Great HR Information for You and Your Clients

Great HR Information for You and Your Clients

Great HR Information for You and Your Clients

End of Year 2020 Human Resource Updates

Around this time of year, most small and medium-sized businesses (SMBs) may be wondering what mandates and challenges they’ll likely face in 2021. Following a year marked by a deadly pandemic, socio-political unrest, a contentious presidential election season, and economic uncertainty, SMBs can expect policy changes and proposals in some federally mandated benefits.

It’s not surprising that COVID-19 and the current economic slowdown prompted Congress to adjust federal laws and regulations. These changes will affect the way SMBs plan and administer a few benefits, ranging from group health plans to leave policies.

 

Highlights:

 

• Healthcare: Patient Protection and Affordable Care Act (ACA) 

The cost of employer-sponsored health plans could account for a larger share of workers’ household income in 2021. The IRS raised the threshold on employers’ lowest-cost, single coverage healthcare plans to 9.83% of employees’ earnings, up from 9.78% in 2020, but slightly lower than 2019’s rate of 9.86%. The IRS makes annual rate adjustments, known as cost-sharing limits, to ensure compliance with the ACA’s affordability mandate.

Benefits experts attribute the higher threshold to premiums for employer-sponsored and private-market plans outpacing income growth for workers. Cost-sharing limits apply to employers who had 50 or more full-time workers, or full-time equivalent employees (FTEs), in the previous calendar year. Employers may want to price some plans below the threshold to avoid penalties for not complying with the ACA. To price plans based on cost-sharing limits, employers will need information on household incomes. However, they can calculate this data based on documentation they already have on file, including employees’ pay rates and employees’ W-2 forms.

Employers also can expect higher penalties for noncompliance with the ACA in 2021. Infractions classified as Penalty A rose from $2,570 annualized in 2020 to $2,700 annualized in 2021. Penalty B infractions rose from $3,860 annualized in 2020 to $4,060 annualized in 2021.

 

• Social Security 

Employers will see a modest increase in their share of payroll taxes under the Federal Insurance Contributions Act (FICA) as of January 1, 2021. The cap on earnings subject to the Social Security (SS) tax will increase from the current $137,700 to $142,800 in 2021. Employers and employees split the 12.4% tax (6.2% each) set by law to fund SS. The payout will be a bigger share of the benefit’s cost in 2021 to cover the $5,100 cap increase.

 

• Medicare 

The Medicare portion of the FICA tax remains at 1.45% for both employers and employees, with no limit on earnings. Also, employers must continue to withhold the additional 0.9% Medicare tax on employers earning more than $200,000 in a calendar year.

 

• COVID-19 deferments 

Due to the pandemic, certain employers will be able to defer their payroll taxes into 2022. The Coronavirus Aid, Relief, and Economic Security (CARES) Act that lawmakers passed in March 2020 allows employers to defer the deposit and payment of their share of FICA taxes from March 27 through December 31, 2020, and then pay to the Treasury Department one half of the tax owed by December 31, 2021, and the second half by December 31, 2022.

The CARES Act allows employers to suspend the withholding of employees’ share of FICA taxes from September 1 to December 31, 2020. The deferment applies to only employees earning less than $4,000 during a biweekly pay period and salaried employees earning less than $104,000 a year. However, employers that defer withholdings can collect payments from employees between January 1 to April 30, 2021, to pay the tax. The Society for Human Resource Management recommends that employers prepare for the increase in payroll taxes by adjusting their payroll tax system to cover the cost increase and notifying employees in advance of the change.

 

• Leave benefits

SMBs that pay qualified leave wages currently are eligible for tax credits under the Families First Coronavirus Response Act (FFCRA), which evolved under the CARES Act. Employers that offer qualified sick leave, family leave, and retention leave — as well as health plan expenses — may take refundable tax credits against a certain share of their employment taxes through December 31, 2020. The FFCRA applies to employers with fewer than 500 workers and some public employers.

The legislation allows employers whose operations were fully or partially suspended by government orders or who experienced a decline in business due to COVID-19 a tax refund of up to 50% of the qualified wages. Included in the allowance are health expenses and a $10,000 limit per worker in qualified retention wages covering a sum of calendar quarters.

 

• Unemployment insurance

The CARES Act became law, in part, to help employers stay in business and keep workers on the payroll during the pandemic. But the $600 per week unemployment insurance benefit (UI) and the 39-week extension in state benefits from earlier this year were only temporary solutions.

Based on Bureau of Labor Statistics data, the Center on Budget and Policy Priorities (CBPP) — a nonprofit policy and research organization — forecasts a 10.2% hike in the unemployment rate for the first quarter of 2021. Unless Congress and the Administration agree to extend the CARES Act’s provisions beyond the current year and before the presidential election on November 3, 2020, SMBs can expect no changes in UI policy for 2021.

Information provided by our ADP Rep: Click here and complete the form to be connected.

Top 10 List Accounting Services For Entrepreneurs

Top 10 List Accounting Services For Entrepreneurs

Top 10 List Accounting Services For Entrepreneurs

An entrepreneur’s accountant should be doing more than just keeping the books. The entrepreneur’s accountant should be adding value to the business by providing the following services, asking the following questions, or handling the following business matters:

1 Keeping the Books & Reporting: data entered, reconciled, and “closing the books” on a monthly basis is an absolute requirement. Generating and providing monthly financial reporting. At a minimum, the monthly reporting package should include a Balance Sheet, P&L by month, P&L by business line, AR Aging, AP Aging, and a Cashflow report. These reports should be delivered to decision makers without having to request these reports within 2 weeks of every month-end. If an entrepreneur’s accountant has not performed any one of those tasks on a consistent monthly basis, there is no need to read further…it is time to find another professional.

2 Managing the daily, weekly or monthly Cashflow (frequency depends on how tight cash is)

3 Knowing who in the company is required to take a Payroll and when, including the business owners in certain corporate types. Knowing the IRS employee versus independent contractor rules and all of the required reporting for each. Knowing the worker’s comp insurance rules regarding payroll. Managing the payroll in-house or outsourcing. If outsourced, should be reporting, verifying and entering all payroll data into the accounting system. Maximizing tax savings strategies, including group Health insurance and HSAs, by working with insurance agents and tax preparer.

4 Knowing all of the tax reporting deadlines and rules for sales tax, payroll tax, 1099, business asset/property tax, income tax (including extensions) is a key accounting role. Even if the accountant doesn’t file the returns, the accountant is the one who should be pushing information well in advance of tax deadlines to the tax preparers

5 Providing tax preparers with quarterly or monthly financial reports to obtain tax liability estimates for the quarter and annualized for the year. The accountant should properly accrue for tax liabilities as they occur and communicate to the business owner, not wait until the end of the year to get the bad news from the tax CPA or in March/April when the taxes are due. Also, accountants should be providing tax saving strategy ideas to the business owner and work directly with the tax cpa to ensure all tax savings strategies have been communicated and considered by the business owner. If you don’t know your estimated tax liability for the year by the end of the first quarter and haven’t looked at your tax savings options at least once a year with your tax cpa, your accountant isn’t doing their job.

6 Know and question the basic legal structures and the tax pros/cons of choosing one entity structure over another. This includes information on all the steps required to form an entity and dissolve an entity. Also, accountants should know when it makes sense to incorporate financially. This information should be used to simplify the company structure, save taxes, ensure legal protections have been created to protect company assets and business owner assets & interests. The accountant isn’t an attorney, but should have ideas of what structures make sense and facilitate those discussions with the attorney and tax cpa for the business owner if the legal structure is unclear to the entrepreneur.

7 Know the legal filing deadlines for all entities, including foreign registrations (i.e. registering entities to do business in another state.) Accountants should either file and pay the annual legal filings or should outsource to a corporate maintenance company for every entity.

8 Always safeguard the company assets. This means making sure that measures to prevent fraud, including from the accountant themselves are in place (accountants don’t sign checks, owners do.) Safeguarding assets ensures that inventory and supplies and checks and equipment is accounted for and measures to prevent theft have been employed. The other aspect of safeguarding assets is managing the insurance and legal structure in cooperation with the business owner, insurance agent, and attorney.

9 Since most entrepreneurs co-mingling some personal activity with their business to take advantage of the tax savings in a corporation, accountants should know how to properly account for those transactions and should know all of the 4 different options entrepreneurs have for getting paid from the company, 3 of the 4 are non-taxable withdrawals to the business owner.

10 Provide timely financial information to assist the business owner with pricing and understanding how much profit is being generated for each major business line or product line, and to assist the business owner in setting budgets and forecasts for the year, including revenue targets, profit targets, ROI and other key financial ratio targets.

This top 10 list is the bare essentials for every entrepreneur. It doesn’t stop there, however, someone who can and does perform all of these functions is what we consider to be an entrepreneur’s CFO.