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15760 Ventura Blvd, Suite 610 Encino, CA 91436
FREE CONSULTATION818-436-2775
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Personal, Affordable Payroll Services, Bookkeeping, and Tax Processing for Small Business throughout Los Angeles County.

Confusing Payroll Accounting Issues Can Cause Massive Headaches

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Andy works for Jethro and Sons, a marine hardware company in California. He works as a salesman on the floor of their retail shop, and also sometimes on the phone. The company sales people are paid minimum wage against commission. In other words, they first $9 an hour in commissions go against the minimum wage. Anything above that is paid out as commission.

The company has played with various commission set-ups in an effort to maximize the incentive for their sales personnel. Owner Tom Jethro says that his favorite check to pay is a commission check, the bigger the better. But the company has also offered commission on top of the base pay in the past. And they have considered changing all salespeople to exempt salaried employees. Why all the jockeying around?

The salespeople commonly take work home. They don’t like to use business hours to figure out complicated orders, take online courses on the products they sell, or figure out expenses from trade shows they attend. When this happens, which is common, they get into overtime situations.

When Andy worked 50 hours in one week recently, Tom asked his beleaguered vice president of everything and son, Jay, if he had checked on the rules regarding how commission are affected by overtime. Jay said he couldn’t imagine that was a problem. Tom wasn’t so sure.

What Tom learned when he called a payroll services company like ATPP caused his hair to curl. The commission was also subject to overtime rules. In other words, Andy worked for 40 hours straight time and made $360. He also made $500 in commission. The way Jay had been paying the employees for years was to add those two together, and pay $860 plus time and a half or $13.50 per hour for the other 10 hours or $135.00 in overtime.

But it doesn’t work that way. The correct method is to add the 40 hour compensation and the commission together and divide by 40 to determine the hourly rate for the 40 hours or $21.50 per hour ($860/40.) The time and a half is now $33.25 per hour X 10 hours or $332.50. Almost $200 more!

Tom Jethro was now faced with a huge decision. Would he risk being found out and not pay the difference. He knew that if he did that, the sales crew, present and past, would all be asking for their back pay. If he decided to hold back his new information, he risked one of the employees filing a claim. He was in a real dilemma.

You don’t need to end up in this type of fix. If you use and outside payroll service, they will alert you to situations like this before you get too deeply into the mire. ATPP is a Los Angeles based payroll service provider who works with clients throughout the US and in almost every conceivable industry. You will be surprised at how little it will cost to have them do all of your payroll, including tax forms, 1099’s and more.

By the way, the same rules that apply to commissions and overtime also apply to bonuses and piecework. Call ATPP today for a quote at 818-436-2775