New Information about Tennessee Unemployment

This information comes from an article I read in the Tennessee CPA Journal, the magazine published by the Tennessee Society of Certified Public Accountants.  It was written by Stacie Caraway with Miller & Martin PLLC in Chattanooga.

Ms. Caraway brings Tennessee employers up to date about the definition of "disqualifying misconduct" which was included in amendments to the unemployment benefit law.

Every employer with payroll pays into the unemployment pool to provide benefits for those who lose employment.  The fewer former employees who draw unemployment compensation on an employer's account, the lower the employer's percentage rate.  To put it another way, if no employee ever draws unemployment on your account, then your rate is as low as it can be to pay unemployment taxes.  If you have a lot of employees drawing unemployment on your account, then your rate will go as high as it can go.  That way employers who have more employees drawing unemployment pay more and employers who have few or no employees drawing unemployment, pay less.

Obviously, as an employer, you want to keep those who draw unemployment on your account to a minimum.  That means when you receive a letter informing you that a former employee wants to draw unemployment you have to fight the claim if you believe it is unreasonable.  It seems this has been made a bit easier to do now.

To show "qualifying misconduct", that is the reason the employee is no longer employed and why that cause means the employee doesn't get to receive unemployment, the employer has some guidelines.  These are as follows:

• Conscious disregard of the rights or interests of the employer (example: starting competing business on employer's time);
• Deliberate violations or disregard of reasonable standards of behavior that the employer expects of its employees ("deliberate" will require proof of notice via handbook);
• Carelessness or neglect of such a degree or recurrence as to show an intentional or substantial disregard of the employer's interests;
• Deliberate disregard of a written attendance policy and the discharge is in compliance with such policy;
• A knowing violation of a regulation of this state by an employee of an employer licensed by this state, which violation would cause the employer to be sanctioned or have the employer's license revoked or suspended by this state; or
• A violation of an employer's rule, unless the employee can demonstrate that he/she did not know, and couldn't not reasonably know, of the rule's requirements, or the rule is unlawful or not reasonably related to the job environment and performance.

Well, that's quite a bit.  What I noticed is that there seems to be a need for some sort of employee handbook.  If you're like many of my clients, not only don't you have a written employee handbook, you also don't have anyone to write it or anyone who knows what to put in it.  You don't have the money or desire to create a whole department to write a handbook and to keep it updated.  I guarantee you that once you have a handbook, you will need to update it from time to time.

Good news.  There are freelance employee handbook writers.  That's right just as you can hire a CPA when you need one and ignore him the rest of the time, you can also hire a Human Resource or HR department when you need one.  There are many small businesses that help other small businesses work better.  I know who they are.  If former employees who don't deserve to draw unemployment on your account are a problem, let me know by commenting on this blog entry and I will put you in touch with a small business HR department.  They will be happy to work with you to create a written employee handbook that will outline what is correct and proper to your employees.  And this will give you back up when trying to fight an unemployment claim.

If you want to read the entire article you can find the March/April edition of the Tennessee CPA Journal on the TSCPA web page.

Third Quarter Payroll reports

941?  940?  SUTA?  What are these?  Should I care?

If you are a small business and pay a payroll, then you need to care.  You are required to file payroll reports quarterly and remit to the federal government the amount of Social Security, Medicare and income taxes that were withheld from your employees' wages.

If you are using a payroll program, and most employers are, then the reports will be prepared by your program and all you need to do is generate these reports and send them in by the deadline, which is October 31.  If you are still preparing payroll by hand, which you may be doing if you have always done it that way or you only have one or two employees and can't justify the cash outlay for a payroll program, you have a bit of math in front of you, but your deadline is still the same, October 31.

How do you determine if the people you work with and pay are employees?  Basically, if you tell them when to show up, where to show up, how long to stay and what tools to use, these people are employees.  If you discuss with them the job to be done and when it is to be completed and they come and go as they please, use their own tools and send you invoices for services rendered, then they are sub-contractors and you don't owe any payroll taxes for them.

Some employers want to avoid payroll and payroll taxes and try to pay everyone as a sub-contractor.  That only works until the state or IRS auditor comes knocking asking to see proof that your subs are really subs.  How do you prove that?  Sub-contractors are in business.  You are not their only client so they have business cards that they hand out to make it easy for you to remember them.  Keep those cards.  They bid on jobs.  Keep the bids.  Employees don't usually have professional business cards and never bid on jobs, they fill out applications.

A word to the wise:  Keep up with the payroll tax payments.  Pay attention to when you need to pay and how you need to pay.  If the IRS says pay weekly and pay on line, then do it that way.  Paying any other way will get you a fine.  If the IRS says pay monthly, you can still pay weekly.  The IRS will always accept money more quickly but never more slowly.  The penalties and interest on payroll taxes can mount up quickly.

If you do have sub-contractors, make sure you get their Social Security number and address so you can send them a 1099-MISC at year end.  If they have a business ID number, get that as well.  If anyone refuses to give you this information, consider carefully the advisability of continuing to work with them.

Some forms you need to have, which you can download from the IRS web site: W-9 Request for Tax Payer Identification number for sub-contractors, W-4 Employee's Withholding Allowance Certificate for employees and don't forget the I-9 which employees fill out to prove they can legally work in the United States.  This is the form that would stop all illegal workers if employers required that it be filled out.  The employee would either have to lie and provide false documents or not work.  In fact all employers are required, by law, to have this form filled out and on file for every employee.

You might also want to check out Pub 15 or Circular E- Employer's Tax Guide, which gives much more detail on all the topics I've touched on here.

So what's SUTA?  This is the State Unemployment Tax.  This is a tax on employers only and is not withheld from the employee and not paid at all for sub-contractors.  This tax is a percent of the payroll paid to each employee that is over $9,000 (used to be $7,000 but the recent high unemployment required the state of Tennessee to raise the base) per year.  The rate is based on several factors and is determined by the state each quarter and sent to the employer.  Generally, employers with low turn over, that is few people who draw unemployment, have a lower rate than those with high turn over, or a lot of employees who draw unemployment.

People who are self-employed, that is sole-proprietors, don't pay payroll taxes on themselves.  They pay self-employment tax on their personal tax returns.  If you're self-employed and making money, you'd better be making quarterly income tax deposits which include amounts for federal income tax, Social Security and Medicare.  If you don't, and you don't have a large amount of money when it comes time to pay your taxes, you may be in trouble.  Sole-proprietors do not get to draw unemployment if they go out of business, so they don't pay into the Unemployment Tax fund.

There you have a run down of the payroll taxes.  Probably more than you wanted to know, but if it's less, let me know and I'll write some more.  Don't forget to leave me a comment on this topic or any other topic you'd like to see me address.