Changing taxes and retro pay

vwindham · October 2003

I have two seperate questions:

Question One:

I have any ee that is constantly changing his tax deductions to meet his current financial needs. I told him that this needs to stop. His supervisor than came to me and stated "he can change his taxes any time and as many times as he wishes and there is nothing LEGALLY that HR can do about it. From now on just change it without bothering him." Frankly, I wanted to bounce her out of here on her ear but I think she is probably right! Does anyone know if there is a law, regualtion, etc that addresses this issue??

Question Two:

Are you REQUIRED by law to pay retro pay if an annual raise is given after the anniversary date?

I am in California.Thank you

marc · October 2003

I don't know of any law that limits the number of times an ee can tinker with their deductions. Read the instructions on the W-4 and check the IRS website if you need to know more specifically. Second, the retro pay is up to your company. The form we use specifies the effective date of all of our raises. Some of them go back several pay periods, some are effective the next paycheck.

Parabeagle · October 2003

We limit withholding changes as a matter of policy to either a "qualifying event" (new child, divorce, etc.) or, if no qualifying event, to a maximum of twice per year. As for retro increases, we will retro a wage increase to the anniversary date simply because we feel it's the right thing to do - there's no law governing it that I'm aware of.

mwild31 · October 2003

Question #1 - Here's the best link I can find on the IRS site: [url]http://www.irs.gov/pub/irs-pdf/p919.pdf[/url]

I've never run into the issue before, so I don't know the answer. From my reading (see the link) I would think they could change it once a month - but I'm hoping that someone more knowlegeable on the forum will help us out. One thing that seems definite though - they can only claim what they are allowed to on the form. Meaning, they can't list their allowances on one pay period as 9 - if they are only entitled to 4 - they can go lower - just not higher.

Question #2 - no, you don't have to pay retro amounts unless it's specified in your handbook, in a policy, by precedent or in some form of contract. At my company - whenever we screw up (read: we (managers/supervisors) are late in the reviews) we retro the amount - reasoning that it wasn't the employees fault.

Leslie · October 2003

Employees can change their W-4 every pay period if they want - unfortunately.

I don't believe retro pay is dictated by law unless you're union or have a contract. Ours is strictly company policy. We retro back what is reasonable - usually at most a month. If it's an extreme circumstance where a supervisor/manager really screwed up - like six months late or something ridiculous - we do what we can to make the employee whole. It's not their fault, but you'd think they'd bring it to HR's or the deparment's attention sooner.

E Wart · October 2003

I too do not believe you have any control over when or how often an employee can change their exemptions. The only thing you have to be aware of is notifying the IRS if they go over 9 (I believe).
As far as retros, again, I don't know of any laws. However, if a person's increase dates is before they actually receive it on their check, I would think that an employer would feel some obligations here. If the employer doesn't want to pay any retro, just make the effective date of the salary change the date you give it to the employee. That should take care of that.
E Wart

ray a · October 2003

Question 2 - We have a due date established for each employee to receive their pay increase. It may be 12 months, 14 months, 9 months, up to 18 months, or as soon as 6 months. We establish the plan at the beginning of the year and my job is to process the paperwork at the correct time. About once a year I may miss someone, and like Mwild said, then we make it retroactive.

vwindham · October 2003

Thank you all so much for your help. I got someone from the IRS to check this for me. I qoute " An employee can change their deductions at any time and as frequently as they want." It seems to me that this needs to be amended but for now-- it is the law DARN!!

I am re-writing the Employee Handbook so I will include something about the retro pay in there I guess!

Thanks again-

Parabeagle · October 2003

Thanks for the info. The deduction thing was news to me. I'll pass that along to our payroll people.

ritaanz · October 2003

I see IRS answered question #1. As to the retro question, it depends on company policy. Each month when I issue the next month's reviews,(we do performance reviews on the employee's anniversary date), a memo accompanies the review paperwork. It states in large bold letters, "Please complete so these can be processed in a timely manner. There will be no retroactive increases."
This has been our policy for several years. In the 3 years I have been here, there has only been 1 late review. This was brought up in the supervisor's review. Hope this helps.

Changing taxes and retro pay

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