Set up and process third‑party sick pay

Sage HRMS supports third‑party sick pay through a non‑cash benefit earning when the third party doesn't provide a W-2. Proper setup ensures accurate tax handling and correct reporting on payroll reports and Form 941.

Set up the non‑cash benefit earning

1. Go to Setup, Payroll, Earnings/Deduction Codes.
2. Click Add.

Basic Info tab

• Category: Benefit
• Type: Noncash
• Employer Calculation Method: Flat
• Frequency: Use employee frequency or select Float

Employer tab

• W‑2 Reporting: Sick Pay Not Includible as Income (Third‑Party Sick Pay)
• Select the applicable taxes subject to the earning

GL tab

• Configure the General Ledger accounts for the benefit

Assign the earning to employees

1. Go to Employees, View/Edit Employee.
2. Select the employee.
3. Select Payroll, Employee Payroll.
4. Go to the Pay tab.
5. Press Insert, select the earning code, and save.

Enter third‑party sick pay

You can enter the earning using:

• Timecard entries: The system calculates taxes automatically
• Transaction History: Used for manual entry or adjustments

Tax handling guidance

• Typically, don’t include US Federal Income Tax
• Apply USMED and USSS tax codes

Enter the required payroll values

When entering the transaction, complete these fields:

• Employee Extended Amount: The amount paid by the third‑party provider on behalf of the employee.
• Employer Extended Amount: Record the same amount for employer reporting.

Handle wage base fields

These fields affect tax reporting accuracy:

• USMED (Medicare): Enter the amount in the No Ceiling Wage field.
• USSS (Social Security): Enter the amount in the Ceiling Wage field.

Values depend on the applicable wage limits for each tax.

Verify tax reporting

Accurate setup ensures correct reporting on payroll forms:

• Third‑party sick pay impacts Form 941
• The system can show fractional values in the third‑party sick pay column

Adjust Form 941

• Use Line 8 to adjust fractional values
• Enter the employer portion of the taxes on Line 8

Important notes

• Accurate tax setup is critical for compliance
• Always verify entries with payroll reports
• Confirm values before quarter‑end filing
• Run payroll reports to validate totals after entry