Payroll Compliance FAQs

Payroll Compliance FAQs

Q: I got a letter in the mail saying your firm will be in my office to do an audit. What gives you the right to audit my records?

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A: When you signed a participation agreement enabling your employees to participate in and receive benefits from the applicable trust fund, you agreed to periodically submit to an audit of your records. A trust’s payroll compliance program is in place to ensure that contributions are correctly collected from all participating employers. Check the terms of your subscription agreement for details.

Q: Who’s going to pay for this audit?

A: In general, the trust pays for expenses associated with the payroll compliance audit of your records. However, individual trust policy may require you, as a contributing employer, to pay the expenses under certain circumstances, such as when an audit requires extended travel, or if findings reflect contribution underpayments that exceed a certain limit. Contact your administrator for additional information.  

Q: What happens if I refuse to allow you to come in and do this audit?

A: The matter will be referred to the trust’s legal counsel.

Q: We are very tight on space. Are there other alternatives for conducting this audit?

A: It may be possible for us to conduct the audit remotely if the trust permits. In such a situation, we would work with you to obtain records electronically when possible and to ensure your records are reviewed in a secure environment.

Q: I was just audited by another accounting firm for a different trust. Why don’t you work together and share what they found—it’s the same records you’re asking for.

A: In many cases, we may be the payroll compliance auditor for multiple trusts to which an employer reports to, in which case, we would test those trusts at the same time, barring any extenuating circumstances. However, if the other trust that audited you was using another firm, we cannot share records. We work independently of other accounting firms, and are engaged by a trust to test employer records for that particular trust. Our records are proprietary and may not be shared with another accounting firm.

Q: Why am I being charged liquidated damages and interest in addition to the contribution findings on my payroll compliance report?

A: Trust policy may require that both liquidated damages and interest be applied to any contribution underpayments discovered during the course of the payroll compliance testing.

Q: What are liquidated damages?

A: Liquidated damages arise out of a failure to remit timely contributions. They address the additional administrative expenses incurred by the trust when the administrator has to pursue, collect and process delinquent contributions or contributions found as the result of a payroll compliance test.

Q: Why have I been selected for testing when I no longer contribute?

A: Most payroll audit programs include testing employers that are terminating participation in the trust. In this “exit audit,” the auditor will test contributions from the prior testing period to your withdrawal date to verify plan contributions have been properly made through the withdrawal date.

Q: What is piggybacking?

A: In many instances, an employer will have Collective Bargaining Agreements (CBAs) with several trusts. If we are engaged by more than one of those trusts, the trustees normally request that we audit the employer records for all the trusts at one time. This saves overall costs and reduces disruption to the employer.

Q: What is a courtesy audit?

A: It’s an audit performed on employers that have just started contributing to a trust. What typically happens is that within a year, the payroll auditor for the trust will test the new employer’s contributions to make sure they understand reporting rules. Doing that reduces the risk that they’ll report incorrectly to the trust.

Q: What is an exit audit?

A: It’s an audit done on employers ending their participation in a trust. In the exit audit, the auditor will test contributions from the prior testing period through the current date to make sure that plan contributions have been properly made up until the date the employer withdraws.

Q: What is the difference between “hours worked” and “hours paid”?

A: CBAs usually specify that pension or welfare contributions have to be based on either hours worked or hours paid.

·      Hours worked means only the actual hours spent performing work. Hours paid includes all hours that were paid for but not worked, such as hours when an employee was on vacation, on holiday or sick.

·      A CBA or the plan documents may specify that hours paid should be considered hours worked for reporting purposes. Because of this, you should refer to both your CBA and plan documents to determine what hours are eligible.

Q: What is waiver of premium?

A: It’s a term employers use when doing health and welfare reporting, and it applies to employees who were unable to work due to injury or illness. There’s a “waiver of premium period,” which is usually three months, when the employer is not required to make contributions on behalf of the employee. The health and welfare plan will provide coverage during this period, even though it did not receive a contribution. Once that waiver period is over, the employer will again report based on the terms of the CBA.

Because the trust is covering the waiver period, a trustee may wonder how this is being funded. A waiver of premium usually happens on plans with lag periods, where an employee isn’t eligible until after three premium payments have been made. The rationale is that the first three payments are funding the waiver of premium.

 

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