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What should employers know about the new 401(k) after-tax rules?

15 Oct

Many employees begin saving for retirement through a 401(k) account, hoping it will generate enough money over time that they can stop working at a reasonable point in their careers. At the same time, a large number of workers invest in a Roth IRA for the same reasons. Employers often handle these accounts for their staff using payroll management software, but it's not always an easy task, especially if an employee has both types of retirement accounts.

However, recent changes to the way employees can deal with after-tax money in their 401(k) account in relation to their Roth IRA may alter the way employers help manage workers' retirement savings.

Making it easier to transfer funds
The IRS is the government body that writes the rules for retirement accounts, and it has recently made several alterations that will provide employees a bit more freedom. Forbes wrote that IRS Notice 2014-54 gives employees the ability to transfer after-tax money from their 401(k) account to their Roth IRA without having to pay taxes on the transaction. Beginning January 1, 2015, employees will be able to take advantage of this opportunity to roll over funds between the two accounts.

Why is it advantageous for employees?
A 401(k) account is essentially a contributor-based savings plan that has limits in terms of how much workers can contribute. At the same time, money is taxed in this kind of account, while a Roth IRA is tax free. With regard to the latter, workers fund their retirement savings using after-tax money, which grows in the account until it's withdrawn at retirement.

Before the IRS made this change, employees could technically still do the same thing, but it was a convoluted process, Investment News explained. In fact, many tax experts felt that the IRS was against the practice, which makes the recent announcement a welcome surprise.

Still, it doesn't give employees a blank check in transferring after-tax money from their 401(k) to a Roth IRA. The first caveat is whether a worker actually has after-tax money in his or her 401(k) account.

What's expected of employers?
Many employees who meet the criteria for transferring money between accounts will likely want to take advantage of the opportunity. Employers should facilitate the process. Human resources managers will need to clearly communicate the changes in the IRS's treatment of retirement savings to employees. This may even involve bringing in a financial advisor who can explain any aspects of the changes that may cause confusion. 

How to handle salaries

8 Oct

Only about half of employees believe their fellow workers are being paid in a way that reflects their performance, according to a study by Towers Watson. Additionally, 4 in 10 employees are highly engaged with their work. Although Entrepreneur reported that most employees are happier in a job they find more satisfying for less pay versus a higher paying job that is not as enjoyable, the research by Towers Watson would seem to indicate most people choose work based on salary.

So, who's at fault here? Are employees putting too much of the burden on managers, or are managers not working efficiently enough at finding appropriate salaries? According to Human Resources Executive Online, it's a bit of both. Some managers are able to get away with doing poor work because they aren't properly reviewed by those in a managerial position. Other times, salaries are handled by people who are too far up the chain of command to make accurate decisions.

Employees can't all be star performers
Laura Sejen, global practice leader of rewards for Towers Watson, suggests that most employees are able to do about the same level of work in comparison with other workers doing the same job.

"Put yourself in the shoes of a manager with pay decisions to make," Sejen said in conversation with HRE Online. "On average, people tend to do their jobs well. Some do better and some do worse, but on average, most of your employees fall into what I call the 'steady Eddie' category. [As such,] it becomes difficult to have these conversations with these steady Eddies year after year, it becomes difficult to tell them their merit increase is only about 2.5 percent or 3 percent, because that's what's required to be able to give more to star performers."

Managers must be willing to tell their employees that ultimately not everyone is in a high-performing position where a greater salary would be appropriate. In a best case scenario, the largest bonuses rightly should go to the few workers who truly make a big difference for the company.

How employers can make employees feel valued
Money is a major incentive for getting workers motivated, but ultimately it is not the only tool in a employee management's toolkit. According to Entrepreneur, giving employees an opportunity to make a positive work/life balance for themselves may help inspire them to work harder when they are doing their job, as well as to rest thoroughly when they are not working.

One example of this is to allow employees to customize their work schedule. In theory, employees should be able to work however they want as long as they show up to the appropriate meetings and get work done on time. If giving them the opportunity to work early in the morning and leave early in the afternoon is appropriate, then consider doing that, as it may positively impact their job experience.

Opening up the salary process
A suggestion by HRE Online is to make salaries more transparent by showing how the numbers are generated. Additionally, professionals across different units can work together to identify true high performers and reward them accordingly.

An example cited by Sejen is that if a company only wants to reward the top 10 percent of its employees, then it should evaluate what makes an employee a "top earner," and then make this information well known. After that, it should clearly and precisely evaluate those 10 percent and ensure the number is accurate, so it doesn't grow to 20 percent or shrink to 5 percent.

"One of the best things HR can do [when it comes to payroll] is to shine [a light on the process] by measuring and making visible what is really happening," said Jim Kochanski, a senior vice president with Sibson Consulting.

Oh no…you received an EEOC charge in the mail

16 Sep

Companies both large and small have a special kind of anxiety when they receive a letter from the Equal Employment Opportunity Commission. Human resource information systems provide the first line of defense for organizations that want to proactively manage governmental investigations. Having an informed human resources department plays a huge role in making certain the company follows all regulations pertaining to hiring and employee policies that fall under the jurisdiction of the EEOC.

While unexpected and probably unwanted, an EEOC complaint may be a necessary event that ensures a company follows the rules that prevent discrimination and retaliation in the workplace. With that in mind, it's always important to be prepared in case the charge escalates into an actual lawsuit.

What should the employer do first? 
The initial response from a business owner should be to educate yourself about the charge. There are a number of violations, including discrimination based on age, disability, national origin, pregnancy, race, religion and gender. However, the EEOC treats businesses differently based on the number of employees they have on their payroll. For instance, Title VII of the Civil Rights Act, which protects against discrimination based on race, color, religion and a few other criteria, only applies to businesses with 15 or more employees, according to the human resources site The Human Equation.

Meanwhile, the Equal Pay Act of 1963 targets wage discrimination at organizations with at least one employee, which covers most companies. With this in mind, it's important for businesses of all sizes keep close records of payroll information. Employee payroll management software can help alleviate most issues that may arise in a few ways. First, it's far easier to perform self-audits that may highlight pay disparities ahead of time, which Forbes explained is one of the administrative tasks that the EEOC often requires. At the same time, software keeps all records up to date and immediately accessible in the event the EEOC asks for them. In combination with the software, Forbes suggested it's best to maintain legal counsel to bear witness to any audits.

To avoid setting off the EEOC's suspicions for other discriminatory practices, record-keeping is of paramount importance. Ensure hiring policies are not only publicly known to all applicants and new hires, but also retained in a central computer system. By taking action ahead of time by educating employees on EEOC regulations and putting necessary infrastructure in place, employers are in a far better position to respond when a charge comes in the mail.

What does the EEOC expect of the employer?
The following steps upon receipt of a charge are fairly straightforward. According to the EEOC, both the employer and the person pursuing the claim are obligated to provide information to support their cases. The EEOC will likely ask the business owner for a statement of position, which is a written document that explains his or her perspective with regard to the charge. According to Connections Magazine, it's critical that the employer fully understands the charge and the violation so he or she can effectively respond to it. At this point, legal counsel may be a necessary resource to ensure the company uses the correct language in the statement and clearly outlines their position on the matter.

The company may also be asked to supply copies of personnel files, policies and any other documents that could influence the investigation. Should the EEOC deem it necessary, the federal agency may conduct an on-site inspection, the magazine wrote. As a result, businesses should be prepared to field questions an investigator may ask in relation to the outstanding charge. Subsequently, it's often a waiting game as the EEOC judges the merits of filing a lawsuit based on its scrutiny of the complaint. The average inquiry will last more than 180 days, according to the EEOC.

What is the standard format that should be used to communicate with the EEOC?
The employer's primary responsibility is to provide all pertinent information to the investigator in the most efficient manner possible. While the federal government has made strides to make correspondence more convenient and speedier by using email and online portals, it's likely the company will be required to submit hard copies of all documentation. The EEOC provides employees interested in bringing charges against their employers with an online assessment system, but it still asks them to submit actual charges at the agency's field offices or through the mail. Employers should also expect to use direct mail and fax.

The mere fact that a company receives an EEOC charge doesn't indicate wrongdoing. It's truly a preliminary step to find out whether there are grounds for any future action. Still, employers need to take the appropriate steps, such as utilizing payroll management software, to ensure they can handle an investigation and cause the least disruption to their daily operations.

New ways to help employees save for retirement

11 Aug

Many companies have switched to defined contribution pension programs by now for employee 401(k)s. There are still things that can be done on the payroll management side to make things better for employees without costing too much effort on behalf of the company. For example, many businesses have started programs that automatically increase employee contributions to the 401(k) every year. This can cost money because it requires that HR directors work with payroll management software, but the end result can ultimately boost worker morale, according to Human Resources Executive Online.

A survey by American United Life Insurance Company, a subsidiary of OneAmerica, indicated that 55 percent of the 7,545 retirement plan participants surveyed indicated they would prefer if companies automatically increased their pension contributions.

"With non-stop family, health and life events and changing financial obligations over the course of one's life, saving for retirement can easily fall to the bottom of the priority list," said Marsha Whitehead, vice president of marketing for OneAmerica. "Automatic features can help plan participants easily increase their retirement contributions and not get distracted by other financial matters."

Why it is beneficial for employees to increase their yearly pension contributions at a certain rate
Because of inflation and additional responsibilities like kids and caring for elderly parents, it often helps to put a little extra away as one becomes older and grows with a company. People don't often know exactly how much they will need at the start of their careers, when they are sometimes just out of school and may not know enough about pensions and the time value of money.

According to Whitehead, the companies that do offer gradually increasing contributions to 401(k)s tend to do it either as an opt-in program or an opt-out program. Many of the companies that use the opt-out program find more of their employees stay with the original plan instead of opting out. For example, when people opted in at T. Rowe Price, a finance company with such a program, the number of people who chose the program turned out to be 8.3 percent of employees, according to an internal survey. In comparison, 64.7 percent stayed inside the opt-out version of the pension plan.

Other ways to save for retirement
According to the Wall Street Journal, there are also versions of 401(k) programs that offer the possibility higher returns than ordinary pension plans: These are called managed accounts. Under these programs, a professional investor is managing someone's retirement savings to try to maximize value in a more personalized way. The Journal cited information from the Government Accountability Office that found these programs often charge a fee that can outweigh the benefits of a slightly higher return and lower risk than a traditional 401(k).

Whatever a company chooses to offer its employees for pensions and retirement savings, it should be as transparent as possible. Some companies might consider sending out emails or giving seminars about financial advice if people seem clueless about what a pension plan is or how it works.

How President Obama’s new myRA plan works for Americans

25 Jul

At the beginning of 2014 in the State of the Union Address, President Barack Obama announced that a new way to encourage working Americans to save for retirement would be through the "myRA" (my retirement account) plan, Forbes reported.

President Obama cited the need for greater retirement savings after a study found 28 percent of U.S. citizens are not saving for retirement al all, the source reported.

"Today, most workers don't have a pension," President Obama said in an official statement. "A Social Security check often isn't enough on its own. And while the stock market has doubled over the last five years, that doesn't help folks who don't have 401(k)'s."

The myRA plan will simply work as a initial phase for workers who do not receive an employer-provided retirement income plan, the source reported. The new plan will also not replace Social Security benefits and will increase access to stock market returns.

The plans allow workers to switch jobs and not have to worry about changing their myRA plans, and only cost $25 to start, the source reported. Deductibles can be as low as $5 per paycheck and the U.S. Department of Treasury will support the plan with low-risk investment. People enrolled in the new plan will get an interest rate similar to Federal employees.

Plan aimed at helping lower income workers
According to CNN, the myRA plans are targeted toward low- and middle-income Americans, which account for 75 percent of part-time workers and almost half of all employees. Essentially, the new plan is supposed to work as a supplement to an existing 401(k) plan and can be used by workers with income that is lower than $191,000 per year.

"The good news is you don't have any risk on this account," said David John, a senior strategic policy adviser at the AARP Public Policy Institute, according to CNN. "The bad news is of course you're not going to have a huge amount of earnings on this account either."

The myRA​ plan gives employees the opportunity to use the plan as the safe investment portion of a retirement income portfolio, Forbes reported. According to a recent report from the Center for Responsible Lending, the average U.S. household only had $100 remaining each year after basic expenses and debt payments in 2010.

"This deals with the small saver problem," said John, according to CNN. "Very often the administrative costs of those tiny accounts actually eat into the principal."

Study: More HR Departments Offering Sign-On, Retention Bonuses

27 Jun

Many human resources departments are boosting their payroll management by hooking and keeping workers at the company through sign-on and retention bonuses, according to a new study by nonprofit HR organization WorldatWork.

WorldatWork's "Bonus Programs and Practices" survey found more HR departments are using these two types of programs than in the past. There's also been an increase in the use of referral bonus programs and spot bonus programs. Seventy-four percent of 713 surveyed participants have a sign-on bonus program compared to only 54 percent in 2010. Fifty-one percent use a retention bonus program, which is more than double the amount that did in 2010. Likewise, 63 percent now have a referral bonus program compared to 60 percent in 2010, and 60 percent have a spot bonus program compared to 43 percent in 2010.

According to the survey, these programs are strategic approaches to payroll management and talent acquisition. 

Rose Stanley, total rewards practice leader at WorldatWork, said recruiting and keeping talent has become a greater focus for employers, especially now that the recession is over and there may be additional financial resources available.

"The uptick in sign-on and retention bonus programs may indicate that the war for key talent could be heating up as the economy improves, leading to an increased focus on attracting and retaining employees," Stanley said.

Potential Effects of Salary Disclosure in the Workplace

24 Jun

How much each worker makes has traditionally been between that employee and HR. Many HR departments have had a tight hold on their payroll management and have worked to keep discussions about salary out of the workplace. In fact, numerous employers have it set in their employee handbooks that such talk about what workers make is against the companies' rules.

However, a 2012 article that appeared on TLNT noted that any rules that restrict employees' freedom to discuss their compensation is against the National Labor Relations Act. If this isn't enough, President Barack Obama recently issued an executive order stating that employers are not allowed to retaliate when workers talk about their salaries amongst themselves. According to the order, prohibitions against speaking about compensation can allow salary discrimination in the workplace to go unchecked, because if employees aren't able to talk to one another about how much they made, it is much harder for discrimination to be discovered.

Some HR professionals may not think such discrimination happens in today's workplace, but it does. Consider this example from MoneyWatch: A new supervisor of a travel company accidently sent a spreadsheet to a 11-person department that outlined what each worker made. Even though the employees did the same work, there was a $20,000 annual discrepancy between the highest and lowest paid workers. These employees might not have known there was such a difference in compensation despite everyone doing the same job if it wasn't for this mistake.

Avoid the Fall-Out of Not Allowing Salary Disclosure
Wage transparency is becoming commonplace, and HR professionals need to understand that not allowing workers to discuss their wages can lead to negative consequences. For one, prohibiting salary disclosure has been determined by the federal government to be illegal. Employers could find themselves in violation of employment legislation by not following President Obama's order.

In addition, while an article in TLNT noted fairness can be subjective, workers who do the same work should be paid equally, and employees who aren't can become mad to the point of quitting and can even bring discrimination lawsuits against the employer. For instance, the MoneyWatch article noted the employee who wrote into the publication said the morale of his or her team has dropped considerably since they discovered the pay discrepancies, and the worker in particular was angry that he or she was a top producer but wasn't compensated for that level of performance. 

US Worker Satisfaction Slowly Rising

23 Jun

There are many factors that go into job satisfaction – payroll, benefits and company culture are just a few. Understanding the drivers behind workers' job satisfaction is important for human capital management, as unhappy employees are more likely to leave their positions, which can cause an increased need for recruiting and training new workers.

A survey of 5,000 households by The Nielsen Company in late 2013 for The Conference Board found employees largely remain dissatisfied with their jobs, with only 47.7 percent saying they were content with their employment. However, this is an increase in satisfaction from previous findings. In 2012, 47.3 percent of workers were satisfied with their jobs, and only 42.6 percents said the same in 2011.

The biggest reasons behind workers remaining dissatisfied are a lack of bonuses, training programs and promotions. A blog in The Wall Street Journal noted that other drivers of dissatisfaction are often related to benefits, as employers are starting not to match their workers' retirement contributions and healthcare coverage is starting to disappear. HR professionals need to address these issues to improve worker satisfaction and keep talented employees at their organizations.

Research: Economic Conditions Drive Recruitment and Payroll Management

4 Jun

When it comes to finding talent and keeping it in this economy, having the right HR payroll software in place is a no-brainer. Many employers have started to take the necessary steps to improve their payroll management and their recruitment to continue growing their businesses. According to a new survey by professional website company Dice Holdings, the current economic conditions have driven many employers to increase their hiring and boost their workers' salaries. For HR professionals, this increased optimism means payroll management and effective talent acquisition will be critical for the continued success and growth of their companies in this economy.

Boosting Payroll and Recruitment
Dice Holdings received responses from 806 hiring professionals for its survey, with the majority being from healthcare, technology and financial services. According to the findings, these professionals are seeing the job market tighten and become more competitive, with 89 percent saying their companies weren't planning on laying off any workers within the next six months.

Of those employees who had decided to leave the company on their own, 43 percent of HR professionals admitted it was difficult to see these workers go. Replacing these top performers has become a significant challenge for more than half of the survey's respondents. In fact, 57 percent said their applicant pools are drying up.

Yet the signs remain positive for employers. According to The New York Times, recent reports indicate companies are becoming more confident about the economy and are starting to increase their number of job postings. The newspaper reported some companies have invested in hiring recruiters to boost their full-time employees, which is a big step for many businesses that have made due with trying to find talent without these key hiring professionals. While some of these businesses remain at the mercy of consumer demands and market conditions, The Times reported many are being carefully optimistic about their industries and their ability to increase payrolls and recruitment.

"I'm very curious to see how freight levels are in May and June," James Welch, chief executive at trucking firm YRC Worldwide, told the newspaper. "We're trying to figure out if this is an overhang from the winter, or is it the economy getting better. I don't have the answer yet."

Many employers may need to wait to determine if their industries' needs will support their recruitment and payroll increases, and some – especially those in IT – may end up hiring recent college graduates to fill entry- or mid-level positions that had been previously occupied by more seasoned workers. According to the latest study by the National Association of Colleges and Employers, companies said they are expecting to employ 8.6 percent more workers from the most recent college graduating class. In total, the NACE found 48.4 percent of the 1,015 responding employers said they are hiring recent graduates.

Salaries promise to be higher for these new hires as well. The Dice Holdings survey found 49 percent of employers will provide higher wages of their new hires than last year. In addition, 53 percent said they will increase their existing workers' salaries as well, which is a great strategy for both retention and recruitment. 

To support greater hiring and higher salaries, HR professionals will need to use the best HR software. Having a self-service option is one element at that makes it easy for employees to keep track of their compensation. Talent management software is also a solid investment for HR departments that look to keep their top workers at the company for the long haul.

Survey Finds More Employers Providing PTO to Workers

2 Jun

Many companies offer workers paid time off as part of their benefits administration, and a new survey by the Society for Human Resource Management (SHRM) found more employers are jumping on the PTO bandwagon. Paying employees to take a break from the workplace can be beneficial to employers, because when staff members can get away from work and take time to do things they wouldn't normally be able to do, they can return happier and more focused. This results in workers being more productive and producing higher quality work, which helps the company be more successful.

The Benefits of PTO
SHRM surveyed more than 2,000 employers, most of which are in the private sector and have 500 or fewer workers. The survey found 52 percent of companies provide PTO plans to their full-time staff members. According to SHRM, a PTO plan is one that includes sick, vacation and personal days, but does not include national holidays.

However, many employers decide against providing workers with unlimited PTO days. The survey noted 94 percent of companies give workers a certain number of PTO days annually, with 98 percent providing set vacation days and 88 percent offering set sick leave time. According to Entrepreneur magazine, many companies are wary of giving workers a limitless number of PTO days, as some feel as if workers would take advantage of the extra time off and not do their work properly. 

HR professionals are starting to give workers greater autonomy, however, and are expanding their PTO benefits. According to the survey, 16 percent of companies now offer paternity leave, which is almost as many employers that provide maternity leave (18 percent). In addition, 17 percent give workers paid adoption leave. 

HR professionals need to ensure they are keeping track of workers' PTO use effectively by investing in the best payroll software. Not having modern payroll solutions can make HR departments inefficient and can cause confusion among workers when they try to use their PTO benefits. HR professionals shouldn't try to make it work with a system that is out of date and doesn't provide them with the tools they need to do their jobs to the best of their ability. Human resources departments should make it easy for employees to request PTO when they need time away from the office. Otherwise, the company may not experience the advantages of workers who are well-rested and engaged. 

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