4 Supplemental Payroll Examples Small Businesses Should Know

Employees are not the same and as such should be treated with respect to their work differences. As much as every employee differ, so is their payroll and items contained in it which provides a complex framework when calculating employee’s supplemental payroll.

As contained in the labor law posters, supplemental wages are a part of the employee’s compensation provided by the employer. However, such supplemental payroll does not fit into the normal wages earned by the employee. Supplemental payroll is compensation types which are crucial for small businesses to be aware of.

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What Are Supplemental Wages

Supplemental wages are compensation types which are paid to employees in addition to their regular wages.

Why Supplemental Payroll Matter

Supplemental payroll is paid with a ‘taxation’ perspective. This is because when an employee is paid his or her supplemental payroll as part of the regular wages, they are taxed at the same rate. However, if such compensations are paid differently or specified in the payroll, it can be taxed separately at a different rate or at an aggregate rate. The supplemental tax rate is currently pegged at 22% but can vary for state taxes.

Payment of supplemental wages, however, varies from company to company. The payment structure on which supplemental wages are based can depend on what the company deems best for it and influenced by compliance with pay periods, employees and state regulations. It is important however to refer to the state rules for proper compliance. Displaying national labor regulations and state regulations in the workplace can help you to avoid any inconsistencies in pay, such as supplemental payroll options.

Examples of Supplemental Payroll:

1. Accumulated Sick Leave

When an employee is allowed to accrue his or her unused sick leave over a period of time, paying their accumulated sick leave wage could be categorized into the supplemental wages category. However, how much your company decides to pay out and decision on when to make such payment depends on the company policy and the laws of the state where your business and employee resides.

  1. Severance Pay

Severance pay are only warranted in cases of layoffs, job elimination, and mutual agreements to part ways amicably. The decision to pay out a severance pay is however based on the laws of the state where your business resides and your company policy. Many employees however choose the option of a severance package to cushion a termination effect or in other cases to avoid legal issues.

  1. Payments for Nondeductible Moving Expenses

Sometimes, work and transfer require an employee to move and relocate to another area. In some cases, however, an employer may choose to reimburse the worker for making such move in line with the labor poster. For non-deductible moving expenses, the employer may specify to reimburse such allowance as part of supplemental wages.

  1. Bonuses and Commissions

Several companies choose to pay commissions and bonuses as part of their plan to hit their goals and targets. This is especially common to sales professionals and employees who are paid based on set goals, targets and quota. Such bonuses and commissions are paid separately from a regular paycheck and therefore subjected to different tax percentages.

It is important for small businesses to be aware of supplemental payroll, where and when to use in compliance with labor law posters and states regulations.