Frequently Asked Payroll Questions

Here are some of the Most Frequently Asked Payroll Questions we have encountered. If you do not see the answer to your question here, feel free to ask a question on the form at the bottom of the page and we will do our best to get an answer for you.

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Q: Is there a benefit to waiting until a Quarter Break to change payroll services or payroll methods?

A: It depends. If you have an In-house system and are going to another In-house system or are planning to outsource payroll, than there is no advantage.

However, if you are Outsourcing payroll and are switching to another payroll outsourcing services company, you should wait until a quarter break. The reason is that the payroll outsourcing provider collects tax monies from you before sending it to the controlling authority (state or federal government, for example) starting the first week of the quarter.

If you switch mid-quarter, the old payroll provider will have already swept some of your quarterly tax money, and will need to refund it. In the meantime, the new payroll provider will need to sweep all the tax money at once, often before the first company refunds the money. Depending on your cash flow, that may become an issue for you.

Frequently Asked Payroll Questions

Q: If I change Payroll Providers mid-year, will my employees receive two W-2's at year end?

A: No. The only reason they might is if you change your Federal ID number mid-year, or if you are a Common Pay Master, where you have more than one Federal ID number under which your employees work. If that is the case, they will receive a W-2 for each Fed. ID.

Q: Can I require Direct Deposit?

A: Each state has different requirements. See our State Paperless Payroll Chart for specifics on your state.

Q: When I switch payroll service providers, what information do I need to provide for them?

A: You will need to provide a number of items; use this Payroll Service Program Set-up Checklist to organize the documents and information you need to make the switch.

Q: What is City Tax?

A: Some states allow cities and counties to collect payroll taxes (for example, Colorado, Pennsylvania and New York); most do not. These city and county taxes are often referred to as "local" taxes. If you are hiring a payroll outsourcing service or are outsourcing your payroll taxes, be certain that they handle all of these "local" taxes in each of the states in which you do business. For instance, all payroll tax providers file taxes in New York, but not all of them file the Westchester County Tax.

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Q: What is Blended Overtime Rate?

A: If you have employees that have more than one pay rate for different tasks (ie: in hotels the same person can do Maintenance for $10.00 an hour and clean rooms for $11.00 an hour). When the employee works more than 40 hours, they are to be paid time and a half. But time and a half of what? $10 an hour or $11? The Department of Labor requires employers to "blend" or average all of the rates that the individual worked that pay period and multiply that blended rate by time and a half for the number of hours in excess of 40 hours.

Q: What is Job Costing?

A: Job Costing is the norm in construction and prevelant in certain types of manufacturing. Job Costing is a necessary way of accounting if you are in an industry that needs to bill your customers for your time and effort.

For instance, if you make kitchen cabinets and the Jones family orders an entire set from you that you have to custom make, your accounting department will want to know how much it costs you to make that set and subtract that from the selling prices to precisely ascertain profit margin. So Sammy the Sander works on the Jones cabinets for 10 hours at $10 an hour ($100 total) Hank the Hammer works on it for 20 hours at $11 an hour ($220 total) and Frank the Finisher worked on it for 10 hours at $15 an hour ($150 total).

A Job Costing Report of the Jones account work look like this: 40 "man hours" were spent for a total of $470.00 of wages were spent on the Jones "Job".

Q: What does Tip to Minimum mean?

A: Employees that expect to be compensated by a consistent amount of tips (ie: waiters/valets) are often paid an hourly rate that is less than minimum wage. In the event that the amount of tips in a particular pay period are not nearly what is expected, the employer is required to pay the employee the difference between their hourly rate and minimum wage. For example, if minimum wage is $10.00 an hour and a waitress makes $7.00 an hour, that is a difference of $3.00 per hour. If the waitress works a 5 hour shift while a construcution crew is tearing up the sidewalk in front of the restaurant which prevents customers from entering, the tip to minimum for that shift is $3.00 x 5 hours which is $15.00 that the restaurant owner must pay that waitress.

Q: What are Shift Differentials?

A: Shift Differentials pay a premium for certain shifts or certain days. Say your employees work $10 an hour during the day. If you want to encourage employees to work 2nd shift (4pm to 11pm) then you could pay them a shift differential for 2nd shfit of $2.00, meaning they would be paid $12.00 an hour. If the "graveyard" shift from 11pm to 7am is the toughest to schedule, then you could have a $6.00 differential for graveyard which would pay the employee $16.00 per hour.

Q: How do I figure out my Payroll Frequency?

A: That depends on your employee population. Are they Exempt or Non-exempt? Exempt and Non-exempt are classifications that the Department of Labor has divided the US workforce into. Exempt employees are essentially salaried employees. They can be paid weekly, bi-weekly, semi-monthly and even monthly. However, with Non-exempt employees (hourly) there are some rules concerning frequency.

Q: How do I know my taxes are paid on time and correctly?

A: One important thing to insist on when you sign up with a payroll service, is that the IRS has your address as the "Address of Record", and not your payroll company's address. The significance here is that the IRS and controlling authorities at the state level send their notices and "tracers" are sent to this address. These tell you, the taxpayer, when something is not right. You may then forward them to your payroll company and they can address them. As the taxpayer, YOU are responsible for paying your taxes; if the payroll company fails to address any issues for any reason the IRS will expect you to pay your taxes AND any interest or penalties. Making sure your address is the Address of Record greatly reduces the chances of this happening.

Q: When is tax money deducted from my account?

A: Every time you process payroll, your payroll services provider deducts this money from your account. Quarterly tax payments are broken down into equal parts; for example, when payroll is processed weekly, one twelfh of the quarterly amount will be swept from your account each pay period, by the time quarterly taxes are due, the entire amount owed will have been deducted from your account.

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More Frequently Asked Payroll Questions

Click below to read the questions readers of our site have posted, as well as our answers.

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› Frequently Asked Payroll Questions

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