We all seek ways to get rid of the paper in our business lives. More and more, Payroll and human resources related transactions are done as part of employee self-service.
Saving the steps
Automating your federal, state and local withholding forms is another way for you to go 'paperless.' Here are some things to consider when developing your process:
- Offering an online solution provides better service level to your employees
- Reducing the handling of forms saves you administrative time and effort
- Building a way to validate the information before it is sent keeps Payroll from having to handle and re-handle the same employee information
- Employee changes are made quicker and easier
The IRS set forth a number of requirements for electronic withholding forms to be acceptable in section 31.3402(f)(5)-1 as described in Publication 15A. This section describes:
- How you must be able to track the employee's use of your system to submit their withholding form
- How they must sign it electronically
- The kinds of information that must be presented to the employee in an electrtonic process
- What is required in case a hard copy is required to be sent to the agency
- What recordkeeping requirements must be maintained for electronic transactions
States have their own unique withholding forms and settings, as well as some state that use the Federal W-4 for state purposes. In the latter, there are a variety of rules on if the settings must match exactly, if it allows the employee to have a lower number of allowances than on Federal or if the state allowances can exceed the federal. Local tax settings can be derived from a jurisdictions actual form (as in Michigan cities) as a parameter that is set as part of the State withholding form.
Reciprocity and Nexus
To determine what forms are required, an employee's resident state and work state must be examined to see if there is a reciprocity agreement between the states and/or if the employer has nexus in the state where the employee resides. There are numerous non-resident withholding certificates across the states, and having the proper forms prepared will greatly increase the accuracy of the payroll tax withholding for the employee. There is legislation pending at the Federal level that will make consistent rules across all state for treatment of the non-resident withholdings.
Plan for Exceptions
When you are building an online system, employers must allow for their process to work for employees that may not access to the standard processes. An example would be a field worker that may not have access to a computer. Your facilities may have kiosks in certain areas, and security of the employee data must be paramount for your process. Bottom LineAn electronic solution for withholding forms preparation delivers better services to your employee, reduces your paper handling and filing, allows Payroll to only work with exceptions and automates a very basic but extremely critical piece of the employment process.
Frank Tresnak is Business Development Manager at Symmetry Software, the company behind paycheckcity.com. This article appeared in the November 2008 Issue of Paytech Magazine. PayTech is the official member publication of the American Payroll Association.
These free resources should not be taken as tax or legal advice. Content provided is intended as general information. Tax regulations and laws change and the impact of laws can vary. Consult a tax advisor, CPA or lawyer for guidance on your specific situation.