What is 3rd Party Sick (disability) pay?
Third-party sick pay is employer-sponsored or state mandated insurance benefits that provide payments replacing lost wages due to absences caused by a non-work-related injury or illness. Employees covered under a disability insurance plan like Short-Term Disability, Long-Term Disability, etc., typically receive payments directly from the third-party insurance carrier.
These disability payments are also known as third-party sick pay, and employees typically receive a percentage of what they would have earned if they were working.
What are an employer's responsibilities associated with third party sick?
The third party benefit provider that issues sick payments to your employees will withhold employee taxes from their taxable payments. Often the only taxes withheld are FICA (Social Security and Medicare) from the employee. It is the employer's responsibility to pay the employer side FICA liability for any employee receiving taxable 3rd party sick pay. This is often handled through their payroll processor.
Some employees receiving 3rd party disability pay may choose to also have Federal income tax (FITW) withheld from their payments by filling out IRS form W-4S. Employers should report the 3rd Party FITW amounts withheld on employee W2s for the associated tax year.
How do I report taxable 3rd Party Sick pay in Empeon Workforce?
Empeon Workforce can address any organization's wage reporting and tax liability needs associated with third party sick. Review your benefit provider's statements or reconciliation documents and record the taxable wages in a special "3rd Party" batch. These batches 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 Information & Tips For Reporting Third Party Sick
The 3rd Party Sick (3Pty) batch is specifically designed for recording employee third party sick pay. It should not be used for any other purpose. Records keyed into the 3rd Party Sick batch do not create actual checks or ACH payments to employees.
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.
