This is part 3 in a 4-part series on payroll management essentials. In our previous post, we covered the complexities of tipped employees and how to incorporate those into your payroll management solution. This part looks at the introduction of meal credits, commuter benefits and ACA compliance as considerations for payroll management deductions.
You’ve established your business, your staff pay rates and schedules, and managed the wage and labor compliance to meet the regulations within your location – what other considerations are there with respect to payroll management? There are a few other considerations, and, while not an exhaustive list, there are some important elements of which you need to be aware.
1. Taking Advantage of Meal Credits
Your employees are typically working long shifts and while there are breaks, you typically will want to have the ability to feed them. Some businesses will offer their employees meals during a shift. This comes at a cost to you, the employer, to feed them. With this cost, you can actually take advantage of meal credits for this option. These are significant credits that can be easily integrated into your business, and helps to offset costs within your operations. The biggest challenge in implementing them is simply knowing when and how you can apply them. By having a payroll management solution that makes these advantages more visible to your operations, you can take the administrative burden off of research and processes, and have the payroll management solution help you to save costs. Here’s an example of how meal credits work:
2. Incorporate Commuter Benefits Deductions into Payroll Management
Another option for employees is commuter cards. For employees that commute to work, there is a significant cost to make it in, especially when employees work in urban areas that they cannot afford to live in. The commuting cost is a huge strain on employee expenses and can detract from getting good talent. To alleviate this cost, companies have a commuter benefits program, which seeks to minimize the cost to commute with special cards or transit checks that enable employees to load funds to pay for their commute. These cards are typically loaded by the employer and is deducted from the employee’s paycheck in the payroll management solution and placed on the card for commuting. So, an employee can specify how much they want deducted from their paycheck to be put towards commuting and that will automatically be loaded on to their card each month.
The benefit to this over paying directly for the commute is the tax benefit. The money deducted from their paycheck and loaded on to the cards is before taxes, and helps to reduce the overall tax burden for both the employee and the employer. On average an employee can save over 30% on commuting through the use of a commuter card. For 2019, employees can elect to use up to $265 per month on commuting, and $265/month on parking expenses. So an employee that spends an average of $150/month on commuting can save over $500 per year through using a commuter card.
Similarly, an employer will also benefit in savings as well. Taking commuter expenses out of paycheck pre-tax in a payroll management solution will alleviate the overall payroll tax burden in that they are paying less in payroll taxes, since a portion of the funds are taken out pre-tax. Commuter benefits are considered tax-free benefits, not employee wages, so your company can save on average 7.65% on payroll taxes.
3. Affordable Care Act Compliance Integrated to your Payroll Management Solution
Another important consideration that a majority of smaller businesses do not consider is the Affordable Care Act (ACA) – also known as “ObamaCare”. The ACA states that businesses employing more than 50 Full Time Employees (FTE) are required to provide some form of medical insurance for employees. This was designed to ensure that employees have access to some level of healthcare from their employer. The provision also requires employers to report healthcare coverage to the Internal Revenue Service annually. While there are many other provisions to the law, these are the major areas that companies often fall into challenges with maintaining compliance.
For many companies, ACA compliance is not usually top-of-mind – especially when you are busy running an operation on a daily basis. The majority of small business either didn’t meet the requirements for ACA, or failed to report – both can be problematic and can result in fines from the IRS. The reason for this? Many small businesses believe they are too small to be “noticed” or simply don’t have the resources and tools to report effectively. Even those companies that DO report, if they miss the proper calculations, deductions and itemization, they can STILL face fines:
- The annual fine for failing to offer any health insurance coverage under the ACA is $2,320 per full time employee.
- The annual fine for failing to offer adequate& affordable health insurance coverage under the ACA is $3,480 per full time employee.
- The fines for failing to report on ACA compliance is approximately $1000 per FTE
- The penalty for non-filing with the IRS = $250 per form.
- The penalty for not furnishing 1095-C forms to individuals = $250 per form.
- The above penalties are doubled for willful negligence (i.e. ignoring the ACA filing requirements altogether).
The key takeaway is to understand that when you hit that 50 FTE watermark in your business, ACA compliance is a very real consideration. There are payroll management solutions that can help to track eligibility for your employees, provide options for benefits, and provide you with options in reporting to the IRS. It’s also a good idea to contract with an employment attorney to consult with you on these matters as well.
In the final installment of this 4-part series, we look at the essentials of a payroll management solution, and how automating your payroll can incorporate all the essentials of payroll management.