The Department of Labor (DOL) has gone paperless this year, and all forms for the 2009 plan year must be filed electronically — no exceptions.

To help employers, the DOL has just launched its EFAST2 online filing system — and it’s ready to accept electronic submissions of Form 5500 and Form 5500-SF.

But there’s the rub: Using it requires an e-mail account, which according to recent reports, 20%-28% of small business owners (mostly older owners) still don’t have — leaving them vulnerable to steep fines.

The E-Verify system is supposed to tell employers if an applicant is authorized to work in the United States. An independent study shows the system has more misses than hits when it comes to fake IDs.

The Department of Homeland Security commissioned Westat to do the study to determine where the holes are in the system.

One big hole: Westat reported that the program often couldn’t confirm whether information workers were presenting was their own. According to researchers,  “Many unauthorized workers obtain employment by committing identity fraud that cannot be detected by E-Verify.”

The researchers put the inaccuracy rate at 54%. That doesn’t mean that 54% of all workers who get the “approved” stamp by E-Verify have committed fraud. Rather, it means the system didn’t correctly assess the ID info of illegal workers 54% of the time.

DHS has responded by saying it plans to improve the system by expanding the data bases, introducing a photo screening and funding a special unit to investigate identity fraud.

The report is troubling for a number of reasons:

• Some states, such as Arizona, have mandated that employers in those states use the system to verify eligibility for employment.
• The system is increasing in popularity among employers. In 2006, fewer than 5 million employers used E-Verify. According to Westat, that number will probably grow to about 28 million this year.
• Federal contractors must use the system to verify the employment eligibility of their workers.

Go here for a synopsis of the Weststat report.

A few surprises for employers are lurking in the President’s newly released Fiscal Year 2011 budget proposal.

Here’s a look at six that affect HR and Payroll:

1. Extend COBRA health insurance premium assistance. The proposal would extend the eligibility period by allowing qualifying individuals who suffer an involuntary termination prior to 1/1/11 to qualify for assistance. Premium assistance that results from an involuntary termination after 2/28/10 would be 12 months. If the proposal isn’t enacted before March 2010, there are provisions for individuals who become qualified as a result of an involuntary termination after 2/28/10.
2. Remove cell phones from listed property. This means there’d no longer be strict substantiation requirements for the use and the limitation on depreciation deductions on cell phones and other similar telecommunications equipment (e.g., Blackberrys). The fair market value of personal use of a cell phone provided primarily for business purposes would be excluded from an employee’s gross income. The proposal would be effective for taxable years ending after the date of enactment – so, as early as 2010. The suggested change comes because substantiation requirements for listed property are burdensome for employers, employees and the IRS. Plus, there’s been a significant drop in the cost of service since cell phones were first classified as listed property – so now the cost of accounting for personal use often exceeds the amount of any resulting income.
3. Make the ‘temporary’ 0.2% FUTA surtax permanent. Extending the surtax will support continued solvency of the federal unemployment trust funds.
4. Begin automatic enrollment in retirement plans. Employers in business at least two years and with more than 10 employees would be required to offer an automatic IRA option to employees. Regular contributions would be made to an IRA on a payroll-deduction basis. However, companies are off the hook for this requirement if they sponsored a qualified retirement plan, SEP or SIMPLE plan. Employers that do offer automatic IRAs would inform employees about the program with a standard notice and election form – and allow them to opt out. In return, employers offering a program could claim a tax credit for making automatic payroll-deposit IRAs available to employees. The credit amount? $25 per enrolled employee, up to $250. The credit would be available for two years. This proposal would become effective 1/1/12.
5. Make it easier to properly classify independent contractors. IRS would be permitted to require prospective reclassification of workers who are currently misclassified, and whose reclassification is prohibited under current law. The Department of the Treasury and IRS would also be permitted to issue new guidance on the proper classification of workers under common law standards – allowing companies to properly classify workers with much less concern about future IRS examinations. Also, IRS would be allowed to give the Department of Labor info about service recipients whose workers are reclassified. Changes afoot for employers, too: Independent contractors receiving payments totaling $600 or more in a calendar year from a service recipient would be permitted to require withholding for federal tax purposes a flat-rate percentage of their gross payments, with the amount being selected by the contractor.
6. Reinstate previous tax brackets. The President proposes reinstating after 2010 the 36% tax rate for those with taxable income above the following:
   – $250,000 less the standard deduction and two personal exemptions, indexed from 2009, for married taxpayers filing jointly, and
   – $200,000 less the standard deduction and one personal exemption, indexed for inflation from 2009, for single filers.
   The 28% tax bracket would be expanded so that taxpayers earning less than these amounts wouldn’t see their taxes rise as a result of the new brackets.

You can read the Treasury’s “General Explanations of the Administration’s Fiscal Year 2011 Revenue Proposals” (also known as “The Green Book”) here.

While it’s true that IRS will soon begin conducting its annual telephone survey of small business and self-employed taxpayers, callers will not ask for any personal or financial info. That includes Social Security or Employer Identification Numbers, or banking or credit card data. If a caller asks for any of that info, hang up and call your local IRS office and/or police immediately – it’s probably an identity thief.

Here’s how else you can tell if a request to participate is legit:

1. Taxpayers selected at random to participate in the survey will receive an advance letter from the survey contractor, Pacific Market Research (PMR).

2. The PMR letter will also include a note from Small Business/Self-Employed Commissioner Christopher Wagner, explaining the purpose and importance of the survey.

3. PMR will conduct the surveys by telephone only, with each interview typically lasting about 15 to 18 minutes.

The official survey is for taxpayers filing certain forms, including 1120, 1120S, 1065 and 1040 with Schedules C, E or F. Participation is voluntary, and all responses remain anonymous to IRS. The agency expects to continue the surveys through mid-April.

Get more info here.

When you use the same complex terminology in employee benefits handbooks, chances are people won’t grasp key information.

Solution: Write policies using the same language you’d use if you were trying to explain them to someone in person.

Use conversational English

When updating your benefits handbooks, grab a tape recorder and talk out descriptions of your various plans. Use the recording as a guide for how to write your policies. Chances are it contains the wording you’d use in a typical conversation with employees.

Example: It’s doubtful a worker with a flexible spending account reimbursement problem would come to you and say, “I thought there was a $400 balance in my Section 125 plan account. But this reimbursement provides me only a $150 benefit for a $350 qualified medical service.”

Chances are the person would say there was $400 left in his flex account, so his check was short $200.

Then you’d probably tell the employee to double check how much was originally left in his account with Payroll.

A useful shortcut

One best practice is to write to those employees who are at the lowest education and comprehension level.

Another tip: Never use two words when you can write just one (e.g., write “void” instead of “null and void”).

Users of Business Services Online (BSO) must first register, then wait for an activation code in the mail. This means employers that want to use the popular SSN Verification Service or either of two higher levels of wage reporting error notifications can’t just jump online and get started.

Here’s the problem: After registering, it takes up to two weeks to receive the activation code – and even longer between January and March. By starting the process now, your code will be ready when you need it.

Avoid this common error
You’ll be in for even a longer wait if you get impatient and register for a second code before the first one arrives. This second request automatically cancels the first, and the time clock starts all over.

If you’re not sure whether you’ve received the first or second code, SSA suggests trying the code online no more than twice. If it fails both times, don’t try a third time – the failure means you have the first activation code, which is no longer valid. A third failed attempt will cancel your second activation code … and, you guessed it, you’ll have to apply a third time. Wait until you receive the second code and use that.

Get more info on BSO here.

Outdated policies or the failure to properly inform employees about new policies can be a big black mark against employers defending themselves against a bias charge. So there’s no better way to kick off the New Year — in a business sense — than by making sure your handbook is up to date. The top-priority items to check:

• New FMLA regulations. The U.S.  Department of Labor has revised the Family and Medical Leave Act regulations a couple of times in the last year. Further, the DOL requires employers provide each employee a notice of their updated FMLA rights in a handbook or a handout at the time of hire. Failure to do so will be the first area attacked in a lawsuit over FMLA leave.
• Genetic Discrimination. The recently passed Genetic Information Nondiscrimination Act prohibits discrimination on the basis of an employee’s genetic information. What follows is that your employee handbook should include genetic information among the “protected” traits that have EEO status.
• Privacy and electronic devices. Employees may have privacy expectations in their use of company computers and other devices, such as PDAs. Still, courts have ruled generally that employers can monitor and limit computer and electronic-device usage for improper activities such as accessing “adult” materials, inappropriate e-mails, or outside business use, as well as strains on bandwidth. The handbook is one effective way to serve notice about company  monitoring policies and employee restrictions on use.
• Social Networking. Facebook, Twitter and similar sites have become part of our culture — and our workplaces. More and more companies are instituting policies regarding limits to access of such sites during work time and what employees may disclose about their workplace. Such policies should be part of your handbook.

Legal experts recommend that every employer start the year with an six-part legal checkup to ensure compliance with current employment laws.

Here’s the list from the law firm of Moore & Van Allen:

1. Do a quick review of your company’s written vacation policy. Take a look  to ensure that the policy provides proper notice of forfeiture, carryover, and accrual of vacation. Do a checkup to see that you’re in compliance with state laws.  For instance, some special rules apply in states like California regarding forfeiture of accrued vacation.
2. Update your company confidentiality agreement. First, make sure your agreement is tight and covers appropriate employees. A lot of law firms report that laid-off employees are taking revenge — or looking for an edge in finding a new job — by handing out confidential info from former employers. If you don’t have an up-to-date agreement, you leave your company open to such attacks. Second, review your agreements and policies to ensure they don’t prohibit employees from discussing their wages or terms and conditions of employment with their fellow employees. The  National Labor Relations Board views such prohibitions as illegal interference with concerted activity, even if your company is not unionized.
3. Get FMLA compliant. If your company has 50 or more employees, make sure that you post the FMLA poster that the US Department of Labor issued in 2009. Update your FMLA forms and policies, if you have not done so already. (To see if you’re in  compliance with FMLA and other federal posting requirements, use the DOL compliance advisor.
4. Get your managers up to speed on harassment policies. Review the policies with the bosses, and get them to schedule beginning-of-the-year meeting with their departments to review the policies.
5. Get FLSA compliant.  Review the company’s classification of employees as exempt from overtime under federal and state wage and hour laws. Lawsuits and investigations based on improper classifications of employees continue to be a hot area of the law and can result in significant awards against employers.
6. Conduct an internal I-9 audit. U.S. Immigration and Customs Enforcement  announced new I-9 audits for employers. Make sure your bases are covered.

As previously reported, the Internal Revenue Service was gearing up for the audits to uncover unpaid business and payroll taxes. IRS is still planning the nationwide audit, but is pushing it back to February.

Here’s what auditors will be looking at:

• Three federal taxes collected, paid and/or remitted by employers — employee income taxes deducted by the employer, FICA and FUTA.
• Employment taxes related to four areas — worker classification, fringe benefits, reimbursed expenses and compensation of owner employees.

The audits have been triggered by an IRS study that shows a “tax gap” in the billions of dollars for unpaid business and payroll taxes.

The first round of employer audits for I-9 infractions apparently went so well that Immigration and Customers Enforcement has decided to extend the audit program and reveal the fines for violations.

ICE’s original plan called for 650 employer audits. The agency has completed about half of those and so far has categorized 16% of I-9s as “suspect and fined 61 employers a total of $2.3 million; 267 more employers are still scheduled for audit under the original program. Now, the agency is gearing up to audit 1,000 more employers, according to an agency announcement.

Responding to a Freedom of Information Act request by the American Immigration Lawyers Association, ICE disclosed its factors for assessing fines when it finds I-9 violations. In the past, ICE had calculated fines within the legal limits (up to $1,000 for the first offense and $2,500 for a knowing violation) based on five factors: business size, good faith, seriousness, employment of unauthorized aliens, and history of compliance.

The new ICE factors:

• Knowing hire or continuing to employ vs. paperwork violations
• First, second, or third offense
• Percentage of total reviewed I-9s that have violations
• Other factors such as  business size, good faith, seriousness, unauthorized aliens, and history

Some ICE examples of how employer fines would be set using the factors:

• Employer A with 25% of I-9s containing paperwork violations and no previously fined violations would be fined $440 per violation, which would be adjusted up 5% for being a large employer and down 10% for showing good faith with a good history, for a net of $418 per violation.
• Small Employer B with 5% of I-9s reflecting knowing employment of unauthorized workers (including “constructive knowledge”) might only be fined about $300 per violation.