What is Third-Party Sick (Disability) Pay?
Third-party sick pay refers to employer-sponsored or state-mandated insurance benefits that replace lost wages due to non-work-related injury or illness. Employees covered under disability plans, such as Short-Term Disability or Long-Term Disability, typically receive payments directly from the insurance provider. These payments, also known as third-party sick pay, usually represent a percentage of the employee’s regular earnings.
Third-Party Sick Pay Requirements
Third-party benefit providers issuing sick payments to employees will typically withhold employee taxes from those payments, including FICA (Social Security and Medicare) tax. However, these providers typically do not pay the employer share of FICA, which remains the employer’s responsibility to record and remit.
In most cases, only FICA is withheld from third-party sick pay. Employers must still pay their portion of FICA on these payments, which is done by reporting the totals through the processing of a payroll batch.
Employees may also request Federal income tax (FITW) withholding from third-party disability payments by submitting IRS Form W-4S to the provider. When this occurs, employers will also be responsible for reporting the FITW withheld on employee W-2s for the applicable tax year.
How to Report Third-Party Sick Pay in Empeon Workforce
Reporting third-party sick pay is based on the frequency in which statements are provided by the benefit provider. Some providers may issue statements monthly or quarterly, while others may only provide a year-end reconciliation.
Employers should record these wages by processing a “3rd Party” batch as statements are received. This ensures the employer share of FICA is applied and the wages are properly reflected for reporting.
In Empeon Workforce, taxable wages from third-party sick pay are recorded in a special “3rd Party” batch. These batches do not generate checks or payments but update payroll records for reporting purposes. A 3rd Party batch can be submitted along with any regular payroll.
Review the interactive guide below for more information about how to add a 3rd Party batch and record third-party sick pay in Empeon Workforce.
Reporting Third-Party Sick Pay in Empeon Workforce
Reporting third-party sick pay is based on the frequency in which statements are provided by the benefit provider. Some providers may issue statements monthly or quarterly, while others may only provide a year-end reconciliation.
Employers should record these wages by processing a “3rd Party” batch as statements are received. This ensures the employer share of FICA is applied and the wages are properly reflected for reporting.
In Empeon Workforce, taxable wages from third-party sick pay are recorded in a special “3rd Party” batch. These batches do not generate checks or payments but update payroll records for reporting purposes. A 3rd Party batch can be submitted along with any regular payroll.
Review the interactive guide below for more information about how to add a 3rd Party batch and record third-party sick pay in Empeon Workforce.
Additional Considerations for Third-Party Sick Pay
The Third-Party Sick Pay (3Pty) batch is designed for recording third-party sick pay amounts reported by benefit providers. Its purpose is to update payroll records so the employer share of FICA can be applied and the wages accurately reported on quarterly filings and employee W-2s.
This batch is for reporting only and does not issue checks or ACH payments to employees. It should not be used for any other type of transaction.
When keying in the employee's taxable sick pay using the XSP code, the required Medicare (MED3P) and Social Security (SS3P) are calculated automatically along with the matching employer liability (MED-R and SS-R). Empeon must calculate FICA at the required rate for compliance purposes. For any discrepancy between the tax amount calculated in Workforce and what's noted on the insurance provider's statement, contact your insurance/benefits provider for assistance.
For employees that have Federal Income Tax being withheld from their third-party sick payments, be sure to key in the amount of tax withheld under the FITW3P code per the image below. There is also a code to use for recording state-level withholding if applicable.
For any questions or assistance with how to process a third-party sick pay batch in Empeon Workforce, please do not hesitate to reach out to Empeon Customer Support.