1099 Reporting Provision Repealed at Last (6/11)

President Obama recently signed into law a repeal of the burdensome 1099 reporting provision passed as part of last year’s controversial Patient Protection and Affordable Care Act.  The 1099 provision, section 9006 of the Act, greatly expanded when employers would have to file information returns (the so-called Form 1099) to report certain business transactions to the Internal Revenue Service (IRS).  (HR Matters has been following this issue since the Act passed last year.)       Under current tax law, employers are required to issue 1099s in limited circumstances when they pay over $600 to an individual or a business for services rendered, such as when paying outside consultants and other independent contractors.  Payments made to corporations or in exchange for goods and merchandise do not require the form.  The 1099s are sent both to the IRS and the person or business receiving the payments.  The intent behind the reporting requirement is to allow the IRS to track the payments and to ensure that proper taxes are being paid on them.        The new Act’s provisions would have covered every transaction over $600 and payments to corporations or for merchandize would no longer be exempted.  The provision, which was scheduled to take effect January 1, 2012, was expected to raise between $19 and $22 billion to help pay for the Act’s overhaul of the health care system with the extra taxes that would have been collected (the projected monies the requirement could generate in ten years).  However, public outcry against the new provision and concerns by the IRS’ National Taxpayer Advocate that the administrative burden of the filing requirement on businesses outweighed any resulting improvement in tax collections helped push a bipartisan coalition in Congress to repeal the provision.

New dol Phone App Underscores Importance of Accurate flsa Records (6/11)

The DOL wants your employees to keep separate time records, apparently to support any FLSA claim they might have against you.  Find out what records you need to keep to comply and what it may cost you if you do not.

Three months ago, in the March 2011 HR Matters, we alerted you to a new “Work Hours Calendar” offered by the federal Department of Labor (DOL) to help employees track their work hours separately from your company time records.  Now, the agency is making it even easier for employees to use the calendar by offering a free smartphone application to track regular work hours, break time, and any overtime hours for one or more employers. According to the DOL’s press release announcing the new app, “[t]his new technology is significant because, instead of relying on their employers’ records, workers now can keep their own records.”  And, just in case you have any doubt about why exactly your employees should be keeping separate time records, the DOL states that “[t]his information could prove invaluable [our emphasis] during a Wage and Hour Division investigation when an employer has failed to maintain accurate employment records.”  Below is a reminder of what your recordkeeping obligations are under the FLSA and what your liability could be for inaccurate records. Recent Settlement and Court Case Show Cost of Sloppy Records Clearly, keeping accurate time records is more important now than ever since the DOL is actively encouraging your employees to keep their own time records to support any future claims they may have against you for wages owed.  Further, if your records are not accurate, you will not be able to defend properly against the claims and could even face increased penalties for incomplete records.  A recent district court verdict and a DOL settlement indicate just how big your liability could be.        A district court in Maryland in 2006 determined that a nonprofit organization operating community living facilities owed over $525,000 to almost 400 employees in back wages and penalties.  The court found that the organization failed to keep proper timesheets for employees and did not pay the proper wages and overtime owed.  (See Chao v. Self Pride, Inc., 2006 U.S. Dist. LEXIS 18865 (D.Md. 2006), affirmed, 2007 U.S. App. LEXIS 11543 (4th Cir. 2007).)  And, in February 2011, the DOL settled a case with a New York pizzeria for $780,000 in back wages and damages involving 40 employees.  In addition to finding minimum wage and overtime violations, the DOL also determined that the employer had failed to keep adequate time or payroll records as required by the FLSA.   Your FLSA Recordkeeping Obligations As the cases above show, recordkeeping violations can be expensive.  So, you need to make sure that you understand your obligations.  Here is an overview of the FLSA’s recordkeeping requirements.      The FLSA requires covered employers to maintain basic payroll and other records for each employee, and this is explained in the FLSA regulations at 29 C.F.R. §§516.1, et seq.  The regulations do not specify any particular form of records.       In general, employers should retain for at least three years, from the last date of entry, payroll records containing the following information: (1)     Each employee’s name, as used for Social Security, and the employee’s identification number or symbol, if used in place of the name on any payroll record; (2)     Home address and zip code; (3)     Date of birth for employees under the age of 19; (4)     Sex and occupation; (5)     Time and day of the week when the employee’s workweek begins; (6)     Regular rate of pay for any week when overtime is worked, hours worked each workday and total hours worked each workweek, total daily or weekly straight-time earnings, and total overtime compensation for the workweek (this requirement applies only to nonexempt employees); (7)     Total additions to or deductions from wages for each pay period; (8)     Total wages for each pay period, date of payment, and pay period covered by the payment; (9)     Certain collective bargaining agreements, plans, and trusts; employment contracts; and notices of the Wage and Hour Administrator; and (10)     Sales and purchase records for employees who are subject to minimum wage requirements.        In addition, you also should keep supplementary basic records for all employees for at least two years.  These records include:   (1)     Wage rate tables;  (2)     Work time schedules, time cards or sheets, and records of amount of work produced by each employee;  (3)     Order, shipping, and billing records; and  (4)     Records of additions to or deductions from wages paid.        Note, too, that the record retention requirements stated in the FLSA are minimums.  Most HR and legal experts suggest that employers maintain their payroll records through the worker’s employment plus five to ten years to ensure they are available if a claim is filed. Penalties and Personal Liability As the employers found in the cases discussed above, if you do not keep proper records of work hours, the DOL and courts will rely on employee testimony to establish the number of hours worked and the outcome is not likely to be favorable to your interests.  Further, even if only one employee is alleging a single FLSA violation, it is important to remember that the DOL can – and often will – investigate all of your relevant records to search for other possible violations.  As a result, you may have to produce payroll and time records from the previous two or three years.       Remember, too, if your organization is found to have violated the FLSA because you have inadequate records and cannot defend against an employee’s own time records, your organization likely would face not only back wage payments but also civil monetary penalties.  And, just to make matters more interesting, the FLSA can impose personal liability for decision-makers, including fines and imprisonment for management employees found responsible for the violations.  So, make sure your payroll records are in order and accurate.