At our Fall Workshop, the Bean Counters focused on employment, discussing topics like how to set contractors up in Xero, the new overtime law, garnishing wages and using independent contractors. Read our main takeaways below.
We're grateful for Mark Stansbury for coming and representing his law firm and helping us answer everyone's questions.
Contractors in Xero
If you're a client of Upsourced, you can just send us a W9 for the contractor. Here's what we'll do: add the person as a contact and include them to a group called "1099 contractors." We'll continue to save 1099'd contacts in that group so we can run reports at the end of the year. Who is a contractor? If you pay a business or individual who is not a corporation over $600 / year, you need a W9 from them so we can send them a 1099 at the end of the year.
UPDATE November 30, 2016: On November 22, a Texas judge filed an injunction to block the new law from taking effect, postponing it indefinitely. Because of this, please be aware: there will be no change to your payroll or overtime rules come December 1. We will update you as we learn more about the changes that will affect you.
Recently, the Department of Labor doubled the overtime cutoff from $23,660 annually to $47,476 annually. So starting December 1, If you're paid under $47,476 annually you'll get paid time and a half for all overtime (over 40 hours of work in a 7 day week). This causes many companies to wonder if they should begin bumping up salaries to meet the threshold or track hours to make sure employees who make less than the cutoff amount stay below 40 hours of work per week. Now, even salaried employees must track hours.
The new law is good for employees who are working 40+ hrs per week and who will be getting paid more. But now companies will begin to push either raising salaries just high enough to meet the cutoff or implementing strict time tracking and paying overtime where it is due. One issue that could be created by salaried employees needing to clock in and out is a demoralizing sense as the law creates a whole new workflow.
The law definitely puts pressure on the employer. If the employee takes the employer to court over wages, the employer must pay double damages, back pay, and mandatory lawyer fees if the employee doesn't get paid their overtime and doesn't meet minimum wage. An employer could say "hey stop at 40 hrs and get everything done," but if employees do work more than 40 hours, then employers owe them time and a half regardless. Employers could still be on the hook if the employee lies about the hours they submit for themselves (if you have them submit hours).
As for banking hours, if employees want to work extra to cover upcoming vacation days, employers still have to pay them time and a half for the hours they put in over 40 in a 7 day week.
One example of an overtime pay situation: if a part time employees who typically works 20 hours per week has a surge week with 60 hours, employers have to pay them overtime.
If an employee owes a company money, you can garnish wages. However, even if the employee owes the company, the employer cannot pay less than minimum wage. So the company cannot garnish wages down to minimum wage then deduct additional wages to get their money back. This is breaking the law. The company could sue to get their money back or just deduct down to minimum wage, and no further.
When reimbursing expenses for contractors, it can be difficult to distinguish the pay and reimbursements together in one payment. Technically, companies only have to report what is not a direct reimbursement. It's on the contractor to distinguish between the reimbursement and payment.
By definition, there should never be reimbursable expenses from a contractor. Any expected expenses should be built into the contractor's fees. If job takes place in another state, the contractor should build travel expenses into their fee. The contractor should be tracking these expenses, which they won't pay tax on anyway (Schedule C reported expense).
These were the topics we discussed at our fall workshop, however allow this to be a disclaimer that you should speak with your lawyer or accountant before acting upon these points.