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Understanding the Tax Cuts and Jobs Act

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With the Tax Cuts and Jobs Act (TCJA) being signed into law by President Donald Trump on Dec. 22, 2017, several changes to individual and business taxation were made. How those changes affect each taxpayer depends on that individual’s specific situation.

Below is a “big-picture” overview of various provisions affecting businesses and individuals, with more focused guidance on how the new law will affect employer withholding of employee income taxes.

 

Changes for individuals

The TCJA affects individual income taxes in a number of ways. While the law maintains the seven income brackets used in tax calculation, it reduces the tax rate for five of the brackets:

Previous Rates 10% 15% 25% 28% 33% 35% 39.6%
New Rates 10% 12% 22% 24% 32% 35% 37%

 

The new law has also changed the withholding rates for supplemental wages. For wages up to $1 million, the current rate is 22%, and for wages over $1 million, the current rate is 37% (previously 25% and 39.6%, respectively).

TCJA has eliminated the personal exemptions for individuals, spouse and dependents. Previously, a married taxpayer filing jointly could claim two exemptions: one for his or her spouse and another for themselves. In that instance, two exemptions of $4,050 each would reduce taxable income by $8,100 total.

While that exemption is gone, the TCJA nearly has doubled the standard deduction. Last year, the standard deduction was $6,350 for single filers and $12,700 for joint filers. For 2018, these levels increased to $12,000 for single and $24,000 for joint filers.

The TCJA makes several other specific changes to individual income taxes, including:

  • The individual shared responsibility mandate within the Affordable Care Act (ACA) essentially has been removed, as the penalty for noncompliance will become $0, effective Jan. 1, 2019.
  • Individuals no longer will be able to claim unreimbursed business expenses as itemized deductions.
  • A $10,000 limit has been placed on the deductibility of other taxes (state income tax, property taxes, etc.).
  • Donations to universities for athletic seating privileges are no longer deductible.
  • The child tax credit will double from the previous $1,000 value, up to $2,000 per child.

 

Changes for businesses

Businesses will need to take note of several changes within the TCJA as well. One key change: The corporate tax rate has been reduced from 35% to 21%.

Additionally, a new short term incentive is in place for businesses who offer FMLA paid leave to their employees. Such businesses will receive a credit of 12.5% for every dollar paid for FMLA leave, up to 50% of an employee’s pay, with an additional 0.25% credit for every 1% paid above 50% of an employee’s pay.

Among various reductions or removal of deductible expenses that businesses should note include:

  • transportation fringe benefits
  • limitations for employer-operated eating facilities
  • deduction limitations for pay to highly paid employees and C-level employees
  • limitations to the write-offs for sexual harassment settlements
  • limitations for the deductibility of entertainment expenses

 

All of the above items will need to be discussed with your CPA or tax counsel to determine how they apply to your situation.

 

Frequently asked questions from employers

Some of the most frequent questions we have received since the president’s signing of the law pertain to the withholding tables and Form W-4 questions.

Withholding tables

The IRS released the new 2018 withholding tables on Jan. 11 in Notice 1036, with more detailed guidance released on Jan. 29 in Notice 2018-14 and Publication 15. (These changes already have been implemented in the Paycom system, ahead of the Feb. 15 implementation deadline from the IRS.)

The IRS designed the 2018 withholding tables so that employees’ existing Form W-4 data could continue to be used. Therefore, the IRS does not require employees to complete a new W-4 for 2018.

Extensions to the 2017 Form W-4

The IRS currently is working on a new 2018 Form W-4 that will allow employees to modify their withholding to take full advantage of the changes in the TCJA. The new form’s expected release is after Feb. 15.

As a result, Notice 2018-14 highlights these items relating to the 2017 Form W-4:

  1. Existing 2017 Forms W-4 furnished to claim exemption from withholding for 2017 would be extended to Feb. 28, 2018.
  2. The 2017 Form W-4 may continue to be used temporarily to claim exemption from withholding in 2018.
  3. The agency temporarily has suspended the requirement that employees must furnish new Forms W-4 to employers within 10 days of changes in states that would reduce withholding allowances they may claim.

 

Allowances and exemptions

When discussing the effects of the TCJA, it is important to understand the distinction between “allowances,” as claimed on the W-4 that are used for withholding, and “exemptions” that an individual claims on a year-end tax return.

Historically, these numbers are usually the same. For instance, last year they were $4,050 per allowance in withholding and exemptions in year-end tax returns. The number of allowances claimed on the 2017 Form W-4 were multiplied by $4,050, and an employee’s annual wages were reduced by that product to arrive at taxable wages used in withholding calculations. If the employee claimed exemptions on his or her annual return, the number of exemptions claimed likewise was multiplied by the same $4,050 to reduce taxable income on the Form 1040 year-end return.

While the TCJA has eliminated exemptions for 2018, the allowances (as used in calculation of withholding) have not been eliminated; in fact, they were increased to a value of $4,150 per allowance claimed on the W-4. Thus, for every W-4 allowance claimed, an employee’s gross income will be reduced by $4,150 to arrive at taxable wages for use in the withholding calculation. However, no exemptions will be allowed on the employee’s Form 1040 at year-end; moving forward, it is anticipated the worksheet on the 2018 Form W-4 will not include exemptions in the calculation of withholding allowances.

Voluntary submission of 2018 Form W-4

While submitting a 2018 Form W-4 is not required by the IRS at this time, an employee may elect to do so. Employees should look at the 2018 W-4 once it is released, because of the removal of exemptions from the income tax provisions. Employees should calculate the allowances on the new form to determine if they would benefit by submitting a new Form W-4 to their employer to adjust their withholding.

Until the 2018 Form W-4 is released, an employee may voluntarily choose to submit a copy of the 2017 Form W-4 if he or she wants to adjust their withholding for the period prior to the 2018 form’s release.

The recent tax reform is complex, leaving many items to consider for your employees as they head into 2018. Businesses and employees alike would benefit from consulting tax counsel to help determine the most appropriate next steps for their specific situations.



Author Bio: Robert Barclay has been the Tax Research Team Lead at Paycom since 2012, and has been instrumental in such company projects as the development of its Affordable Care Act compliance product, implementation of geolocation services and redesign of Form W-2. He joined Paycom in 2011, bringing more than 20 years of experience with the capital markets consulting practices of Ernst & Young in Memphis, Tenn., and Birmingham, Ala.; and Causey Demgen & Moore in Denver, Colo. A native Oklahoman, Barclay is a graduate of Rhodes College in Memphis, where he played football as linebacker.

7 Action Items Your New-Hire Checklist May Be Missing

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It’s expensive and time consuming to hire someone, so you want to make sure your new hires stick around. Fortunately, there’s a lot you can do to welcome your new employees and give them a successful start to a long, productive career with your company. Consider making the guidelines in this blog part of your new employee checklist. If you don’t already have a new employee checklist, you can use the information below to start building one tailored to your company’s needs.

Paycom clients: If you have Document and Task Management, it’s easy to add any of the items below to your new-hire checklist and review completion rates. That way, you can ensure each new employee has a positive, consistent onboarding experience.

If you’re not a Paycom client, you can use this post to build your own checklist in a program like Microsoft Word or Excel. Keep in mind that if you take this approach, ensuring the checklist is used and completed for every new employee will be difficult.

1. Send a welcome letter to new employees.

A welcome letter to new employees helps them feel connected to your company from the beginning. An effective welcome letter should include:

  • confirmed start date, including where to show up and who to report to on the first day
  • information about parking, dress code, which entrance to use and other logistical information
  • outline of the first day’s activities, like completing HR documents, orientation, group training or an introduction to other employees
  • guidance on lunch: whether new hires can expect to spend it with their team, with their supervisor or on their own, and whether it will be on- or off-site

2. Send new-hire forms to new employees before their first day.

You may want to send HR documents, like Forms I-9 and W-2, to new hires to complete before they start. This is “preboarding,” and it can be an effective way to help new hires start work earlier on their first day, especially if you have the technology to send and receive these documents quickly and securely. Do note that time spent preboarding must be tracked and compensated.

If you’re considering adding this step to your new-hire checklist, it’s critical you have processes in place – or the right technology – to ensure the confidential and timely exchange of new hire documents. Additionally, new hires should have a way to track the time they spend preboarding accurately.

3. Block out time for a meet and greet.

Once new hires are on site, make them feel like valued members of the team. Have an employee greet new team members at the entrance on their first day. Help them connect with other new hires through introductions or even a group orientation, depending on the size of your organization.

4. Ask managers to assign tasks.

Make sure your managers offer their new hires’ practical, manageable assignments that can be completed on their first day. That allows them to start feeling like contributing team members sooner. Managers also should have a 30-, 60- and 90-day plan prepared for their new team members, so they know what’s expected of them and what success looks like in their new role.

When managers prepare these 30-, 60- and 90-day plans, they should have in mind some of the questions they will use when they check in with employees in the first several months of employment. Here are examples of questions your managers could ask at each stage:

Day one:

  • How did everything go today?
  • Do you have any questions?
  • Is there anything you have any worries or concerns about?
  • Any concerns for the future?

30 days in:

  • Is the job/team/company what you expected?
  • Do you have enough, too much or too little time to do your work?

60 days in:

  • What’s been going well? What are the highlights of your experiences so far? Why?
  • How do you see your job relating to the organization’s mission?

90 days in:

  • What’s the biggest difference between what you thought the job was like and what it’s really like?
  • Is there anything about your role, the team or company that is still unclear?

While these check-ins aren’t technically a part of the new-hire checklist, they are a crucial part of increasing employee retention and engagement, during the time new hires might still be on the fence about staying with your company.

5. Show new hires around their new space.

Give them a tour of the company and their new department, including where they can find:

  • break rooms
  • restrooms
  • supplies
  • the cafeteria, lunch rooms or nearby restaurants where they can eat lunch
  • other key locations like a lounge, gym or frequently used conference room

Before a new hire walks in the door, ensure his or her workspace is clean and has everything he or she will need to do his or her job well. Depending on the new hire’s position, this may include:

  • phone
  • office supplies
  • computer (including keyboard and mouse)
  • tools
  • safety gear (if applicable)

Check that any software required for the new employee’s job is already installed, and consider placing a directory or list of employees and extension numbers near their phone.

One way to make new employees feel especially welcome is to include a welcome gift with company-branded items, new supplies, snacks or even small gifts that help new hires get familiar with your company culture.

6. Help new employees connect to their team.

Send a new-employee introduction announcement to the rest of the company or department before a new hire begins. Share details about their experience, new role and personal information if it fits with your company culture.

But don’t limit the introduction to email. Follow up in person by introducing the new hire to their team. Take time to mention the new person’s strengths and what he or she will bring to the company. Give the new hire guidance on who he or she can ask for help regarding specific issues.

7. Help your new hire get acclimated to the company culture.

Because culture is the unwritten code that influences the way the team, department and company makes decisions large and small, giving new hires a quick cultural overview can help them feel more confident sooner.

Plan a group activity, or encourage your new hire’s manager to do so. A team lunch, coffee break or happy hour can provide valuable time for informal connection with new co-workers.

Consider assigning a “buddy” or having the new person shadow a more experienced employee. If your new hire is shadowing someone, give that employee advance notice. This will allow him or her time to prepare the day’s tasks based on what the new hire will need to learn.

Talk to new hires about how their work matters to the organization. This helps give them a sense of purpose as they start their new job. If possible, have others in the same position share stories of success or the business impact they’ve seen in their roles. Depending on your company, you or the new hire’s manager may do this. Either way, helping your new hire make this connection can help them feel like an important part of the team from the beginning.

Retention starts early

Following these guidelines when you create your new-hire checklist – or adding them to your existing checklist – can help ensure new hires experience a first day that makes them excited to work for your company for the long haul.

For more guidance on how your onboarding activities can contribute to increased retention, download our executive summary, “Why Retaining Great Employees Starts With Onboarding.”

To learn more about Paycom’s Document and Task Management software, request a demo.

DISCLAIMER: The information provided in this blog is for general informational purposes only. Accordingly, Paycom and the writer of the above content do not warrant the completeness or accuracy of the above information. It does not constitute the provision of legal advice, tax advice, accounting services, or professional consulting. The information provided herein should not be used as a substitute for consultation with professional tax, accounting, legal or other professional services.

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Posted in Blog, Employee Engagement, Featured, Pre-Employment, Talent Acquisition

lauren.rogers

by Lauren Rogers


Author Bio: As a communications specialist at Paycom, Lauren Rogers keeps employees abreast of company news and events, and provides insight to industry leaders regarding issues affecting human capital management. With experience in marketing and communications, Lauren has written blogs and other materials for a variety of businesses and nonprofits. Outside the office, she enjoys gardening, testing new recipes and sipping something caffeinated with her nose in a book.

Managing Office Love

When Cupid Strikes: 3 Steps to Managing Office Love

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Around Valentine’s Day, conversations about love and romance are everywhere – including the office. The holiday of love may be behind us, but workplace romance is not going anywhere. HR may not usually be viewed as a matchmaker, but they are hiring talented people who fit the values and cultures of the company. When building an organization, it is natural that your employees have many things in common with their coworkers around the office.

In a recent episode of HR Break Room, we talked with Sarah Green Carmichael, the executive editor at Harvard Business Review and co-host of The Women at Work podcast, about managing office love. Here are three key takeaways from our conversation.

1. Have a clear and simple dating policy that empowers employees

When designing a workplace dating policy, it is important to remember that employees are adults who do not need a needlessly complicated list of do’s and don’ts. Employees need a simple policy that provides clear, easy to follow rules. Have one policy for the entire company. Don’t implement an overwhelming number of different policies that are overly granular with “since you’re in this kind of relationship on this kind of team, you need these kinds of rules” policies.

Listen to our full conversation about managing workplace romance with Sarah Green Carmichael on HR Break Room.

2. Define different rules as they relate to co-workers, managers and clients

While it is important to have a policy that does not get complex, it is critical to lay out clearly the different natures and types of work relationships. As a general rule practiced by most organizations, it is critical that managers do not date their direct reports. It can be awkward for the manager, the direct report, and certainly, everyone else on the team. If a manager sincerely wants to date a direct report, they should consider moving to a different department. The relationships between managers and their direct reports is one area HR can draw a clear line.

There are other areas where the policy can be relaxed. Giving employees the agency to choose which co-workers or team members they can date is empowering and good for morale. For the employees, it is important they choose their partners wisely and set clear expectations in order to keep their work and personal lives healthy and separate. They should consider that no matter the relationship, employees go to work in order to work. However, as long as they stay professional, these potential issues should take care of themselves.

We are now in a world where more people are not only working with clients and vendors, but also contractors and independent gig economy-type workers. Make sure to define rules for those outside the organization in your policy. In the podcast, Carmichael recommended employees be required to tell their manager if they are involved with a client, contractor, vendor or anyone they are working with in a professional context. If an employee begins a relationship with an important client, it is worth considering reassigning the employee’s professional role with the client to another team mate.

How HR Could Have Helped 3 Complicated On-screen Office Relationships

 3. Have specific lines distinguishing the difference between sexual harassment and romantic interests

In the policy, HR can and should help clarify what harassment is and is not. One way to ensure there is a clear difference between sexual harassment and romantic interests is to talk about them sequentially within the handbook. Make sure to list the company’s dating policy either immediately before or after the sexual harassment policy, leaving no room for ambiguity.

Sexual harassment creates a hostile work environment and often involves quid pro quo sort of favors like, “you do this for me and I’ll do that for you.” It can also lead to retaliation if there is ever a complaint of harassment. Sexual Harassment is a predatory behavior that targets individuals. This is clearly a different behavior than a romantic pass gone wrong. When writing your policy, you can even say “If this relationship goes south, both members of this former relationship are responsible for keeping things professional just as they would interact with any other coworker.” Draw a distinction between benign romance, which is a beautiful part of the human experience, and harassment, which is predatory behavior.

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Posted in Blog, Employee Experience, Featured, HR Management, Talent Management

caleb.masters

by Caleb Masters


Author Bio: Caleb is the host of The HR Break Room and a Webinar and Podcast Producer at Paycom. With more than 5 years of experience as a published online writer and content producer, Caleb has produced dozens of podcasts and videos for multiple industries both local and online. Caleb continues to assist organizations creatively communicate their ideas and messages through researched talks, blog posts and new media. Outside of work, Caleb enjoys running, discussing movies and trying new local restaurants.

California

How Employers Can Look to California as a Trendsetter

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It seems that every year, California imposes another piece of legislation upon employers that hasn’t even been considered in any other state, let alone passed, and many California cities have their own set of complex ordinances. However, instead of thinking as California as an island or an anomaly, savvy business professionals should take a moment to consider how such laws would affect your company, even if you don’t yet have any employees in California. Why? History has shown that California is a trendsetter.

Be sure to subscribe to the HR Break Room to learn more on past, present and future California Laws and how they may soon affect your company.

Medical Marijuana

In 1996, the first time in history, marijuana was approved for medical use at the state level when California voters passed Proposition 215. Twenty-two years later, 30 states, the District of Columbia, Puerto Rico and Guam approve the use of medical marijuana in some form or fashion. And the other states?  Kentucky, Missouri, Oklahoma, South Dakota and Utah are all poised to consider medical marijuana legalization later this year.

Medical marijuana legislation may not be considered employment law traditionally, but there are a multitude of employment implications.

Questions for employers:

  • How should you craft company policy balancing an employees’ legal right to medically use marijuana with the interest of maintaining a safe work environment?
  • When can you fire an employee for marijuana use?
  • How are your organization’s mandatory drug tests affected?
  • What should your HR department do when an employee protected under the Americans with Disabilities Act requests a medical marijuana accommodation?

 

Local Minimum Wages

San Francisco was one of the first two cities to pass a local minimum wage in 2003, along with Santa Fe, New Mexico. Nine years later, California and New Mexico began the local minimum wage movement in earnest with the passage of minimum wages in San Jose and Albuquerque. Currently, 22 different California cities or counties have their own minimum wage regulations.

Questions for Employers:

  • How are you going to react if a local minimum wage is passed in a city where you have employees?
  • Does your HR team watch for such ordinances and have the flexibility to raise employees’ pay in order to remain compliant?
  • Are you flexible enough to pay an employee different minimum wages when he or she works in multiple localities with such ordinances in the same pay period?

 

Paid Sick Leave

San Francisco, again, spearheaded expanded worker protections in 2006 when it passed the first paid sick leave law in the nation. Additionally, it is currently the furthest reaching of such laws, providing protections for any worker—part time, temporary, or full time—who works within the city for an employer. Since then, 29 other California cities or counties have enacted paid sick leave laws, as well as eight states and Washington, D.C.

Question for Employers:

  • Can you ensure your accrual system separately tracks required paid sick leave for employees in all municipalities and states you operate and if your employees work or travel to those localities in question?

 

What’s Ahead: Predictive Scheduling and Equal Pay Laws

What additional California trends should employers keep an eye on?

First, consider predictive scheduling laws, which require employers to abide by certain scheduling procedures and penalize those that do not. To the surprise of no one, San Francisco was the first locality to pass such a predictive scheduling law in 2014. Following suit, Emeryville, CA, Seattle and New York City passed predictive scheduling laws that went into effect last year. Oregon was the first to enact state-wide legislation. While it is early in the predictive scheduling law movement, many other states and municipalities, even the United States Congress, have introduced predictive scheduling legislation.  Your state or city could be next.

And finally, equal pay laws. Sure, the federal Equal Pay Act and Title VII of the Civil Rights Act has been around since the 1960s and states have had some protections for years, but the movement of further expanding and enforcing the prohibition of pay disparity has recently increased and has two distinct iterations:

  1. Creating general prohibitions against pay disparity and mechanisms to enforce those prohibitions.
  2. Inhibiting employers making pay decisions on salary history.

 

In 2015, the California Fair Pay Act, touted by The Los Angeles Times as “[maybe] the nation’s most aggressive attempt yet to close the salary gap between men and women” was signed into law. Right on the heels of California, New York expanded equal pay protections with the 2015 passage of a group of bills in known as the Women’s Equality Agenda.

In 2016, the California Fair Pay Act was amended to also prohibit pay gaps on the basis of race and ethnicity, not just sex, and prohibits employers from justifying disparities solely on the basis of prior salary. 2016 also brought equal pay law amendments in Nebraska and Massachusetts and another state pay equity laws in Maryland. Oregon and Puerto Rico followed suit in 2017. Massachusetts became the first to pass a law restricting employers from inquiring about salary history in 2016.  California, Oregon, Delaware, Puerto Rico, New York City, San Francisco and Philadelphia followed in 2017.

The U.S. Equal Employment Opportunity Commission proposed in 2016 to collect a summary of pay data by race, ethnicity and sex from employers in addition to the current EEO-1 report. This data would allow the EEOC to more effectively tackle pay disparity. This data collection was put on hold, though, in August 2017 before it went into effect. At the same time, California was considering a bill similarly requiring employers to collect data on gender wage differentials. This bill was passed by the legislature in September following the announcement that the EEOC was putting a hold on its efforts. However, the bill was eventually vetoed by the governor. This type of law is likely to make another showing in California, and most certainly other states as well.

As you can see, California has started many employment law movements (and these were just a few). Click here, here and here to see a few recent laws that may be impacting your city or state in the near future.

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Posted in Blog, California, Compliance, Featured

Alyssa Looney

by Alyssa Looney


Author Bio: As a compliance attorney for Paycom, Alyssa Looney monitors laws, rules and regulations to ensure that the Paycom software is up to date, specifically regarding immigration law and state law developments in the Western United States. She holds a JD and an MBA from Pennsylvania State University, as well as a bachelor’s degree from Texas A&M University. Outside of work, Alyssa enjoys cooking, being active, playing with her puppy and exploring Oklahoma City.

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