A little of this, and a little of that today; employee classification issues and two Q&A’s: payroll and capitalization issues.
Exempt vs. Nonexempt, Independent Contractor vs. Employee
I came across what I think is an interesting piece, The workplace violations feds will be investigating this year. Not surprisingly there is an increase in funding for the Wage and Hour Division, specifically to look and exempt vs. non-exempt employee classification. Another popular item to look at is the misclassification of employees vs. independent contractors.
Why are these areas of interest to look at? Two reasons I can think of off hand, with the first being to protect workers. Exempt vs. non-exempt, independent contractor vs. employee, all of those are very specific designations with differing employer responsibilities. Putting someone in the wrong bucket may violate an individual’s rights. The second reason is that the IRS wants to make sure it is getting all that it is due from the employer or individual in the form of payroll and income tax. Even part 5 of the updated form 990 asks more questions about payroll and withholding amounts.
Misclassification of employees has always been a big compliance problem for nonprofits and forprofits alike. I have heard more than once someone tell me, “No one would sue us, we’re a nonprofit.” If that was ever true, it is true no longer. Any employee, no matter what the sector, who feels unfairly treated may sue their employer. To help mitigate lawsuits, as well as unwanted attention from state and federal regulators I encourage all nonprofit employers to make sure the folks they are paying are classified correctly. For starter the IRS has a nice pdf on Independent Contrator issues, and other resources here. A good primer on exempt and nonexempt issues can be found here.
Questions and Answers: Payroll
I just started doing bookkeeping for a non profit. I have to set up payroll and payroll takes but I’m not sure where to start. Do I have to notify the IRS? How about my state taxes?
Are you using a payroll company? I would strongly recommend you do. There are plenty of companies out there. They usually handle all the forms and take all the responsibility in case anything goes wrong. Payroll is one of the few things I have intentionally avoided learning about as it is so cheap to outsource it, it is pretty much a commodity at this point. I recommend comparing the price and services they offer. Do they offer a time tracking system? Do they integrate with your accounting software? Do you have the option of doing it all on-line?
Questions and Answers: Capitalization
We received $30,000 to be used to replace part of our building. The cost to do this was $40,000. What amount should be capitalized – the entire $40,000 or the $10,000 that we had to come up with?
The entire cost of the repair should be capitalized. Regardless of how it was paid for the cost was $40,000.00.