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Guidelines to a Good Paid Time Off Policy (PTO)

 

Paid Time off Policy

A paid time off policy provides a bank of hours in the employee’s work record. Employers pool the hours. They include sick days, vacation and other personal days. Therefore, employees have the opportunity of using them when the need arises.

Creating such policies poses challenges and complications. Also, there are no federal laws in the US that guide their provision. Consequently, options of structuring and accounting for leave are unlimited and lie on the employer’s discretion.

 

Paid Leave

Categories of Paid Leave

There are two classes of paid leave for employees.

– First Category

This allows employees to take leave occasionally. Employees will take it once or twice through their tenure. Parental leave, disability leave, jury duty and death are examples of such leave.

– Second Category

This allows employees to take leave on an annual basis. Therefore, permits utilization of all the time allocated. Vacation, personal, holiday, sick days and PTO are examples in this category.

Factors to consider when creating a PTO Plan

For an excellent paid time off scheme, several factors are essential. These include;

 

Types of Paid Time Off

1. Multiple PTO Day type vs. One PTO Bank

Offering one time paid off policy is a common trend. It is beneficial as opposed to a collection of particular leave i.e. vacation, sick, floating holidays or personal days. Some of the benefits include:

  • Determination of leave necessity is not needed. If an employee needs some time off, a trip to some place, religious holidays, appointments, all are covered by the same policy and drawn from the same bank of days.
  • It’s fair as all employees are subject to the same number of leave days to use.
  • For health employees, it reduces the number of patient calls. When you have a separate sick day policy; Employees tend to treat these days as owed to them.
  • Multiple Day types

Some employers prefer maintaining specific leave policies. Benefits accrued from this type of policy are:

  • Classification of accrued paid leaves as wages. Accrued paid leave is classified as wages in some states. It is paid to departing employees. It differs from state to state. Some leave types are exempted while others are considered as wages. On the other hand, the same treatment on vacation policy would be a violation of state law.
  • It complies with some municipality legislation. Some municipalities have passed laws requiring employers to provide paid sick leave separately from vacation.

 

2. Calendar year vs. Anniversary date

An employer should establish the period for the policy. Paid time off period can be based on calendar year or employees hire date otherwise called anniversary year.

Anniversary

It gives employers an opportunity not to pro-rate employees in their first year. Furthermore, if you choose to take your policy based on tenure, it makes it easy for employees to understand where they fall. However, management can be difficult with staff having unique dates and anniversaries. This challenge can be overcome by implementing a paid time off tracking system.

Calendar

Basing your policy in a calendar year is another option. However, it poses the challenge of everyone being on the same schedule. Additionally, calculating the number of leave days for an employee who starts mid-year is tricky. If your policy is based on use it or lose it principle, you may have employees scrambling for it at the end of the year.

 

Time off accruals

3. Accrued vs. Granted

Structuring your policy so that the whole bank of days can be granted on day one of the year is another option. Also, you can create a system where all days are accrued. It can be done by pay cycle or monthly.

Granted

It is mathematically simple. If the employee works in a state that requires pay-out of earned days upon termination, you may be required to pay the value of the entire year. It is done irrespective of when the employee departs the company.

Accrued

These will allow the employees to borrow days from the future to take a vacation early. It may result in an employee leaving with a negative balance of vacation days. Consequently, you may not be able to collect the value of those days from the employee. Also, some states prohibit deductions from final paychecks.

4. Flat vs. Tiered

A company may decide to create different allotments for the various groups of employees. It is done by creating levels of leave allotments based on tenure. It leverages your policy and encourages employee retention. Also, some grouping is based on job title with senior staff getting more paid leave.

5. Unused days: caps payouts Carryover.

Carrying over PTO to the next year is at the employer’s discretion. When designing your policy, you can allow days to carry over. However, it has to be limited to some days.

Employers must allow employees to take unused days from year to year. Make sure what your policy state is compliant with all state jurisdictions. It includes paying out your employees their accrued wages as stated in the policy.

 

 

This content was provided by Neches FCU, an Equal Employment Opportunity Employer Credit Union.
Neches FCU is one of the top Texas credit unions and has a courteous and attentive team of professionals ready to service it’s wide base of members. When the doors open at any of the nine service outlets, our core objective of “Ultimate Member Satisfaction” becomes the sole focus for every representative.

Key Tax Tips for Taxpayers Employing Household Staff

Household Staff

Household Staff

 

If you are a CPA or tax professional who has clients that pay household employees, then you will need to show special attention to additional paperwork, rules, deadlines and certain labor laws. Household employees include anyone that the client pays to do domestic work. These people are not commercial employees, so the entire process involved in handling tax laws is different. Such employees of the client may include housekeepers, nannies, gardeners, senior caregivers and others.

Clients that employ household workers sometimes overlook some of the technicalities involved. Often times the client is not familiar with rules and regulations for employing other people, so it is likely that they will make a mistake in payroll, tax laws or even labor laws when dealing with their own domestic worker. There’s some things that the CPA or tax professional can tell the client to help avoid mistakes. Passing this information along to those certain clients can save a lot of time and energy correcting their mistakes.

 

Domestic workers

Domestic workers

 

Domestic workers and employees are technically the same thing.

The IRS has made it publicly known that all types of domestic workers should be classified as employees for tax purposes. The publication known as IRS Publication 926 can be found online, and it clearly defines this matter. Printing this publication for clients, sending it in an email to them or simply telling them about it prevents misunderstandings. Without expressing certain facts like this and making them known to the client, the client is free to believe misinformation he or she stumbles upon on the internet or hears from a friend or family member.

Typically, the mistake is made by the employing family to treat the worker’s tax documents as if they were a contractor’s documents. The families that issue an independent contractor 1099 form to the domestic worker are committing a crime of tax invasion. The IRS and Department of Labor are strictly enforcing this ruling and calling it a mis-classification of the domestic worker.

 

employing family

employing family

 

The employing family should discuss all aspects of pay and taxes when hiring a domestic worker.

The transparency involved in discussing what goes on with the worker’s paycheck from the money they make and what gets held in taxes is beneficial for both parties to understand. Tackling this important issue as early as possible will help avoid any miscommunications and stresses about pay and taxes.

Advise your clients to be honest about pay and tax withholding during interview and hiring processes. This full disclosure can include multiple scenarios to display, for the potential employee, how much they will learn on their pay day. Reminded the client that their employee may not be familiar with the way taxes are withheld because the employee may have an independent contractor background.

Advise your clients to clearly define with their employee about the expected amount they will earn per hour.

The client should already be familiar with the difference between salary and hourly, but they will tend to offer a salary to their worker instead of hourly. This can cause confusion and problems when filing taxes because the hours the employee works are subject to change. Technically speaking, the Fair Labor Standards Act classifies household employees as non-exempt workers, so they must have a clearly defined hourly rate of pay.

Check on the rules for overtime in your state because most household employees are eligible to earn an extra incentive for working more than 40 hours in a week.

 

Domestic worker paid time off

Domestic worker paid time off

 

Clients should talk to their employee about the issue of getting paid time off.

Paid time off for vacations, illnesses or holidays is not mandated for household employees, according to federal mandates. There are, however, states that do require it, so make sure you are familiar with it and know the rules in your state before discussing this matter with your client. Even if it is not required legally, it is often a good idea to give some paid leave. Paying for leave time for the employee ensures that he or she is happy and healthy, and this will be reflected in their quality of work.

 

Late tax filings

Late tax filings

 

There is a difference in deadlines when the client has household employees.

Filing for domestic workers cannot wait until the last minute. It is not something that can wait until tax season comes around. These filings are throughout the year for many states. Warn your client that waiting until the last minute to file worker taxes often results in more fees because of mistakes that can occur on the client’s behalf.

These tips can save the client a lot of money. Furthermore, they can save the CPA or tax professional a lot of time, frustration and energy.

Hopefully, this article makes you think about how to advise your clients with regards to tax simplification. With this in mind, if you’re not already filing clients’ taxes online, you should definitely consider it. When you efile 1099 and W-2 tax forms, you’ll notice results faster. I urge you follow my lead if you’re spending too much time printing and mailing tax forms. I use eFile4Biz.com to file 1099 forms online. They save me precious time I could be seeing clients, as opposed to standing next to a printer and stamp machine. The video below shows you more.

 

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