PAYROLL
In planning your work for
October, it is important to remember that Columbus Day is Monday, Oct. 8.
Although not a state holiday, Columbus Day is a federal/bank holiday. As a
reminder, all payrolls and documents must be received five (5) business days
prior to the actual pay date to ensure adequate time for audit and processing.
Adherence to this policy will ensure payrolls are processed to pay timely.
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New or rehired employees
eligible for the Pathfinder retirement plan should have a Coverage Begin Date
starting the first day of the month following the month of employment. For
example, an employee was hired/rehired Aug. 21, 2017. In the HCM system, when
entering the Savings Plan Election, the Coverage Begin Date should be entered
as Sept. 1, 2017. For additional information, please refer to the Oklahoma
Administrative Code for additional
information.
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All compensation to
employees and former employees, no matter what form, constitutes wages unless
specifically excluded by the Internal Revenue Code. This includes stipends,
allowances, employee lawsuits and settlements, gifts, prizes, awards and fringe
benefits to name just a few. Before compensation is given to employees or
former employees, agencies must determine the correct method of payment
(payroll vs accounts payable) and reporting required (W-2, 1099, or none). In
an audit, the Internal Revenue Service will focus on the reason for the
payment.
If the payment settles a
lawsuit, the auditor will focus on the basis of the lawsuit. The IRS has a
recorded webinar that provides valuable information for the taxability of lawsuits
and settlements. Agency payroll, finance, human resources and legal departments
should obtain the knowledge needed to accurately process compensation to
employees or former employees. Agencies are responsible for complying with IRS
requirements for withholding and reporting.
If an agency has a
settlement agreement that requires the payment be processed through accounts
payable instead of the payroll system to expedite processing, and the payment
is reportable as compensation, then applicable federal, state and FICA taxes
must be remitted to OMES on the same day the item is processed/provided to the
individual. If taxes are not withheld on the payment, the agency must gross up
the amount and pay both the employee and employer share of taxes. The
employee’s record will be updated for year-end reporting. If additional
guidance is needed, please contact Lisa Raihl at 405-521-3258 or lisa.raihl@omes.ok.gov.
NOTE: The Internal Revenue
Service has determined that Oklahoma public school teachers receiving payments
from a state agency are to be treated as employees of the state. As such, any
payments to teachers need to be evaluated to see if the payments should be considered
wages. If so, the amounts must be paid through the payroll system, not accounts
payable, to be reported on Form W-2 by the paying agency.
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As a reminder to agencies,
certain types of earnings are eligible for deferral to SoonerSave while others
are not considered eligible compensation.
Annual leave payout is
generally eligible for SoonerSave deferral on termination of employment.
However, payments on severance from employment do not qualify as compensation
for SoonerSave deferrals. Therefore, payments under voluntary buyouts
(VOBO) and reductions in force (RIF) would be excluded from deferral
consideration.
Only compensation from an
agency that is attributable to services performed for the agency may be
considered as earnings from which SoonerSave deferrals can be
taken. This would include regular pay, overtime, shift differential and
other similar payments based on employment. If an amount would have been
paid had the employment continued, such as annual leave, then deferrals can be
taken.
Please advise employees
that changes in deferral amounts must be submitted to the SoonerSave
Administrator and approved before processing through payroll. For
additional information, agency personnel should contact their SoonerSave
Coordinator or the SoonerSave Administrative office at 1-800-733-9008 or
405-858-6781.
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As we approach the end of
the calendar year, be reminded that the payroll system has been structured to
accommodate the reporting of non-cash, taxable fringe benefits. Of specific
concern to state employees, the following benefits should be reviewed to
determine if W-2 wage adjustments are necessary:
- Group
Term Life Insurance
-
Employee Use of State Vehicles
- Maintenance, Car and Housing Allowances
- Additional non-cash benefits
Reporting of these benefits
is required by state and federal law, and it is the responsibility of the
individual agency to ensure compliance. If the item is not run through the
payroll system in the current year, the employer can deduct the taxes
associated with the wage item on a following paycheck in the next year as a
miscellaneous deduction. The state is responsible for timely depositing
the taxes. Any taxes associated with items not run through the payroll system
will need to be sent to OMES in a timely manner so the tax deposits can be made
and the items posted to the employee’s earnings record.
Under IRS rules, an
employer can choose to pay the employee’s share of taxes on group term life,
auto fringe, and other non-cash benefits. If the employer pays these taxes without
deducting them from the individual, those taxes must be included as wages for
federal, state, social security and Medicare wages (boxes 1, 3, 5, and 16).
This increase in the employee’s wages is also subject to employee social
security and Medicare taxes. This again increases the amount of additional
taxes the employer must pay.
Example: Tom received a
non-cash benefit valued at $100.00. The agency decides to pay the employee’s
taxes on all non-cash benefits. The employee’s taxes would be $7.65 [(100 x
6.2%) + (100 x 1.45%)]. This amount that the employer is paying for the
employee is another benefit to the employee and must be taxed [(7.65 x 6.2%) +
(7.65 x 1.45%)] = $0.58. This additional $0.58 is again taxable to the employee
[(0.58 x 6.2%) + (0.58 x 1.45%)] = $0.05. Total taxes to the employee are
$8.28, for total wages of $108.28. An easier way to calculate, is to “gross up”
the benefit. Divide the benefit amount by 92.35% (100% - 6.2% - 1.45%) to get the gross wages to report. From this amount, the Social Security
and Medicare taxes are calculated. 100.00/92.35% = $108.28 (the taxable wage
amount). [(108.28 x 6.2%) + (105.28 x 1.45%)] = $8.28 (taxes).
Please refer to the W-2
instructions and Publication 15A, Employer’s Supplemental Tax Guide for
additional information if needed. Also, please refer to OMES Human Capital
Management Division rules to determine whether these payments are a valid pay
plan for a particular agency.
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Employee overpayments that
are collected in the next calendar year are to be repaid at the gross
overpayment amount in accordance with Internal Revenue Service regulations. If
an employee owes the agency, please be certain to let the employee know if the
amount is not paid in full by Dec. 31, 2017, the amount they owe will increase
to the gross amount.
In accordance with 74 O.S.
§ 840-2.19, the agency must send a notice to the employee within 10 days of
identifying an overpayment. The employee then has 30 days to respond to
this notification. Employees have several options for repaying overpaid
payroll amounts:
- reduction
of annual leave (for the gross overpaid),
- reduction
of current gross salary (for the gross overpaid) in a lump sum or
installments over a term not to exceed the term in which the
overpayment(s) occurred,
- lump-sum
cash repayment,
- miscellaneous
payroll deduction (for the net overpaid) in a lump sum or installments
over a term not to exceed the term in which the overpayment(s) occurred,
- any
combination of the above options.
With the calendar year end nearing, the collection of any outstanding overpayments is especially
important and must be conveyed to employees who owe any monies back to the
agency. When an overpayment is paid back in a subsequent year, IRS rules state
that the employee must pay back at the gross amount because they had use of the
funds in the prior year and as such, they are taxable to that year.
Additionally, federal and state wages and taxes cannot be reduced for prior
years when repayments are made after the end of that calendar year.
For example, John Doe was
overpaid in August by $1,000.00 regular wages. This was discovered in September
and the agency calculated what the correct payroll should have been. The net
check difference is $743.50; the amount the employee owes the agency if making the reimbursement by personal check or miscellaneous deduction in the current year. If the
employee does not reimburse the net amount by Dec. 31, 2017, the employee owes
the agency the full $1,000.00 gross overpayment.
If the employee reimburses the entire gross amount after year end, the applicable W-2, Corrected W-2, or W-2C
will only reflect a change in the Social Security and Medicare wages and taxes.
Since the employee received and had use of the funds during the year of
overpayment, the amount is still taxable for federal and state purposes. The
W-2 form will not correct federal or state taxable wages or income taxes. The
employee may be entitled to either a deduction or credit on their current year
Form 1040, and should be advised to speak to their tax accountant.
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When an employee chooses to
pay back an overpayment using annual leave, the amount of annual leave reduced
should equal the gross amount of overpayment. In the past there have been
instances where agencies have incorrectly reduced the annual leave by the net
amount of the overpayment.
If an employee reimburses an
overpayment using terminal leave, an OMES Form 94P must be submitted to correct
the retirement amounts reported on the check that included the overpayment.
Terminal leave is not included in retirement wage calculations; therefore, a
payroll earnings adjustment is required.
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HIGHER EDUCATION PAYROLL
Federal tax deposits must be released by the State
Treasurer’s office no later than the day prior to the effective date of the
payment. The deadline for notifying OMES to release a federal tax deposit
for the following day is 10 a.m. the day prior to the release date.
Submissions received after the 10 am deadline will miss being released to the
IRS timely and may result in late deposit penalties for untimely payments for
which the institutions would be responsible. The timing of the
notification to OMES is critical to allow for the timely release of funds to
the IRS. Some institutions are failing to comply with the established
deadlines. The process was established and communicated to the agencies
prior to the change in payroll processing which took place Jan. 1,
2016.
The training provided to all institutions on Nov. 3,
2015 included specific instructions on the manner and timing of payroll tax
deposits. That presentation can be found in the Financial Module News
under the Business Application Services link of OMES, https://www.ok.gov/cio/Customer_Portal/Business_Application_Services_Essentials/.
Significant steps and times in the process include:
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Calculate the tax deposit.
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Enter payment into ACES with appropriate data
including the effective date.
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Enter and save a journal entry into
PeopleSoft with complete and appropriate chartfields using the current date as
the journal date.
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Send e-mail to DCAR Accounting to be received by
10:00 am – OMES will check all e-mails received by this time to include in that
day’s processing. E-mails received by OMES after that time will not be
picked up for the current day processing.
-
Be
sure the e-mail includes the agency number, journal entry number, contacts and
screen shot of ACES payment.
-
OMES will check the journal entries for
accuracy, log the request for tracking, edit and post the entry before
forwarding the transaction to OST for processing by 10:45 a.m.
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OST will verify that the ACES entry agrees with
amounts submitted by OMES and release the payments.
-
Between 1 and 2 pm the agency should log in to
the ACES system to make sure that the payment has been released.
-
Notify OMES as soon as possible if a tax deposit
was not released in accordance with these procedures.
Step
7 is necessary to ensure that communications were received and payments were
released. This will help mitigate the risk that the initial e-mail did
not get delivered timely or was held up by filtering programs looking for spam
e-mail.
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ACCOUNTING
In
2009 a change was made preventing an online voucher from saving when an
invalid expenditure account is on the voucher. If an invalid account is copied
from a purchase order, the error message will include “Vouchers with TBD
overwritten will be deleted.” A voucher with a TBD account that is overwritten
on the voucher distribution line after it has been copied from the PO will save
because the change verifies the validity of the account number, but it does not
recognize that the expenditure will budget check as a direct expenditure and
will not liquidate an encumbrance. Please make the payers are aware of this
change and ask them to be attentive to the error messages. The TBD must be changed on the PO before a
voucher is created. If left as TBD, the vouchers will be deleted upon
receipt when the TBD Voucher query runs (twice daily). Contact OMESTPAccountsPayable@omes.ok.gov if assistance is
needed.
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There
continues to be some confusion with the replacement warrant process. We have
updated the OMES Form 20R and prepared an OMES FORM 20R GUIDE for users to have
as reference in preparing and submitting the replacement requests. The
revised 20R and the Guide will soon be added to the CAR Forms list once the
formats are web approved.
To
assist in proper use of the Form 20R, please recycle any older paper copies of
the 20R form and remove any digital copies from agency computers. Please
click here and save as a bookmark for easy access to the latest 20R form. This will also be where the guide will
be placed.
Updated
form features include:
-
Additional
spacing for information
-
Streamlined
notary section
-
Updated
replacement information
-
Form
submission and contact information
For
assistance with completing the new form or question concerning the guide,
email OMESTPReplacement.Warrants@omes.ok.gov.
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FINANCIAL REPORTING
All pension trusts, colleges and universities, and other component
units (with a fiscal year of June 30) should be working with their auditors to
complete financial statements. The deadline for submitting these, and any
necessary financial reporting packages, to the OMES Financial Reporting Unit is
Oct. 31. Failure to complete these statements in a timely manner jeopardizes
the State’s ability to complete the audit of the CAFR in time to meet
disclosure requirements set forth by bond issuers and the GFOA. A potential
risk of missing the deadline includes a downgraded bond rating for the State. All component units are expected to ensure
their auditors are aware of the deadline and complete their final reports in
time for you to provide it to OMES no later than Oct. 31.
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Related party transactions are transactions conducted with other
parties with which an agency or a key decision-maker in the agency has a close
association. Many related party transactions occur in the normal course of
business. Generally Accepted Accounting
Principles require the disclosure of material related party transactions.
There are many types of transactions that can be conducted
between related parties, such as sales, asset transfers, leases, lending
arrangements, guarantees, allocations of common costs, etc. Because of this, all
state agencies must have internal controls in place to identify any related
party relationships and monitor all related party transactions to be able to account
for and properly disclose related party activity.
The disclosures for the agency financial statements (if
applicable) and the Statewide CAFR should include:
-
General. Disclosure of all material related party transactions
of the agency, including the nature of the relationship, the nature of the
transactions, the dollar amounts of the transactions, the amounts due to
or from related parties and the settlement terms.
-
Control relationship. Disclosure of the nature of any control relationship
where the agency and other entities/individuals are under common
management control, and this control could yield results different from
what would be the case if the other entities were not under similar
control, even if there are no transactions between the businesses.
-
Receivables. Separate disclosure of any receivables from board
members, management, employees, or affiliated entities.
For several years, many state agencies relied on the Statement of Financial Interests form
that was required and collected by the Ethics Commission to assist in analyzing
related party relationships. However,
due to recent changes, the Ethics Commission no longer requires the completion
of this form by any person other than elected officials. Therefore, each agency should have controls
in place to detect related party relationships, collect the necessary information,
and make the proper disclosures. There are various ways that this can be
done. For example, your agency could
create a form similar to the Statement of
Financial Interests form to collect and evaluate the necessary
information. Your agency could also
create an affidavit type form where each employee would attest they do or do
not have any related party relationships with the agency and provide any
additional information as necessary. The
method for collecting and analyzing the information is a management decision
and may vary by agency.
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