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. In most cases, it is only FICA (Social Security and Medicare) that is withheld. The employer is still responsible for paying their portion of FICA on third-party sick pay, which entails reporting these totals through the processing of a payroll batch.
Some employees receiving third-party disability pay may choose to also have Federal income tax (FITW) withheld from their payments by filling out IRS form W-4S. When this happens, employers should report the Third-Party FITW amounts withheld on employee W2's for the associated tax year.
How to report Third-Party Sick Pay in Empeon Workforce
Empeon Workforce is able to address any organization's wage reporting and tax liability needs associated with third-party sick pay. 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 Considerations for Third-Party Sick Pay
The Third-Party Sick Pay (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 3Pty 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.
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.