November 21, 2005

Dear Valued Checkmate Client:

As another year draws to a close, we want to thank you for your business and look forward to working with you in 2006. During the past year, many of you have referred new clients to us. Please know that this is the highest compliment we can receive. We are committed to maintaining your confidence!

We have completed the conversion of all of our clients to our new payroll software. We want thank all of you for your patience.

In 2006 we will be offering an internet payroll solution known as PayChoice Online. Using state-of-the-art web technologies, Paychoice Online provides a secure solution that is completely automated. PayChoice Online allows you to maintain control of your company’s payroll data while utilizing our payroll expertise for the backend processing to include direct deposit, tax payments and preparation of payroll tax returns, We take care of the administrative burdens so you can focus on your business. Please contact your payroll specialist if you would like to see a demo of this exciting new offering.

We are also pleased to offer the EasyChoice Workers’ Compensation Premium Payment Service to all of our payroll clients. This service offering is brought to you in conjunction with The Hartford Insurance Company, one of the largest insurance providers in the nation. With The Hartford, your business receives outstanding benefits including paying premiums through payroll!

With EasyChoice, your insurance premiums are based on your actual payroll paid with each payroll cycle. It eliminates the up-front deposits required by most insurance policies and helps you avoid any year-end audit surprises, so you’re in better control of your cash flow and your expenses.

The overall benefits of EasyChoice include:

Improves your cash flow.

No up-front premiums to pay.

No monthly payments or checks to write—premiums are automatically deducted.

Helps to avoid any audit surprises at year-end.

Accurate calculations based on actual payroll.

In addition, you receive coverage from a nationally recognized provider, which ensures you’ll receive:

Competitive insurance rates.

Responsive service from knowledgeable experts.

24-hour toll free customer service.

A cost containment program.

If you are interested in this service please give us a call.

Starting with the first quarter of 2006 we plan to begin filing forms 941 electronically with the IRS.

We continue to develop our web site www.checkmate-payroll.com and encourage all clients to use our site. This web site is a resource for clients and a useful marketing tool.

Please keep in mind that both mail and DHL delivery slows down during the holiday’s so please plan accordingly.

The attachment to this letter is intended to inform you of specific payroll related items that you should be aware of. Issues addressed include the following:

Christmas or Year-End Bonuses
Tax Deposits
Year-End Reporting
W-2 (Statement of Earnings)
Social Security Number verification
W-4 (Employees Withholding
Health Insurance for S-Corp
Holiday Schedule
Changes for 2006

We hope you find this information useful. As always, if you have any questions, please don’t hesitate to call. Thank you for your continued support. We wish you Happy Holidays and a prosperous New Year!

Sincerely,

THE CHECKMATE STAFF CHECKMATE YEAR-END 2005

Christmas or Year-End Bonuses- Please notify us a week in advance if you want a separate payroll run.

Do you plan to issue Christmas or Year-End bonus checks? If so, Checkmate needs to know the following:

Do you want a separate check for the bonus?

Direct Deposit- If an employee is normally paid by direct deposit, the bonus will also be direct deposited, unless you specify that you want a paper check.

Tax Withholding- We use each employee’s regular tax withholding status for bonus payments, unless instructed otherwise. As an alternative, the bonus can be taxed at a rate of 25%, but you must specify this instruction to Checkmate.

Deductions- Please let Checkmate know if the existing deductions (401K, simple IRA, etc.) should be taken out of bonus payments.

Gross-up- If you want us to gross-up a net bonus let your payroll specialist know. There is a $3.00 charge per check for this service.

Tax Deposits

If your total Payroll Tax deposits in the previous year were in excess of $50,000, you are required to make tax deposits with every payroll. You may receive a notice from the IRS regarding the frequency of your tax payments. If so, please forward the notice to Checkmate, for our records. You may always submit tax payments more frequently than required by the IRS.

In any case, Checkmate will not change your tax deposit status unless notified.

Checkmate can review your tax liabilities and determine your method of filing & frequency for 2006, for a fee of $50.00.

Year-End Reporting

Are there any adjustments necessary? If any of the following examples apply to you, please advise Checkmate no later than your last scheduled payroll of 2005..

Voided checks

Manual paychecks written by you and not yet reported to Checkmate

Group Term Life Insurance coverage over $50,000

Personal use of a company vehicle

Third-Party Sick Pay benefits- Please ask your administrator for an early year end close.

Non-Cash compensation

State Unemployment Notices
Please forward any state payroll tax forms to Checkmate, as soon as possible. Unemployment rates in New Hampshire have changed frequently this year and are scheduled to decrease in the fourth quarter. State notices regarding a change in your unemployment rate should always be forwarded to Checkmate as soon as possible, whenever you receive them throughout the year.

W-2 (Statement of Earnings)

Employers must provide their employees with a completed W-2 by January 31, 2006.

Checkmate will start printing W-2’s on Saturday, December 31st. We must have any changes with your last scheduled payroll of the year. If you need more time, please let us know and we will adjust accordingly. If you do not notify Checkmate of these changes and W-2’s must be reprocessed, an additional processing fee will be charged.

Please verify addresses for current and terminated employees. Addresses for active employees appear on the check register. A master list is available for $5.50.

Verify Social Security numbers. If you question the validity of an employee's Social Security number, call the Social Security Administration at 800-772-6270 for verification of the number. If Form W-2 does not contain the correct name and Social Security Number, the Internal Revenue Code provides that the employer may be penalized up to $50 for each incorrect Form W-2. 

Encourage your employees to hold onto their W-2s. Due to the processing time involved, there is an $11 charge to re-issue a lost W-2. You can pass this charge on to your employees. We will provide you with a form for the employee to fill out in the event that they need a W-2 reissued

W-4 (Employees Withholding)

IRS regulations require employers to remind employees to file an amended Form W-4 if their filing status, exemption allowances or exempt status has changed since their last filing of Form W-4. This notice must be provided by December 1st of each year. A new W-4 is not required if the employee status does not change. 

Any employee claiming exempt must file a new W-4 for 2006 to retain their exempt status. If a new W-4 is not received by February 15, 2006, you must switch the employee's withholding to Single/Zero. Checkmate can put a reminder message on your employees' checks for a fee of $10.00.

W-5’s for any employee who is receiving advanced earned income credit expire on December 31. Notify any employees receiving the advanced credit to complete a new Form w-5 if they want to continue receiving the credit.

Health Insurance for S-Corp

If you are an S-Corp, providing Health Insurance benefits to employee shareholders, the annual premium paid by the company must be included on the employee shareholders W-2. Please notify us of this amount, with your last scheduled payroll of the year, so that Checkmate can properly report this W-2 item.

Changes to note for 2006

Effective 1-1-06 New Hampshire employers are allowed to deduct from an employees pay for: loans made by the employer to the employee; accidental overpayments (limited to 20% of the employee’s gross pay in any pay period). An agreement must include when payments will begin and end, amounts to be deducted, and whether the employer is allowed to deduct any amount owed form final wages at the termination of employment.

Effective 1-1-06 New Hampshire employers may deduct from an employee’s final wages any amount owed for voluntary payments for vacation pay, paid time off pay, earned time pay, personal time pay, annual pay, sick pay, etc., made pursuant to a written employment policy when the payments have been requested and paid to the employee in advance of eligibility. The employer must have a written request from the employee, made at the time of the time of the original request that authorizes the employer to make the deductions.

Social Security wage base has increased to $94,200 from $90,000. As in prior years, there is no limit to the wages subject to the Medicare tax; therefore, Medicare wages are still subject to the 1.45% tax.

Maximum annual employee contribution to 401K and 403B plans increase to $15,000. Employee and employer contributions to Simple plans stay the same at $10,000. The catch-up contribution for employees who reach age 50 during the plan year, is $5,000 for 401K and 403B plans and $2,500 for Simple plans.

The standard mileage rate was increased to $.485 starting Sept. 1, 2005 through December 31, 2005. Prior to Sept. 1, 2005 the rate was $ .405 per mile. The 2006 rate has not been published. When it is published it will be posted on our web site.

Holiday Schedule

Just a reminder -- Our offices will close at noon on Friday December 23rd and be closed Monday December 26th, and Monday January 2. Please refer to the enclosed Holiday Notice.

Again, if you have any questions regarding the information contained in this letter, please call 225-2004.