Tag Archives: payroll

What Your Solo/Small Law Firm Needs To Know About Washington’s New Paid Family & Medical Leave Law

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In 2017, Washington passed a paid family and medical leave law, becoming the fifth state in the nation to provide such benefits.  The new law goes into effect on January 1, 2019.  Here’s what your solo/small law firm needs to know to be prepared.

Effective January 1, 2019, Washington State will begin collecting premiums for the new leave program.  Employers, including solo and small law firms, must collect these premiums as withholdings from their employees’ paychecks – similar to federal tax withholdings.

How The New Law Affects Solo Practitioners and Self-Employed Partners

First, let’s deal with you solos and partners out there: If you are self-employed, then you are exempt from the tax on your own paycheck.  You may choose to opt in and receive benefits for yourself, and you must commit to doing so for four years.  If you do opt in, you’ll have to withhold the employee portion of the tax from your paycheck, and report and remit to the state on schedule.  The flipside, of course, is that you’ll be eligible for the same family and medical leave benefits that other employees have.

Update: The state has finally ruled on treatment of PLLCs!  If your PLLC is taxed as a sole prop, joint venture, or the like, then members of the LLC are exempt from the new tax (but you may opt in, as discussed below).  If you are taxed as a corporation (either S- or C-corp), then anyone taking a salary from the LLC/corporation is subject to the tax.

How The New Law Affects All Other Employees

If you have even one other employee – even a part-time employee – you must begin premium collections on January 1, 2019, and then report to the state on schedule.  Note that “employee” is not the same as an independent contractor, and the new law does not apply to independent contractors.

How Much Is The Tax?

The tax is 0.4% of the employee’s pay.  So, for an employee who makes $50,000 in a year, the total tax is $200 for the year, or $8.33 per paycheck (assuming payday is twice per month).

There is an employee and an employer portion of the tax.  The employee pays 63.33% of the tax, and the employer pays 36.67%.  For our employee above, this means that the employee will pay $126.66 of the total $200 in a year (or $5.28 per paycheck), and the employer will pay $73.34 of the total $200 in a year (or $3.06 per paycheck).

If you’d like to run real numbers but don’t enjoy math, the state has developed a handy premium calculator.  Skepsis staff are also available to help anytime.

Here’s What Solo & Small Law Firms Need To Know

If your firm averages fewer than 50 employees – which solo and small firms do by definition – then you are exempt from paying the employer portion of the tax.  So, you’re off the hook for paying $3.06 per paycheck for our example employee above.  But, you still have to withhold the employee portion of the tax from your employees’ paychecks, or pay it out of your own pocket, and remit those withholdings to the state.  You’re also required to report employee wages and hours to the state, even if your employees do not qualify for coverage under the new law.

How Will I Collect And Pay The Tax?

Gusto Law Practice Bliss from SkepsisAs payroll becomes increasingly complex every year, we always recommend that law firms use professional payroll software.  Our favorite is Gusto, because they are the most affordable, fully-featured, and reliable full-service payroll provider that we’ve worked with.  We spoke with Gusto to confirm that they will handle all of the new tax collection, payment, and reporting seamlessly, and they will.  At $39/month plus $5/month per employee, Gusto’s service, features, and pricing can’t be beat.

We also checked with another popular payroll provider, QuickBooks Payroll, to see if they would also be handling these new taxes seamlessly.  What we discovered was that only “Full-Service” customers – those paying $80/month plus $4/month/employee – would have their taxes collected, paid, and reported for them.  Any customers on the self-service plan (billed at $35/month plus $4/employee/month) will have the significant burden of collecting, paying, and reporting the new tax on their own.

Can I Opt Out?

As mentioned above, self-employed people don’t have to pay the tax if they don’t wish to receive benefits.  But, there is a way to opt out of the tax entirely – although it will be neither practical nor economical for many solo and small firms.  Rather than paying the tax, employers can provide, administer, and pay for private leave policies that satisfy the state requirements.  These private policies, called “voluntary plans,” must be approved in advance by the state.  Because these private plans are employer-paid and employer-administered, the cost of these plans for small business is generally much higher than the state plan, where the employees pay the majority of the premiums.

What Happens When My Employee Goes On Leave?

Even though employers and employees must start paying into the system in 2019, paid leave benefits do not become available until January 1, 2020.  If an employee wishes to take leave, the employee must first meet all of the following eligibility requirements:

  • The employee must have worked 820 hours in the first four of the last five calendar quarters from the date the leave starts.  In other words, if the employee intends to start leave in Q1 2020, count back five calendar quarters: Q4 2018, Q3, Q2, Q1, and then Q4 2017.  Now, how many hours did the employee work in the first 4 of those quarters?  (Q4 2017, Q1 2018, Q2 2018, and Q3 2018.)
  • If it’s more than 820 hours, leave may be available if there’s a “qualifying event.”  A “qualifying event” can be any one of the following:
    • Care and bonding after the birth of a baby, or placement of a child under 18
    • Care of a family member experiencing an illness or medical event
    • Certain military events
    • Care of the employee’s self in relation to an illness or medical event.

If the employee meets the above requirements, the employee generally qualifies for paid leave for up to 12 weeks (or 18, in extenuating circumstances).  The state, and not the employer, pays the employee during leave.

Of course, all small business owners know that the work still needs to get done, even when an employee is on leave.  So, employers will still have to invest in hiring and training temporary staff.  There are options for cash assistance for employers, but those are limited to employers who pay the employer portion of the tax even when they’re not required to.  So, this benefit won’t be available to most small businesses.

We’re Here To Help

Navigating the ever-changing employment landscape, and complying with payroll and reporting requirements, is a huge administrative burden for solo and small law firms.  Save yourself headaches and frustration, and free up more time for what’s important, by offloading these time syncs to a company that can handle it all for you efficiently, effectively, and fully RPC-compliant.  Contact Skepsis today.

Finally, don’t forget to sign up for our newsletter, where you’ll receive updates on new laws and issues affecting solo and small firms, including Washington’s new Family & Medical Leave law.

 

Setting Up Washington Payroll In Xero

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One great thing about Xero is that its payroll services are included in most plans at no additional cost.  And using Xero’s wizard, setting up payroll is fairly simple and straightforward.  But Washington, like many other states, has some payroll nuances that you’ll need to be prepared for as you run through payroll setup in Xero.

Step 1: Set Up Your Chart of Accounts For WA Payroll.

First, make sure you have at least the following accounts already set up in your chart of accounts:

Liability Accounts

  • Payroll: Wages Payable
  • Payroll: Federal Employment Tax Payable
  • Payroll: FUTA Payable
  • Payroll: WA UI Payable
  • Payroll: WA Workers Comp Payable

Expense Accounts

  • Payroll: Wages Expense
  • Payroll: Federal Employment Tax Expense
  • Payroll: FUTA Expense
  • Payroll: WA UI Expense
  • Payroll: WA Workers Comp Expense

Step 2: Set Up WA Unemployment Tax.

There are two places you’ll need to set up Washington-specific aspects of your payroll.  The first is in Settings > Payroll, and then on the “Taxes” tab.  Scroll down below the heading for “Federal (FED)” and click the down arrow next to “Washington (WA)”.  (If you don’t see Washington, that means you have not yet added a work location in Washington.  Do this on the “Work Locations” tab.)

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After you click the arrow, the Washington panel will open.  Scroll down to view the entire panel:

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Enter your “WA ES Reference Number.”  This is the ESD number shown in the upper right corner of your letter from the Employment Security Department setting up your ESD account:

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Next, enter your WA UI Rate.  This is something the Employment Security Department will send you annually.  Here’s an example notice, with the WA UI Rate circled:

scan

The next field is the WA EAF rate.  That’s found on your same tax notice, here:

scan

Finally, choose your liability and expense accounts.  If you used the list we set up at the top of this post, your WA UI & Surtax Liability account will be Payroll: WA UI Payable; and your WA UI & Surtax Expense account will be Payroll: WA UI Expense.

Click save, and the UI component of your payroll is all set up!

Step 3: Set Up WA Workers Comp Deductions.

Next you’ll have to set up the second Washington-specific component of your payroll, which is the WA Workers Comp deduction.  In Washington, there are two components to the state-provided workers compensation program: (1) an employer-paid portion; and (2) an employee-paid portion.  The employer portion is not natively supported in Xero payroll, so it will require an extra calculation each time you run payroll.  The employee portion will be set up as a deduction.

To create that deduction, select the “Pay Items” tab in your Payroll Settings screen.  On the left, click “Deductions:”

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To the right, click “Add,” and select “After Tax Deduction.”  A window will pop up – fill in the following:

Deduction Name: WA LNI

Standard Amount: [Leave Blank]

Company Max: [Leave Blank]

Liability Account: Payroll: WA Workers Comp Payable.

Click Add.

You’ve now set up your WA Workers Comp tax withholdings, and your Washington-specific payroll setup is complete.

Would you like help setting up your payroll?  Contact us today!

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