Payroll and Taxation- Wk 1 PDF

PAYROLL & TAXATION WEEK 1- Introduction to Salaries and Wages, Payroll as it relates to, Statutory Deductions, Non Statutory Deductions and Net Salary. WHAT IS ETHICS? Whether a business employs 5 or 500 employees, payroll is a complex and highly regulated process that affects employee's attitude t...

PAYROLL & TAXATION WEEK 1- Introduction to Salaries and Wages, Payroll as it relates to, Statutory Deductions, Non Statutory Deductions and Net Salary. WHAT IS ETHICS? Whether a business employs 5 or 500 employees, payroll is a complex and highly regulated process that affects employee's attitude towards the company and its reputation in the community. In addition payroll errors have legal ramifications including costly fines and possible lawsuits. Payroll ethics are the structure within which payroll processes function to ensure that employees are paid the correct amount on time and the business is in compliance with local laws. Payroll ethics have several components. Everything related to payroll is confidential. This includes communications between the employer and employees and between the employer and outside agencies such as Inland Revenue and The National Insurance Board. It should be treated with the utmost importance that when errors are discovered they are corrected promptly. Payroll employees are properly trained and do their jobs with integrity and honesty. In addition it is imperative they keep up with regulatory and technology changes that affect payroll processing. SALARIES & WAGES Wages and salaries are the monetary remuneration (rewards) that an employee earns for services rendered in accordance with his or her job specification. SALARY- The term salary refers to earnings paid weekly, fortnightly, monthly, semi- annually or annually and is usually applied to administrative or clerical staff. WAGES- The term wage refers to earnings paid by piecework or on an hourly basis. An employee's gross wage or salary may be composed of the following:  Basic wage or salary  Overtime  Commissions  Perquisites BASIC WAGES OR SALARY This is the amount paid for the employee's normal time or production, according to the terms of the contract between the employer and employee. OVERTIME The employee may receive additional payment for working extra time, that is, more than his normal working hours. Overtime is often paid at a different rate to the normal salary or wage. An employee may receive overtime at the rate of "time and a half". EXAMPLE: If a person's wage is $20.00 per hour and the overtime rate is "time and a half", he will be paid $30.00 ($20.00 x 1.5) per hour for overtime.. If the overtime rate is "double time", he will be paid $40.00 ($20.00 x 2) per hour for overtime. COMMISSIONS Most salespersons work on a commission basis, receiving a small basic salary plus a commission based on a fixed percentage of the goods that they sell. EXAMPLE: A salesperson's basic salary may be $2,500 per month but his/ her commission may be 6% of the goods he/ she sells during the month. If he/ she sells $90,000 worth of goods during the month, he will receive $7,900 at the end of the month, as follows: Basic Salary............................................................ $2,500 Commissions...........................................................$5,400 Total........................................................................ $7,900 PERQUISITES Perquisites are sums of money that are received in addition to the three salary components already described. Perquisite may also be payments in kind, which can be given a money value. Perquisites can be travelling, housing, entertainment or meal allowances. GROSS WAGE OR SALARY This is the total amount of earnings due to an employee for a given period before any deductions are made. An employee's gross wage or salary is made up of his basic salary plus overtime, commissions and perquisites. It is important to note that not every employee is entitled to overtime, commissions and perquisites. These depend entirely on the contract between employer and employee. PAYROLL AS IT RELATES TO:  PROBATIONARY PERIOD  MINIMUM WAGE  RETRENCHMENT & SEVERANCE  EMPLOYMENT OF YOUNG PERSONS  MATERNITY WHAT IS PROBATION? The Industrial Court has stated that it is ‘a period of assessment by both parties as to the suitability of the worker for the job, and the job for the worker.’ (TD76/1995)It is a period of guidance, training and supervision with adequate opportunity to correct shortcomings. Probation, like every other element of the employment relationship must be managed in keeping with the principles and practice of good industrial relations. CHARACTERISTICS:  Should be stated in writing  Generally used for newly hired workers or workers who have experienced fundamental changes in job positions/ functions  Usually for a period of three (3) months in general and up to six (6) months for professional job positions, but would depend on the nature of the job, level of expertise and degree of skill required to achieve job targets  May be extended (in writing) where the probationer has demonstrated the potential but requires further training and guidance  The probationer is to be treated fairly and in accordance with the principles and practices of good industrial relations MINIMUM WAGES Minimum wages for all workers:  DAILY (8 hr day)$140.00  WEEKLY (40 hrs week)$700.00  MONTHLY (40hr Week) x52/12mths= 173.334hrs; $3,033.33 OVERTIME- This is limited to workers who earn $26.25 per hour and under  For Overtime worked beyond 8 hours on a working day:  1st 4 hours- 1.5 x hourly rate  2nd 4 hours- 2 x hourly rate  thereafter- 3 x hourly rate  For Overtime worked beyond 10 hours on a working day of a four(4) day work week:  1st 4 hours- 1.5 x hourly rate  2nd 4 hours- 2 x hourly rate  thereafter- 3 x hourly rate  For time worked on a day off:  1st 8 hours- 2 x hourly rate  thereafter- 3 x hourly rate OVERTIME  For time worked on a Sunday where Sunday is not a normal working day and on a public holiday:  1st 8 hours- 2 x hourly rate  thereafter- 3 x hourly rate  For time worked beyond a forty-hour working week:  1st 4 hours- 1.5 x hourly rate  2nd 4 hours- 2 x hourly rate  thereafter- 3 x hourly rate OTHER ENTITLEMENTS: If you are employed in the following sectors: Supermarkets, Variety Shops, Hardware Stores, Boutiques, Vegetable Stalls, Bakery Shops, Appliance Stores, Furniture Stores, Jewellery Stores, Mall Kiosks, Fast Food Outlets, Restaurants, Domestic Work, Hotels, Retail Shops, Dry Goods Shops, Stationary Stores, Electrical Shops, Drug Stores, Garment Stores, Book Stores, Market Stalls, Gas Stations, Flower Shops, Other Similar Establishments You are entitled to the following: Two (2) weeks vacation leave upon completion of twelve (12) months continuous service. Fourteen (14) working days paid sick leave per year, having been continuously employed for six (6) months. Retrenchment and Severance Benefits Act No. 32 of 1985 The Retrenchment and Severance Benefits Act –No. 32 of 1985 (also known as the RSBA) prescribes the procedures to be followed in the event of redundancy and makes provision for severance payments to be made to retrenched workers. These provisions may be enhanced in individual contracts of employment and in collective agreements. DEFINIATIONS Redundancy The existence of surplus labour in an undertaking for whatever cause. Retrenchment The termination of employment of a worker at the initiative of an employer for the reason of redundancy. Recognized Majority Union This term refers to a trade union certified by the Registration, Recognition and Certification Board as the bargaining agent for workers in a bargaining unit. When can a Redundancy / Retrenchment situation arise?  As a result of the reorganization and restructuring of the business by the management.  Where an employer fundamentally alters job classifications or relocates its operations.  Where there is a change in the ownership of a business and the successor or new owner does not absorb the existing workforce; the workers so affected shall be entitled to severance benefits. However, no worker can be genuinely considered redundant if his/her job functions continue to be substantially performed by another person. EMPLOYEES NOT COVERED BY THE RSBA Workers not covered by the RSBA are: - workers who have not had more than one(1) completed year of service. - workers serving a known pre-determined probationary or qualifying period of employment. - casual workers who are employed on a temporary or an irregular or intermittent basis. - seasonal workers, unless such workers are employed as part of the regular workforce for at least one hundred(100) days for three(3) consecutive seasons. - workers employed on a specified fixed term basis or workers engaged to perform a specific task/project over an estimated period of time where these conditions are made known to the worker at the time of engagement. PROCEDURE FOR RETRENCHMENT- GIVING FORMAL NOTICE Where the employer proposes to terminate the services of five or more workers for the reason of redundancy, the employer must give formal notice of termination in writing to each worker, to the Recognized Majority Union and the Minister of Labour. Where the proposed retrenchment involves five or more workers, each worker shall be given 45 days notice. The notice (as required by the RSBA) shall state:-  The names and classifications of the involved workers  the length of service and current wage rates of the involved workers  the reasons for the redundancy  the proposed date of the termination of employment (retrenchment)  the criteria used in the selection of workers to be retrenched  any other relevant information PROCEDURE FOR RETRENCHMENT- GIVING FORMAL NOTICE The RSBA does not provide for notice in retrenchment situations where less than five workers are involved. However, the common law principle of at least two (2) weeks notice should be applied. During the notice period, a worker is entitled to the full terms and conditions of his/ her employment and he/she is expected to report to work as normal unless otherwise instructed by the employer. CALCULATING SEVERANCE PAY Where a worker is covered by an agreement that provides severance benefits that are superior to those provided in the RSBA, the superior benefits shall apply. Where the retrenched worker is not covered by such Collective Agreement, the minimum payment is as follows:  Daily, Weekly and Fortnightly paid workers  Monthly paid workers. DAILY PAID WORKERS Workers who have served the employer without a break in service for 1-4 years: 2 weeks’ pay at worker’s basic rate for each year and any part thereof Workers who have served employer without a break in service for 5 years or more, for the fifth year and each succeeding completed year: 3 weeks’ pay at worker’s basic rate for each year and any part thereof In addition, any accrued/unused vacation should also be paid to the worker. MONTHLY PAID WORKERS Workers who have served the employer without a break in service for 1-4 years: ½ month’s pay at worker’s basic rate for each year and any part thereof. Workers who have served employer without a break in service for 5 years or more, for the fifth year and each succeeding completed year: ¾ month’s pay at worker’s basic rate for each year and any part thereof In addition, any accrued/unused vacation should also be paid to the worker. PROCESS FOR RETRENCHMENT The Selection Process for Retrenchment In most cases the Employer determines which jobs and functions are critical for the survival of the organization and the number of workers required to perform them. But, the guiding principle for selection is the LIFO/ ATBE (Last In First Out, All Things Being Equal). LIFO implies that within each category of workers to be reduced, the person who was employed last or with the least amount of service would normally be retrenched. However, ATBE requires that consideration be given to other performance and behavioral indicators such as late-coming, absenteeism, qualifications and past performance appraisals. Therefore, a worker who has more service than another may be selected for retrenchment if he/she has a record of poor work performance. Employers should only consider these indicators when such workers have been informed of their shortcomings and allowed the opportunity to improve. WITHHOLDING SEVERANCE Where a worker unreasonably refuses an offer by his employer or his employer’s successor, of comparable or SUITABLE employment under terms and conditions no less favorable than currently enjoyed without a break in service instead of being retrenched, his severance benefits may be withheld. EMPLOYMENT OF YOUNG CHICLDREN CHILDREN ACT 2012 Legal Requirement 1.No person under the age of 16 years shall be admitted to employment other than an undertaking controlled by members of the same family. (Family means parents, brother, sister or other descendants). 2.The Act does not apply to : a. Young persons in schools for general, vocational or technical education or other training Institutions. b. Young persons 14 years and above in training programs approved by the Ministry of Education. 3.Employers must keep and maintain a register of all persons under the age of 18 years employed by them with their Name, Address and Date of Birth. 4.Registers must be made available to Labour Inspectors for inspection. 5.Inspectors have the authority to :Require a parent or guardian or employer to give information with respect to wages, terms and conditions of service, wage records, certificate or representation of age for persons under the age of 18 years. EMPLOYER’S OBLIGATIONS 1. Must not employ persons under the age of 16 years. 2. Must keep and maintain a register of all persons under 18 years. 3. Register must be produced for inspection by the Inspector upon request. 4. Must co-operate with the Inspector by giving him information with respect to salary paid to and the terms and conditions of service enjoyed by a person under the age of 18 years. 5. Must permit the Inspector to inspect any record, pay sheet or certificate or representation of age relating to a person under the age of 18 years. BREACHES 1. Failure to keep and maintain a register or permit the Inspector access to the register is a summary offence - Fine of $20,000.00 and one (1) year imprisonment. 2. Obstruction of an Inspector from carrying out his functions is considered contempt of the Industrial Court and shall be dealt with by that Court as provided for under the IRA. 3. Parent or guardian who conduces to the employment of a child less than 16 years through willful default is liable on summary conviction to a fine of $5000.00. 4. Employment of a child under the age of 16 years – Person who employs or permits him to work is guilty of an offence. 5. Workman or agent of employer who employs a child under the age of 16 years commits an offence as if he were the employer. 6. Where a child under the age of 16 years is employed on production of a false or forged certificate or false representations, the parent or guardian is guilty of an offence. 7. No. 4, 5 and 6 above are considered summary offences and attract a fine of$25,000.00 and imprisonment for three (3)years. MATERNITY What are my Rights as a Pregnant Employee? Once you are employed with the same employer for a continuous period of 12 months or more you are entitled to:-  Fourteen (14) weeks Maternity Leave  1 month full pay and 2 months half pay by your employer (NIB also pays a benefit)Reasonable time-off with pay to receive prenatal medical care.  To resume work on terms no less favorable than before you proceeded on Maternity Leave.  An opportunity to be considered for promotion if you qualify while on Maternity Leave. MATERNITY LEAVE An employee can proceed on Maternity Leave six (6) weeks before the expected due date or at a later date. NIS: If your Employer does not pay your NIS Contributions; your employer will be liable to pay your full salary for the period of Maternity Leave (14 weeks). APPLYING FOR MATERNITY LEAVE  At least eight (8) weeks before your expected date of confinement, inform your employer in writing of your pregnancy, stating that you will require leave of absence due to pregnancy.  Also include in that letter the date on which you intend to return to work at the end of your Maternity Leave.  Submit a medical certificate from your doctor which outlines your estimated due date. RESPONSIBILITIES AS AN EMPLOYER Keep and maintain records for employees for five (5) years such as attendance, wages records and evidence of payment for Maternity Leave. Grant pregnant employee leave of absence for the purpose of Maternity Leave whether the child is premature, dies at birth or dies within the period of leave, once the pregnancy is more than 26 weeks. Grant employee, reasonable time-off with pay to receive pre-natal medical care. To pay employee while on Maternity Leave ONCE the employee has worked for twelve continuous months with the same company(as outlined above). Allow the employee to resume work following Maternity Leave on terms no less favorable. EXTENDING MATERNITY LEAVE  For Medical Reasons After the birth of her baby, a working mother can extend her Maternity Leave for medical reasons for a period of no more than 12 weeks.(Inform employer in writing stating date of return along with medical certificate from a doctor)In this case, the employer is obligated to pay the employee half-pay for the first 6 weeks and no-pay for the next 6 weeks.  For Non-medical Reasons After the birth of her baby, a working mother can postpone her return to work for non-medical reasons for a period of no more than 4 weeks. In this case, the employer is not obligated to pay for this period. STATUTORY DEDUCTIONS Statutory deductions are deductions that are compulsory according to the laws of the country. The must be deducted from each employee's salary and remitted to the relevant government authorities. Failure to do this will result in a penalty of fines. In Trinidad & Tobago there are three-  Income Tax  National Insurance &  Heath Surcharge INCME TAX The Pay As You Earn (PAYE) system of income tax is used in many countries. Each employees over seventeen years must pay income tax to the government. The income tax payment is calculated as a percentage of each dollar of an employees chargeable income. With the PAYE system, the employee's chargeable income is calculated as follows: Gross Salary or Wage less Allowances equals Chargeable Income ALLOWANCES Allowances are expenses that employees are normally expected to incur during the year. Some of which are personal allowance, health, children, insurance, spouse, owner occupied property, etc. Not everyone will be entitled to all the allowances; it depends on their personal situation. These allowances are simply deducted from an employees gross wage or salary to arrive at the chargeable income on which the income tax payment is based. The higher the chargeable income, the greater the tax payment that must be made. Employees whose chargeable income is less than a certain sum do not have to pay income tax. With the PAYE system, the employer must deduct the tax payment from each employees wage or salary whenever he is paid and remit it to the Board of Inland Revenue failure to do this can result in fines. NATIONAL INSURANCE SYSTEM (NIS) In many countries both employers and employees have to contribute to a national insurance scheme. National Insurance payments are based on the employees salary or wage. The higher the employee's salary or wage, the greater the payment he must make. However, there is a maximum payment, and an earnings level below which no payment is made. For each contribution necessary, typically the employer must pay two thirds, and the remaining one- third is deducted from the employee's salary or wage. It is the duty of the employer to remit all contributions to the Government. The benefits available from the National Insurance scheme may include sickness, injury, maternity benefits and a pension plan. HEALTH SURCHARGE Health Surcharge is a statutory deduction that must be made by all employees in Trinidad & Tobago. Like National Insurance, the Health Surcharge is based on the salary or wage earned by an employee. The Health Surcharge is made to assist in financing the health services provided by the Government. As per Health Surcharge Act Chapter 75:05the rates are as follows: RATES: (a) Employed persons whose monthly emoluments are more than $469.99 or whose weekly emoluments are more than $10.00- $8.25 per week. All other employed persons $4.80 per week. (b) Individuals other than employed persons whose total income for the year of income averages more than $469.99 per month- $8.25 per week. All other individuals other than employed persons- $4.80 per week. NON- STATUTORY DEDUCTIONS These are deductions which are made out of an employee's salary or wage by mutual agreement between employer & employee. Some examples are:  Group Health and Pension Plans  Personal Insurance Payments  Trade union dues GROUP HEALTH AND PENSION PLANS Several companies have a group health and pension plan for their employees. It is an insurance policy which is taken for the benefit of the employees of the firm. Each month a small sum is deducted from the employees salary or wages, which represents his or her contribution to the plan. The total amount collected from all the employees is the insurance premium which is paid to the insurance company. The benefits from such a plan includes but is not limited to:  Medical coverage for the employee, his or her spouse and all members of his/ her immediate family under a stated age.  A monthly pension or retirement. PERSONAL INSURANCE PAYMENTS An employee may instruct his employer to make personal insurance payments for him. In this case the insurance is deducted from his salary or wage and is sent to the insurance company. TRADE UNION DUES In certain companies the employees belong to a Trade Union which negotiates with management on their behalf. Each month they must pay union dues (subscription). These are deducted from their salaries or wages by the employer, who in turn remits the money to the trade union. NET SALARY Net Salary is Gross Salary less Total Statutory and Non- Statutory Deductions.