Record Third Party Employee Payments

If an employee is paid by a third party and you are responsible for showing the payment on the employee's W2, follow these directions to show the information on the employee W2.

What we will accomplish is to add to the employees W2, the taxable wages earned and the amount withheld while not showing a wage expense in the Company’s General Ledger. The Company will incur Employer Social Security and Medicare expenses and liability.   

To accomplish this we will be using a “Holding GL Account”. This Account can be an Expense Account or a Liability account. Best practice is to use an account with little activity so after all processing is done it is easy to review and see that all of the entries add to Zero effect. While following these instructions use this account everywhere that the “Holding GL Account” is called for.  

First you should consult with the 3rd party payer or your auditor to determine which taxes should be included as taxable wages.

At this time Horizon believes these payments are subject to Federal, Social Security, and Medicare taxes and should be included on the W2. They are not subject to state or local taxes.

Earnings Code Setup

If you already have an earning code for this purpose, this step may be skipped.

NAVIGATION: MAINTAIN menu > Earnings Master

  1. Create a 3RDSICK Earnings Code
  2. Enter the Code and Description
  3. Checkmark the following:
    1. Earning is Taxable
    2. Withhold Federal
    3. Salary Earning Type
    4. Enter a Rate Factor of 0.00
  4. Save and close the Earnings Master

Deduction Code Setup

If you already have a deduction code for this purpose, this step may be skipped.

NAVIGATION: MAINTAIN menu > Deduction/Benefit Master

  1. Create a 3RDSICK Deduction Code
  2. Enter the Deduction Code and Description
  3. Enter the Check Description (this is the description that would print on a check stub)
  4. Select a Type of 1. Employee Only
  5. Auto Print can be set to No Auto Print
  6. Category can be left at the default of <<No Category Selected>>
  7. DGR Code, Group and Check Group may be left blank
  8. Select a Deduction Cycle of 0 -0 - Every Pay
  9. Select Y - Taxable [Fed/Soc Sec/Medicare] for Taxable Federal
  10. Select B - Non Taxable [State/Local] for Taxable State
  11. Employee and Employer Amount and Type can be left blank, Maximum should have 0.00 entered and Retain Maximum at Year End should be left unchecked
  12. The general ledger Employee Segment Account to Credit for the deduction should be the Holding GL Account
  13. Click SAVE

Add Deduction in Employee Master

NAVIGATION: MAINTAIN menu > Employee Master

  1. Select the Employee # and open 6 Deductions/Expenses tab
  2. Select the 3RDSICK Deduction Code and tab to the maximum field and enter the net check amount received by the employee.  
  3. Tab through the remaining fields which should auto-fill from the default information set in the Deduction/Benefit master until the deduction drops into the grid window.
  4. Click SAVE

Create a Manual Check

NAVIGATION: ACTIVITIES menu > Manual Check Entry

  1. Select the Employee #
  2. Enter an electronic Check Number less than 100 to record a payment already made
  3. Enter the Check Date
  4. Enter the Time Card Date
  5. Select the 3RDSICK Earning Code
  6. Enter the Hours as 0.00
  7. Enter the gross dollar amount paid by the third party in Rate
  8. Select an Inter-Fund Code, if applicable
  9. Enter or select the Holding GL Account for the General Ledger Account and tab to drop the information in the grid where it can be saved
  10. Open the Employee Deductions tab
    1. For the 3RDSICK deduction
      1. Deduction Gross = gross per payer
      2. Employee Amount = net check per payer
    2. For Unemployment
      1. Deduction Gross - gross per payer
      2. Employee Amount = amount withheld per payer
    3. All other deductions that were not taken out of the sick pay should be zeroed out
  11. Open the Standard Deductions tab and enter the following information based on third party withholdings
    1. Social Security and Medicare
      1. Employee Gross = gross per payer
      2. Employee Amount = amount withheld per payer
      3. Employer Gross = gross per payer
      4. Employer Amount = calculated percentage
    2. Federal
      1. Employee Gross = gross per payer
      2. Employee Amount = amount withheld per payer
    3. State
      1. Employee Gross = zero
      2. Employee Amount = zero
  12. This will cause a liability for any of the amounts withheld and for employer portions.  Corrections to the employee withholding will be made later.

Process Manual Check

See Process Manual Payroll Check

Record Employee Liabilities

  1. Create a Journal Voucher in the Financial Module for the Employee liabilities.
    1. Debit the GL Liability account for each of the following for the employee amounts withheld (do not do anything for the employer amount).  If uncertain of the accounts, look in the Deduction/Benefit Master>> General Ledger Account Information>>Employee Segment>>Account to Credit.
      1. Social Security liability
      2. Medicare liability
      3. UC liability
      4. Federal Liability
    2. Credit the Holding GL Account
  2. This should leave the Holding GL Account at zero change, since you debited for gross and then credited it all out from deductions and this journal voucher.
  3. The only expense you incur is the employer portion of Social Security and Medicare and the W2 shows the payment and withholdings.

941 Adjustments 

  1. When creating 941 reports for the quarter, the amount withheld for Federal, Social Security and Medicare by the third party payer should be entered as a negative Sick Pay Adjustment.
  2. If using the Horizon 941 Process:
    1. In the View/Edit 941 Information>>Adjustment tab
    2. Enter the dollar amount withheld for Federal, Social Security and Medicare by the third party payer as a negative amount in the Sick Pay Adjustment field.  
    3. Do not include the employer paid Social Security and Medicare amounts.
  3. If completing the form manually:
    1. Line 8 - Current Quarter's Adjustment for Sick Pay:  Enter the dollar amount withheld for Federal, Social Security and Medicare by the third party payer as a negative amount on line 8 Current Quarter's Adjustment for Sick Pay.  Do not include the employer paid Social Security and Medicare amounts.
    2. These adjustments will lower line 10 - Total Taxes After Adjustments to the correct amount payable by your company.

12/2023

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