Payroll 101: Getting Started
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WHEN YOU GET A JOB
Congratulations! Your job hunt has paid off. Now get ready for all the paperwork. On your first day, you're going to have to fill out several forms, prove that you can legally work in the United States, and provide information needed to calculate your taxes. Once these forms are completed, they will be kept in the human resources department.
- You'll have to provide your social security number, so remember to bring it with you.
- Next, you'll have to fill out Form I-9, the Employment Eligibility Verification form. This form proves you can work in the United States.
- Then comes Form W-4, the Employee's Withholding Allowance Certificate. This form is used to calculate the federal taxes you owe each pay period. These taxes are automatically subtracted from each paycheck.
- If you live in a state with a state income tax, you might have to fill out another form like the W-4. This "state withholding allowance certificate" makes it possible to figure your state taxes.
Getting Started: Your Social Security Number (SSN)
When you show up at work or orientation the first day, bring your social security card. Your SSN is a nine-digit number, arranged in the following way: 000-00-0000.
- What's so important about a social security number?
- When you get an SSN, an account is set up for you with the Social Security Administration (SSA). Every payday, wages are reported to your account. When you retire, or if you become disabled, your social security benefits will be based on your total earnings. The Internal Revenue Service (IRS) and your employer also use your SSN as your personal ID number when they do paperwork on your wages and taxes.
- How do I get an SSN?
- Fill out Form SS-5, the Application for a Social Security Card. Call 1-800-SSA-1213 or visit a local SSA office if you have questions. Submit the completed form to the SSA.
- If my name changed recently, do I need a new social security card?
- Yes. Whenever your name changes, because of marriage, divorce, or any legal action, you must get a new social security card and provide this number and new name to Payroll Services. First, fill out SS-5 to file your name change with the SSA. When you get your new card in the mail, take it to Payroll Services and change your name on the payroll records. Be sure to change your name with SSA before you change your name with payroll. Otherwise, your wages could be incorrectly reported resulting in you receiving less money when you retire or become disabled. If you're married and file a joint tax return with your spouse, the IRS will reject the joint return if the names and social security number on the return don't match the SSA's records.
Proving Your Right to Work: Immigration and Naturalization Service Form I-9, Employment Eligibility Verification
You must prove your identity and your right to work in the United States. Federal law requires employers to verify your status so that they don't inadvertently hire illegal aliens. Regardless of your nationality, documents must be reviewed within your first three days of work.
- How can I prove my identify and right to work in the U.S.?
- Within the first three days of employment, complete the employee portion of Form I-9, Section 1. Your employer has to fill out the rest of the form. Lists A, B, and C on Form I-9 outline which documents you need to prove that you're legally allowed to work in this country. Provide one document from List A or one document from List B, as well as one document from List C. Your social security card together with your driver's license can be used to prove your right to work.
KNOW YOUR RIGHTS--Your employer can legally view and file the documents you use to prove your identity and right to work, but cannot tell you which specific documents to provide. You choose which document or combination of documents from the lists on Form I-9 to provide and your employer must accept valid documents as proof.
Paying Your Fair Share: Form W-4, Employee's Withholding Allowance Certificate
This form must be completed on, or before, the first day of work, please see Update Federal and State Withholding Elections QRG. The information you provide on the W-4 form will be used to calculate the amount of federal taxes to be withheld from each paycheck. If you delay submitting this form, the maximum amount of tax will be withheld from your paycheck! You also need to update your W-4 if your living situation changes.
- What's the purpose of the W-4 form?
- The W-4 form determines the amount of federal income tax withheld from each paycheck. The amount withheld is based on your marital status (married or single), and the number of "withholding allowances" you claim. If you want an additional, specific dollar, amount taken out of your paycheck, indicate that amount on this form. Form W-4 is also used to claim an exemption from federal income tax withholding.
- What are withholding allowances?
- Can you claim to be exempt from federal income tax withholding?
- When do I have to submit a new W-4 form?
- What if my W-4 is rejected?
- How are nonresident aliens handled?
- Nonresident aliens, workers from another country, who don't have a green card, can claim only one withholding allowance, except for those from Canada, Mexico, Japan, or the Republic of Korea, in which case you can claim as many allowances as apply to you.
- How often will I get paid?
- Classified, hourly, employees are paid biweekly. Their workweek runs from 12:00 a.m. Sunday until midnight the following Saturday. Payday is Friday of the following week.
- Salaried employees are issued the 30th of each month. If the 30th falls on a Saturday or Sunday, payday is the preceding Friday.
- How do I view my paycheck online?
- What is direct deposit?
- What if I quit my job or am laid off?
- On your last workday or by the next payday, you should receive all wages you've earned. This applies whether you quit your job, were laid off, or were fired. State law specifies what, if any, extra payments (like vacation pay) have to be included in your final paycheck.
The Wage-Hour Laws
"Nonexempt" employees, are covered by the federal Wage-Hour Law, or Fair Labor Standards Act (FLSA). This law requires that you be paid at least minimum wage, along with a certain overtime rate. If the state minimum wage is higher than the federal minimum wage, your employer must pay you the state wage.
- What does it mean to be an "exempt" or "nonexempt" employee?
- These terms refer to your status under the Fair Labor Standards Act (FLSA). Generally, employees are classified as "exempt" or "nonexempt" based on their job function. An "exempt" employee is not protected by the FLSA, "nonexempt" employees are protected by the FLSA. "Nonexempt" employees must be paid at least the minimum wage for all hours worked and overtime pay when working more than 40 hours in a single workweek. Additional information is available on the US Department of Labor website.
- What is your "regular" rate of pay?
- For "nonexempt" employees the regular rate of pay is the hourly wage. For "exempt," for salaried employees, the regular rate of pay is the salary paid divided by the number of hours worked. The following payments are included in regular rate of pay:
- Nondiscretionary bonuses - awarded based on job performance.
- Shift premiums - determined by the shift worked, added to your hourly rate.
- Noncash payments - provided for costs such as room and board.
- Back pay - wages previously earned but not paid at that time.
- On-call pay - time employees are required to be available for a possible call to work.
- Cost-of-living adjustments - pay increases based on inflation.
- 'What is a workweek?
- A workweek is a fixed 7-day period set by the employer. At UofL, this is typically from 12:00 a.m. Sunday until midnight the following Saturday. Different workweeks can be established for different groups of employees all working for the same employer. The minimum wage requirement must be met for each workweek, wages cannot be averaged over a period longer than a week.
- How does overtime pay work?
- Nonexempt employees receive overtime pay for all hours over 40 that are actually worked in a specific workweek, this does not include sick or vacation pay. Overtime pay is calculated at 1.5 times your regular rate of pay for each of your overtime hours. Overtime isn't based on the number of hours you work in a single day, you won't receive overtime for working more than 8 hours in a single day. You earn overtime pay only by working over 40 hours in a single workweek.
Income and Employment Taxes
If you hold a job in the United States, you must pay federal income and employment taxes on all your wages, as well as any state, county or city tax required. These taxes are collected by withholding part of your paycheck and sending this money directly to federal, state, and local governments.
- What information is included on my pay stub?
- A pay stub records the wages you received and the taxes you paid during the last pay period. It shows your "gross" and "net" pay, federal taxes, state and local taxes, "FICA" taxes (social security and Medicare), as well as information about pre-tax and after-tax deductions.
- Gross pay - the total amount of wages earned for the pay period. Includes your regular rate plus any other wages such as overtime pay and shift differentials.
- Net pay - "take-home pay" Gross pay minus all deductions and taxes, the amount you actually receive each payday.
- What are income taxes?
- Federal income tax is the amount of money collected by the Internal Revenue Service (IRS) and paid to the federal government. You may also be required to pay state, county, city, or school district taxes based on your income.
- How are income taxes calculated?
- Your employer calculates incomes taxes using one of several available methods. The two most popular are the wage-bracket method and the percentage method. Both are based on tables issued by the Internal Revenue Service. State and local governments that levy income taxes have their own tax withholding tables. There are other withholding methods for special situations. Wages added to your regular rate, such as include bonuses, awards, commissions, overtime pay, tips, back pay awards, and severance pay, may get special tax treatment.
- What are employment taxes?
- Social security and Medicare taxes, also call FICA ( Federal Insurance Contributions Act) taxes. Social security taxes you pay are reported to your individual social security account, to be paid when you retire or if you become disabled. Medicare taxes provide basic health insurance once you reach 65, or earlier if you become disabled. Your employer matches the amount you pay the federal government.
- How do I calculate social security and Medicare taxes?
- Both social security and Medicare taxes are a fixed percentage of your wages and are determined by Federal Regulation. Additional information about SS and Medicare withholding rates.
Social Security Summary
Your social security benefit is a percentage of your earnings averaged over most of your working lifetime. If you work for someone else, social security and Medicare taxes are withheld from your paycheck, the employer matches that amount, sends those taxes to the IRS and reports your earnings to the SSA. If you're self-employed, you pay your own social security taxes when you file your tax return, and IRS reports your earnings to SSA. There are five major categories of benefits paid through your social security taxes: retirement, disability, family benefits, survivors and Medicare. If you need specific information about any social security program, call the toll free number, 1-800-772-1213, or visit the Social Security Administration's web site.
The Centers for Medicare and Medicaid Services (CMS) administers Medicare, the nation's largest health insurance program, which covers 39 million Americans. Medicare provides health insurance to people age 65 and over and to people with some disabilities. If you have questions about eligibility, call the toll free number 1-800-325-0778 or visit the Medicare web site.
You may choose to take pre-tax deductions which can reduce your income taxes and increase your take-home pay. This money is subtracted from your paycheck before your wages are taxed. Your income tax withholding is then based on the lower wage, resulting in lower taxes. These deductions will appear on your pay stub each payday. Pre-tax deductions may be used for a retirement plan, or to purchase certain benefits.
"Tax-Deferred" Retirement Plans
This contribution is paid into a specific retirement plan, lowering the wages subject to tax and increasing your take-home pay. However, this amount is subject to social security and Medicare taxes.
After you retire, you will receive these monies as regular payments from your retirement plan, these payments are subject to income tax withholding. Income taxes on contributions to the plan are deferred, or put off, until you receive this money after retirement, when your income is most likely taxed at a lower rate than while you were working.
There are many kinds of tax-deferred retirement plans. The three most common plans are the Section 401(k) plan, the Section 403(b) plan, and the Section 457 plan. The University offers the Section 403(b) plan and the Section 457 plan.
Section 403(b) Plan
This is a tax-deferred retirement plan for employees of tax-exempt organizations. You can contribute either to a "tax-sheltered annuity" or to a "tax-sheltered custodial account."
Additional information about 403(b) plans.
Section 457 Plan (Kentucky Deferred Compensation)
This is a tax-deferred retirement plan for employees of state and local governments.
Additional information about 457 plans.
Flexible Spending Accounts (FSAs)
If you choose, pre-tax deductions can be deducted from each paycheck and deposited into a flexible spending account. This money can be used to pay for certain medical, dental, or dependent care expenses that aren't covered by your insurance. Medical expenses can be paid based on the total amount you will contribute during the entire plan year. Dependent care expenses can only be paid based on the amount deposited into the account at that time of the payment.
Use it or lose it! Monies deposited into your FSA must be spent by the end of the plan year. Any balance remaining in your account will be forfeited. Be sure to carefully determine how much money you might need for the year before deciding on the amount of your deductions.
After-tax deductions can be voluntary or involuntary. Voluntary deductions, you choose to have monies withheld, can be used for payments to the University or charitable contributions. Involuntary deductions, you have no choice in the deduction, may be withheld as a result of an order issued by a court or some other government agency. After-tax deductions won't lower your taxes, all taxes and involuntary deductions are deducted prior to any voluntary withholding from your wages.
The University has no choice but to comply with any court or government order. The monies are withheld from each paycheck and sent to the party as identified in the order. Non-compliance by the University will result in fines, and the University will be required to pay the amount of the order.
If you have more than one involuntary deduction, the University should follow these steps in determining what to deduct from each paycheck. Bankruptcy orders must always be paid before tax levies. Child support withholding orders, if they were already in effect when the levy was issued, should also be paid before the IRS. If there are no bankruptcy or child support orders, your employer must satisfy the tax levy prior to any other involuntary deductions. In the case of multiple tax levies against your wages, and if your earnings are not sufficient to pay all of them, your employer generally has to satisfy these in the order they were received.
Information about withholding limits and protection from termination due to garnishments.
Reasons for involuntary deductions include:
- Unpaid Taxes
- Child Support Withholding Orders
- Creditor Garnishments
- Bankruptcy Orders
- Student Loan Debt
- Other Federal Debts resulting from loans made by agencies of the federal government, such as the Small Business Administration or Housing and Urban Development.
You may choose to have wages deducted from your take-home pay each pay period for various reasons. Some reasons for voluntary deductions include:
- Athletic Tickets and Donations
- Microcomputer Purchase
- PPP Usage Fees
- Professional Development Fees
- University Club Dues and Fees
- Optional Benefit Deductions
- Contributions to University Funds
- External Charitable Contributions