This is not unlawful when done for the purpose of W-2 reporting. If the employee has an SSN but not a card, call 1-800-234-5772 to verify the SSN.
  • If a new employee claims not to have an SSN, explain that it is his or her responsibility to obtain one. Ask the employee to get one and show you a receipt indicating that an SSN was applied for.  Keep a copy of the receipt in your personnel or tax records and indicate “applied for” in the SSN area of the W-2 if an SSN is not obtained by the W-2 filing deadline.
  • If you don’t have the employee’s SSN by the time you must file a W-2, attach to copy A (the copy sent to the Social Security Administration):

* a copy of Form SS-5 that the employee has completed; or

* a statement signed by the employee showing his or her:

– full name

– present or last known address

– date and place of birth

– father’s full name

– mother’s full maiden name

– a statement on whether the application was previously filed and its date of filing

The employer is also required to provide an explanation if it did not secure the employee’s SSN.

When the employee obtains an SS card, complete a W-2c and, instead of  checking  “applied for,” provide the SSN shown on the employee’s SS card. Give a copy of the W-2c to the employee and file it with the SSA.

Matching names and SSNs

Any mismatch between the employee’s name and SSN as it appears on the W-4 v. the W-2 can result in penalties.

Updating payroll records regularly

To ensure that employees get proper credit for earnings:

  • Ask employees to verify their name and SSN before you close out your books and prepare your W-2s.
  • When a name is changed, continue to use the old name until the employee presents you with the updated SS card and revised W-4—otherwise, or the SSA may not properly post the employee’s earnings and you could be assessed penalties for a name and SSN mismatch.
  • Explain to employees that you can’t accept their new name until you see their new SS card and revised W-4. Tell them to submit Form SS-5 with the required documentation.
  • Watch for phony SSNs. They do not begin with 8 or 9, and cannot be all 1’s, 3’s or 123-45-6789.

For more information:

Call 800-772-6270 and request SSA Publication 20-004; or visit:

www.socialsecurity.gov/employer and select:”SSN Verification.”

How to Avoid Huge Wage-Hour Penalties

The best way to avoid major wage-hour penalties: audit your own practices to make sure that they are in compliance with FLSA. This is the advice passed on The General Ledger, the monthly technical newsletter for AIPB members from Shawn Smith,(www.aipb.org/general_ledger.html) from, Next Level Consulting LLC, Harrison, NY. She cites four common problems:

1. Worker classification. You cannot avoid overtime pay simply by paying employees a salary and classifying them “exempt.” To avoid misclassification, know what jobs are exempt (regardless of whether they are salaried or paid by the hour), then review job descriptions and how each job is actually performed.

2. Docking pay. An exempt worker docked for a partial-day absence may lose his/her exempt status, costing you retroactive overtime pay unless the docking is connected to an FMLA-related leave.

3. Voluntary or unauthorized work. Nonexempt employees must be paid for time worked, voluntary or not. Even if your policy requires that a manager approve paid overtime, your firm must still pay at least 1½ x the employee’s hourly rate for each hour worked over 40 hours in the workweek.

4. Calculating overtime pay. FLSA requires that overtime pay be based on the employee’s regular rate of pay, which is often higher than the base rate because it includes nondiscretionary bonuses and other payments.

Example: Nondiscretionary bonuses are those required under a contract, agreement or promise, express or implied. These include bonuses for production, work quality or to get someone to take or stay on a job and bonuses that employees have come to expect (other than holiday bonuses). A nondiscretionary bonus given to hourly employees must be added to their gross pay in the week it is earned and must be included when calculating their pay for overtime purposes. [29 CFR 7788.209]

Case: Bill’s pay rate is $9/hr. plus production bonuses. One week, he works 43 hours and earns a $27 bonus.

Bill’s regular pay: $387 for the week ($9/hr. x 43 hours) + $27 bonus = $414 straight time pay.

Bill’s overtime pay: $414 earned for the week (including the nondiscretionary bonus) ÷ 43 hours worked = $9.63 regular rate x 50% premium rate = $4.82 x 3 hours overtime = $14.46 premium pay.

Bill’s gross pay: $414 straight time pay + $14.46 premium pay = $428.46 gross pay for the week.


 

BOOKKEEPING TIPS is a twice monthly e-letter published by The American Institute of Professional Bookkeepers (AIPB), Suite 500,  6001 Montrose Road, Rockville, MD 20852. Tel.: 800-622-0121, Fax: 800-541-0066, email: info@aipb.org.

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