(USA) Setting Up Additional U.S. Payroll Functionality

This chapter discusses how to:

• Set up the payroll system for tip allocation.

• Set up group-term life insurance in the U.S.

• Set up for FLSA calculation.

• Set up for alternative overtime calculation.

Setting Up the Payroll System for Tip Allocation

This section provides an overview of earnings for tipped employees and discusses how to:

• Set up tips processing in the Company table.

• Set up the Pay Group table for tip allocation.

• View the federal and state Tax table.

• Set up the Tip Establishment table for tip allocation.

• Set up earnings codes for tip allocation.

• Set up earnings code tax information for tip allocation.

• Set up earnings code tax calculation information.

• Set up the Job Data record for tipped employees.

• Set up Form W-2 for tipped employees.

Note. For each tip category, you can set up the general information as described in this section. However, this is only a recommendation. Depending on the company, you might need to change some selections.

See Also

Allocating Tips

Understanding Earnings for Tipped Employees

This section discusses:

• Important terms and definitions.

• Tip credit and minimum wage adjustment calculations.

• Tax information.

Important Terms and Definitions

Before you set up earnings codes, you must understand how reported tips, tip credit, and minimum wage adjustments are related. The following definitions are provided to aid in the discussion:

Note. It is the employer’s responsibility to know whether the state offers tip credit as an option; some states do not accept tip credit as a component of the statutory minimum wage.

Tip Credit and Minimum Wage Adjustment Calculations

The employer can select the minimum hourly rate to enter in an employee’s Job Data record, provided that the rate does not fall below the regulation requirement. The system then determines what portion of the tips that are reported for an employee constitutes the tip credit for the pay period. The tip credit, in addition to the pay received from the employer, should bring the employee up to the statutory minimum wage pay.

The system calculates the tip credit as follows: tip credit = (statutory minimum wage pay) − (regular rate of pay from employer × hours worked).

If the employee does not make enough in tips to cover the remainder of the statutory minimum wage, a minimum wage adjustment is necessary. The system calculates the minimum wage adjustment as follows: minimum wage adjustment = (statutory minimum wage pay) − (employer paid wages + tips)

You must set up earnings codes for tips reported, allocated tips, tip credit, and minimum wage adjustment.

Tax Information

According to federal law, tips of more than 20 USD per month are subject to withholding for:

• Federal income tax.

• Old Age, Survivors and Disability Insurance (OASDI).

• Medicare.

• Federal Unemployment Tax Act.

Employers do not have to wait until the employee receives 20 USD in tips before withholding taxes. The system is flexible enough to withhold taxes before or after the employee receives the 20 USD.

Employers must pay their portions of OASDI and Medicare taxes even if the employee does not have enough earnings to cover the employee’s share. If the employee cannot pay the OASDI and the Medicare taxes that are owed, the W-2 process calculates the uncollected amount and reports it in box 13 on the employee’s Form W-2. The system reports the uncollected amount for each tax separately.

If the employee does not have sufficient net pay to withhold the total tax amounts, the system:

1. Withholds taxes on earnings.

2. If there is enough pay available, it withholds taxes on the tips.

Some states consider tips as earnings for state income tax and state unemployment insurance taxes. Some follow the federal 20 USD per month rule. Other state taxes, such as state disability insurance, Health Care Subsidy Fund (HCSF), Workforce Development Partnership Fund WFDP, and workers’ compensation might not include tips in the gross that is used to calculate the tax. The taxation of tips for all states is in the federal and state Tax tables that are maintained by PeopleSoft.

For localities, tips are usually considered wages if the state considers tips as wages for income tax purposes.

Note. Most of the pages that are used to set up the payroll system for tipped employees are documented elsewhere in this PeopleBook. This chapter discusses only those pages and fields that pertain to tipped employees and require additional explanation.

Pages Used to Set Up the Payroll System for Tip Allocation

Setting Up Tips Processing in the Company Table

Access the Tips Processing page.

See (USA) Setting Up Tip Allocation.

Setting Up the Pay Group Table for Tip Allocation

Access the Pay Group - Bank/Tip Info page.

See Establishing Tips Processing.

Viewing the Federal and State Tax Table

These tables are maintained by PeopleSoft.

See (USA) Viewing Federal and State Tax Information.

Setting Up the Tip Establishment Table for Tip Allocation

Access the Tip Establishment page.

Depending on what you selected as a tip establishment field on the Tips Processing page in the Company table you will see a different list of valid values for the Tips Establishment ID field. For example, if you selected Job Location as the tip establishment field on the Tips Processing page, you will see a list of valid locations to choose from. If you selected Job Dept ID (job department ID) as the tip establishment field, you will see a list of valid departments.

See Also

Understanding the Tip Allocation Process

Setting Up Tips Processing in the Company Table

Setting Up Earnings Codes for Tip Allocation

Access the Earnings Table - General page.

The following table suggests values and options that you might select for each tip category:

See Also

Defining Parameters and Rules for Calculating Earnings

Setting Up Earnings Code Tax Information for Tip Allocation

Access the Earnings Table - Taxes page.

The following table suggests values and options that you might select for each tip category:

See Also

Entering Special Options and Tax Methods for Earnings Codes

Setting Up Earnings Code Tax Calculation Information

Access the Earnings Table - Calculation page.

The following table suggests values and options that you might select for each tip category:

See Also

Specifying Calculation Rules

Setting Up the Job Data Record for Tipped Employees

Access the Job Data - Payroll page.

See Entering Payroll Processing Data.

Setting Up Form W-2 for Tipped Employees

Federal and state regulations require that you report tip information on the employee’s Form W-2. PeopleSoft sets up all tax reporting information, except for the earnings code for allocated tips. For allocated tips, select the earnings code in the Earnings Code field.

For detailed information about this process, see the relevant year-end processing instructions posted on Customer Connection.

See Accessing Year-End Processing Instructions.

Setting Up Group-Term Life Insurance in the U.S.

This section provides an overview of group-term life insurance and imputed income calculation for U.S. group-term life insurance and discusses how to:

• Define deduction classifications for group-term life insurance.

• Define tax options for group-term life insurance.

See Also

Adjusting Imputed Income for U.S. Group-Term Life Insurance

Understanding Group-Term Life Insurance

Group-term life insurance that employers provide to employees and their dependents is a special type of benefit subject to taxation and reporting requirements. After you set up tables and enroll employees in the plans, the system automatically calculates employees’ imputed income and associated taxes.

Note. (USF) Imputed income is not an issue for federal employers, because Federal Employee Group Life Insurance (FEGLI) is paid by employee deductions and is not employer-provided.

Group-Term Life Insurance for an Employee

The value of the first 50,000 USD of group-term life insurance that a employer provides to a U.S. employee is not considered taxable income. The value of coverage in excess of 50,000 USD (computed according to Internal Revenue Service [IRS] regulations) minus premiums that the employee pays with after-tax dollars, is considered taxable income and is subject to social security and Medicare taxes. Although you must report the amount as taxable income on the employee’s Form W-2, the value of excess group-term life insurance coverage is not subject to federal income tax withholding.

Group-Term Life Insurance for Dependents

An employer can also provide group-term life insurance coverage for an employee’s spouse and children. Dependent group-term life insurance coverage up to a value of 2,000 USD does not represent taxable income. However, if the value of the dependent group-term life insurance exceeds 2,000 USD, the value of the entire coverage amount (computed according to IRS regulations) becomes taxable income and is subject to social security and Medicare taxes. Unlike the taxable income that is attributed to the employee’s excess life insurance, it is also subject to federal income tax withholding.

Understanding Imputed Income Calculation for U.S. Group-Term Life Insurance

To calculate imputed income for all group-term life plans (except dependent life) in accordance with IRS regulations, the system performs the following processes when you run the Pay Calculation COBOL SQL process (PSPPYRUN):

1. Determines the total life insurance coverage for an employee (except dependent coverage), including both employer- and employee-paid coverage.

   For example, an employee might belong to several group-term life plans, such as basic life, supplemental life, and extra life coverage. In this case, the system combines the calculated coverage of all the plans to determine the employee’s total life insurance coverage.

2. Subtracts 50,000 USD from the total coverage—the amount of coverage that the IRS does not consider taxable.

   If the resulting amount is less than or equal to zero, then the employee is not liable for any imputed income. If the amount is greater than zero, then the cost of coverage for that amount is considered taxable, and the system uses that cost to calculate imputed income.

3. Uses the IRS Uniform Premium table to establish the amount to include in the employee’s taxable gross.

   The rates in this table are generally less than the actual cost of the insurance. PeopleSoft stores the information from the Uniform Premium table under the IRS Age-Graded Rate Table. This table is maintained by PeopleSoft, and should not be changed unless you have a compelling reason to do so.

   Note. There is no need to enter the IRS rate table in the Benefit Deduction Program table, because the system uses it automatically.

4. Subtracts employee-paid, after-tax contributions to the coverage.

   The IRS stipulates that if an employee contributes to the total cost of coverage, then you must subtract the amount of the employee contribution from the total cost of coverage. The resulting amount is considered the taxable benefit—the amount that is included in the employee’s taxable gross. The system uses only after-tax deduction classifications; it ignores before-tax deductions. The system does not take into account one-time paysheet adjustments, but rather recalculates these at the end of the year.

The system adds the resulting amount to the employee’s taxable gross in the Paycheck record. View this amount using the Paycheck Deductions page. It appears as the taxable benefit under the appropriate group-term plan type and deduction code.

Dependent Life Plans

In dependent life plans, if the total dependent coverage is 2,000 USD or less, the coverage amount is not considered taxable. If the total dependent coverage is greater than 2,000 USD, the entire coverage amount is considered taxable—not just the amount in excess of 2,000 USD. Consequently, for dependent life plans:

• In step 1, the system adds up the total dependent coverage.

• In step 2, the system determines whether the total is greater than 2,000 USD; if it is, the system proceeds with the remaining steps.

The Paycheck Deductions page displays the results of dependent life calculations as a taxable benefit separate from the regular (individual) group-term life taxable benefits.

Example

An employee might be liable for imputed income, even if there is no employer contribution on all of the life insurance plans.

For example, Robert, age 60, has basic life (employer- and employee-paid) and supplemental life (employee-paid):

If the employee has more than one type of life coverage, the system calculates imputed income in an iterative manner:

1. The system calculates the basic life plan:

   1. Determine the total coverage for basic life:

      150,000 USD

   2. Calculate the amount that is subject to imputed income by subtracting 50,000 USD from the total coverage:

      150,000 USD – 50,000 USD = 100,000 USD subject to imputed income.

   3. Apply the IRS Uniform Premium table.

      Robert is 60 years old. In this age bracket, the Uniform Premium table calls for a calculation of 1.17 USD per month per 1,000 USD of coverage:

      100,000 USD / 1,000 USD x 1.17 USD = 117.00 USD

   4. Subtract employee-paid, after-tax contributions to the coverage:

      117 USD – 10 USD = 107 USD taxable benefit.

2. The system calculates the supplemental life plan:

   1. Determine the total coverage:

      150,000 USD basic life + 200,000 USD supplemental life = 350,000 USD total coverage.

   2. Subtract 50,000 USD from the total coverage to determine the imputed income:

      350,000 USD – 50,000 USD = 300,000 USD subject to imputed income.

   3. Apply the IRS Uniform Premium table.

      Robert’s age of 60 calls for a calculation of 1.17 USD per 1,000 USD of coverage.

      100,000 USD / 1,000 USD x 1.17 USD = 117.00 USD.

   4. Subtract employee-paid, after-tax contributions to the coverage:

      351 USD – 110 USD = 241 USD total taxable benefit.

3. The system subtracts the initial 107 USD taxable benefit for basic life from the 241 USD total taxable benefit to determine the supplemental life taxable benefit:

   241 USD – 107 USD = 134.00 USD.

Robert’s Paycheck Deduction record displays:

Pages Used to Set Up Group-Term Life Insurance in the U.S.

Defining Deduction Classifications for Group-Term Life Insurance

Access the Deduction Table - Tax Class page.

Example

If, for example, the employer pays for half the plan and the employee pays for the other half, use three classifications:

• Nontaxable Benefit

• After-Tax (or Before-Tax)

• Taxable Benefit

Note. (USF) For FEGLI, there are no additional classifications. It is an after-tax employee deduction.

See Also

Specifying Deduction and Tax Classifications

Defining Tax Options for Group-Term Life Insurance

Access the Deduction Table - Tax Effect page to set up the deduction so that the system calculates the taxable amount for federal, state, and local taxable income.

In most cases, indicate that imputed income (the taxable benefit):

• Adds to the effect on the Federal Insurance Contributions Act gross.

• Has no effect on the federal unemployment tax gross.

The cost of group-term life insurance in excess of 50,000 USD is not subject to federal withholding tax (FWT). Therefore, to have the system withhold FWT, select the Withhold FWT (withhold federal withholding tax) check box.

If you must calculate state or local taxes based on a taxable gross that differs from the federal taxable gross, select GTL (group-term life) as the taxable gross component ID. This links the deduction to the Taxable Gross Definition table. The Taxable Gross Definition table defines the taxability for earnings or deduction types (such as imputed income) that you must treat differently at the state or local level than at the federal level. The Taxable Gross Definition table is where you make changes to taxable gross definitions.

PeopleSoft maintains the entries in the Taxable Gross Definition table for group-term life taxable grosses (for U.S. only). The only time you might change an entry is when state or local taxing authorities alert you about changes in their regulations. PeopleSoft also incorporates the changes in the next tax update. If you discover an error or missing information, please notify the Global Support Center, so PeopleSoft can incorporate the change or addition in the next tax update.

You don’t ordinarily change the Taxable Gross Definition table, but you can change definitions of taxable gross for state and local income taxes, state disability insurance, and state unemployment taxes.

In the Taxable Gross Definition table, specify whether the withholding for each state follows the federal rules.

Depending on whether you set up an employee group-term life plan or a dependent life plan, select the appropriate value in the GTL/DPL (group-term life/dependent life) field on the Deduction Table - Tax Effect page. The system calculates imputed income for dependent life separately from regular (individual) group-term life. Your selection determines which calculation the system uses.

See Also

Specifying U.S. and Canadian Tax Effect Considerations

(USA) Updating the Taxable Gross Definition Table

Setting Up for FLSA Calculation

This section provides an overview of Fair Labor Standards Act (FLSA) rates and discusses how to:

• Set up foundation tables for FLSA calculations.

• Set up the Earnings table for FLSA calculations.

• Set up job data for FLSA calculations.

Note. The FLSA and Alternative Overtime Calculations appendix provides examples of calculations. Use the examples as a guide while setting up FLSA calculations.

Understanding FLSA Rates

FLSA calculations apply only to the U.S. The Fair Labor Standards Act of 1937 requires that you pay overtime to nonexempt employees who work more than 40 hours in a week.

Government regulations require employers to pay overtime at a rate that is at least equal to the rate calculated according to FLSA regulations. Additionally, you must prorate nondiscretionary bonuses over all applicable FLSA periods and use them to calculate the FLSA regular rate. When an employee has multiple nonexempt jobs in the same organization, the system applies the overtime rule to the total hours for all jobs.

A premium rate is the extra amount of the contractual rate paid for overtime and is stated by percentage. The contractual rate is the hourly rate of pay that an employer promises an employee in exchange for performing a job. The premium amount paid for overtime can be paid either at contractual rate or FLSA rate.

For example, if you compute overtime at 1.5 times the contractual rate, then the overtime premium rate is 50 percent. A contractual rate of 10 USD per hour yields overtime earnings of 15 USD per hour, with 5 USD as the overtime premium paid at contractual rate. Per FLSA regulation, when bonus is factored into the overtime calculation, this premium overtime pay can be higher at FLSA rate.

The Company table enables you to specify what rate to use for overtime premium as follows:

• Always at the FLSA premium.

• At the greater of the FLSA or contractual premium rates.

The employee always receives at least the FLSA premium.

You can calculate overtime pay:

• According to FLSA rules.

• According to a calculation of:

  overtime hours × percentage of the contractual rate that you have agreed to pay for overtime work

How you calculate overtime, prorate bonuses, and handle other earnings (such as shift differentials and tips) depends on whether the employees are subject to FLSA standards or exempt from them.

FLSA calculation is affected by the pay frequency. Supported pay frequencies are weekly, biweekly, monthly and semimonthly. Frequency factors that are defined on the Frequency table may be required in converting the amounts from pay period to FLSA period frequency.

Note. Some FLSA calculations use constant values for standard hours or work day hours from Job for an entire period. Changing standard hours or work day hours in the middle of an FLSA period causes inaccurate calculations. Make changes at the end or beginning of the FLSA period.

See Also

Entering Payroll Processing Data

Setting Up Foundation Tables for FLSA Calculations

To set up foundation tables for FLSA calculations:

1. Select the FLSA Required (Fair Labor Standards Act required) check box located in the USA section on the Company - Default Settings page.

   Select the FLSA Required check box if any pay groups in the company require FLSA compliance. If you don’t select this check box, FLSA functionality is not available in Payroll for North America. After you select the FLSA Required check box, the FLSA Rule (Fair Labor Standards Act rule) group box becomes available for entry.

2. Select an option in the FLSA Rule group box in the USA section on the Company - Default Settings page.

   Designate whether the system should always use the FLSA premium rate (even when the FLSA rate is less than the contractual rate) or the higher of the FLSA and contractual rates (this is the default).

3. Set up the FLSA calendar on the FLSA Calendar Table (Fair Labor Standards Act Calendar table) page.

   Define the FLSA period days and start dates on the FLSA Calendar Table page. This step is not required when you use the Basic Rate Formula for fixed, salaried hours in a fixed FLSA period.

4. Review the FLSA Period Definition table and add additional period definitions if necessary. PeopleSoft delivers the standard period definitions as defined by the U.S. Department of Labor. You cannot modify the delivered period definitions. Define additional period definitions only if the delivered definitions are not adequate for your needs.

   See Reviewing and Maintaining FLSA Periods.

5. Select the FLSA Required check box on the Pay Group Table - Calc Parameters page.

   If FLSA functionality applies to this pay group, select this check box to enable the display of the FLSA Period Definition (Fair Labor Standards Act period definition) button. You must consider whether FLSA applies when creating pay groups.

   Note. When setting up pay groups, do not use the same pay group ID in two separate companies if the companies use different overtime earnings codes.

6. Specify the FLSA period definition and other parameters for the pay group’s FLSA calculation on the FLSA Period Definition page.

   To access the FLSA Period Definition page, click the FLSA Period Definition button on the Pay Group Table - Calc Parameters page.

Note. Unless you enable FLSA functionality at every level in the previous steps, you don’t see FLSA functionality at the next lower level. In other words, you must select the Payroll for North America check box in the Installation table before you can access U.S.-specific functionality in the Company table. If you do not select the FLSA Required check box in the Company table, you don’t see FLSA functionality on the Pay Group Table - Calc Parameters page. After you select the FLSA Required check box in the Pay Group table, the FLSA Period Definition button becomes available. The country for the pay group must also be USA for FLSA processing. To be included in the FLSA calculation, an employee must have nonexempt status in Job and belong to an FLSA-required pay group.

See Also

Entering Company Information

Creating Pay Calendars and FLSA Calendars

Creating Pay Calendars and FLSA Calendars

Setting Up the Earnings Table for FLSA Calculations

Use the Earnings Table - General page and the Earnings Table - Calculation page to specify the earnings codes in the company that are affected by FLSA regulations, and to assign the earnings codes to FLSA categories. Only these two pages in the Earnings Table component (EARNINGS_TABLE) affect FLSA payment.

The following steps are required, but not necessarily in this order.

• Complete the Earnings Table - General page.

• Complete the Earnings Table - Calculation page.

See (USA) Setting Up the Earnings Table for FLSA Calculations.

See Also

Getting Started with Payroll for North America

Setting Up Job Data for FLSA Calculations

This step is employee-specific. Complete the USA section of the Job Information page when you hire an employee.

See Also

Updating Person and Job Information

Reviewing and Maintaining FLSA Periods

This section provides an overview of defining FLSA periods and discusses how to view and maintain the FLSA period definition.

Understanding FLSA Period Definition

PeopleSoft delivers and maintains three FLSA period definitions:

• Fixed FLSA Period

• Law Enforcement

• Fire Protection

The delivered period definitions are based on data published by the U.S. Department of Labor, Wage and Hour Division. Your organization’s requirements might vary slightly from the delivered values if, for example, a union contract overrides the threshold hours established by the U.S. Department of Labor.

If the delivered FLSA period definitions are not adequate for your organization, define new FLSA periods on the FLSA Period Table page.

Page Used to View and Maintain FLSA Periods

Viewing and Maintaining FLSA Period Definitions

Access the FLSA Period Table page.

FLSA Period

These values cannot be changed for delivered FLSA periods. The fields can be edited for user-defined periods.

Setting Up for Alternative Overtime Calculation

This section provides an overview of alternative overtime calculation and discusses how to:

• View and maintain alternative overtime state definitions.

• Identify employees subject to alternative overtime calculations.

Important Terms and Definitions

The following definitions are provided to aid in the discussion of alternative overtime:

Understanding Alternative Overtime Calculation

Some States require different overtime calculations than those managed by the Federal Fair Labor Standards Act (FLSA) regulations. For example, the FLSA overtime premium calculation is fixed at 0.5, whereas California requires that daily overtime in excess of 12 hours must be paid at double time.

Alternative overtime enables payroll managers to correctly calculate the rate of pay for employees affected by this legislation, without limiting the population to a specific state or locality. Additional flexibility allows any group of employees to be subject to the alternative method of overtime calculation.

This feature is useful for any organization that pays employees in California or other applicable states or requires the alternate calculation because of union or company agreements.

New alternative overtime functionality in Payroll for North America is designed to be flexible enough to handle most alternative overtime calculations. It includes the following:

• An Alternative Overtime State table to identify the states in which alternative overtime calculations should apply.

  PeopleSoft delivers this table with the states that have alternative overtime requirements. You can add additional states as necessary according to your alternative overtime business rules.

• Identification of employees who are subject to Alternative Overtime calculations by using a new value, ALT OT, for the FLSA Status field on the employee's Job data record.

• For those employees identified, the system calculates overtime on the alternative basis rather than the usual FLSA method.

  To calculate alternative overtime, the system uses the multiplication factor specified for the overtime earnings code on the Earnings table instead of the fixed 0.5 used in federal FLSA calculation.

• When the overtime has been calculated by the alternative method, the rate is displayed with the label Alternative Rate rather than FLSA Rate.

Page Used to View and Maintain Alternative Overtime State Codes

Viewing and Maintaining Alternative Overtime State Definitions

Access the Alternative Overtime State Table page.

The Alternative Overtime State table is delivered with the states that have alternative overtime requirements. Additional states can be added as necessary according to your company's alternative overtime business rules.

Identifying Employees Subject to Alternative Overtime Calculations

Identify the employees who are subject to alternative overtime calculations by changing the FLSA Status on the employees’ Job Data — Job Information page to ALT OT.

See Also

Increasing the Workforce