Saturday, April 20, 2019

Identifying Third Party Sick Pay Flavor

There areseveral flavors of Third Party Sick Pay. They are the following:


Flavor 1 - Regular

The insurancecompany deposits the employee taxes, NetSuite/Ceridian deposits the employertaxes and files the W-2. User must record this information in NetSuite usingthe normal procedures.



Procedures areavailable on the Help Guide:


EmployeeManagement : Payroll : NetSuite Payroll : Administering Payroll Transactions :Recording Third Party Sick Pay Payments




Flavor 2 - Insurance company does it all

The insurancecompany deposits both employee and employer taxes and files the W-2. In thiscase, user must NOT enter anything into NetSuite.



Insurancecompany is responsible for reporting the 3PSP wages and taxes on their 940, 941and any state returns. They file the W-2s under their IDs. Employee willreceive two W-2s: one from NetSuite/Ceridian with their non-3PSP wages, and asecond one from the insurance company with only their 3PSP wages.




Flavor 3 - The insurance company deposits theemployee taxes and files the W-2, but NetSuite/Ceridian deposits theemployer taxes.


In this case,user does NOT enter anything into NetSuite, but NetSuite needs to coordinatethe employer taxes with Ceridian and does the manual recap. This is verymanual and error prone. Preparation of the recap has a fee.



Note: User maycontact the insurance provider to inform them that they may opt to selecteither Flavor 1 or Flavor 2.


Flavor 4 - Premium as fringe

The employer pays for the 3PSP premium of their employees, then records and taxesit as a fringe benefit.


When anemployee collects the 3PSP/STD benefit, it is nontaxable to the employee. Ifthe insurance company files the W-2, they will report this as a nontaxablebenefit on Form W-2 box 12 code J. There are no employer taxes due, and thereis no requirement to enter any information into NetSuite.


Flavor 5 – Some of the premium is paid byemployee


The insurancecompany does not file the W-2 and transfers employer tax liability for thetaxable (flavor 1) part of the 3PSP.


User needstwo earnings codes for this: In addition to the earnings code needed fortaxable third party sick pay, user also needs to set up an earnings code fornontaxable third party sick pay. This is needed when the employee makes acontribution toward the sick pay insurance premiums, so some of the sick paybenefit is nontaxable to the employee.


Selectnontaxable sick in List > Payroll Items > Earning Addition. Save yourchanges here and in Setup > Update Payroll Information. There are no taxesto record for these payments; only the earnings amount, which will be reportedon Form W-2 in box 12 code J.


Flavor 6 – Long-term Disability


Sick pay formore than six months is often called long-term disability (LTD). LTD is exemptfrom the following taxes: social security, Medicare, FUTA, and SUI (in manystates). User can process normal 3PSP adjustments in NetSuite, but must also back out the wages and taxes for those taxes that no longer apply.Alternatively, user can process normal adjustments after the quarter cutoff and justenter the information for federal income tax wages and taxes, including state andlocal income tax wages (ifthere is any).


Note: User maycontact NetSuite Customer Support for assistance.


Permanent Disability is not 3PSP


If the employeeis not expected to return to work, then the employee is on permanentdisability. Permanent disability is not sick pay.

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