There is no question about payroll processing too trivial to ask. Your fifth grade teacher was correct when she told you that there's no such thing as a dumb question. Here at BenefitMall, we love questions. We also love providing answers. So without further fanfare, here are five payroll questions you might be afraid to ask, along with their answers:
1. Are payroll taxes considered an expense or liability?
This issue is confusing to employers because payroll taxes have two components: the employee's share and the employer's share. The employee's share is accommodated through withholding. This withholding is considered a liability of the employer because it is holding onto withheld monies until payment is made. The employer's share is considered an expense. It is a cost of doing business.
2. How are payroll taxes accounted for on an income statement?
Because withholding is considered a liability until tax payments are made, it does not appear on a company's income statement. Only the employer's portion of the taxes are accounted for. They appear on the income statement as an expense.
3. How are health insurance withholdings accounted for?
Companies have two ways of accounting for employee health insurance withholdings. The first method is to record withholdings as a health insurance expense until such time as payments are actually made. Those expenses will be offset by debits with subsequent payments.
The second method is to account for withholdings as a liability – in the same way payroll tax withholding are accounted for. As a liability, health insurance withholdings are only held until payments are made. At that point, the associated liabilities are offset.
4. Is Workers' Comp considered a fringe benefit?
Most states require employees to carry workers' compensation insurance paid solely by them. As such, it is fairly common for employers to consider the insurance a fringe benefit. It doesn't matter either way for tax purposes. As long as the costs for workers' comp is accounted for somewhere, employers can treat the insurance as a fringe benefit or a business expense.
5. What is the difference between exempt and nonexempt employees?
We have heard a lot about exempt and nonexempt employees since the previous administration proposed changes to overtime rules. In short, an exempt employee is a salaried employee who does not receive additional overtime pay for hours worked in excess of 40. A nonexempt employee is any salaried or hourly worker who is eligible to receive overtime pay.
As a quick side note, the Trump Administration began looking at rolling back the overtime rule that was set to take effect on December 1, 2017. A district court determined on August 31 that the rule itself was invalid, so now it is up to the current administration to decide whether to leave the old rules in place or come up with something new.
BenefitMall Is Here for You
Hopefully you have benefited from the questions and answers offered in this blog. If we can help you improve your payroll in any way, do not hesitate to contact us. BenefitMall is here for you with customized payroll solutions and benefits administration services covering everything from paying your employees to handling health insurance and workers’ comp compliance.