Shave Payroll Costs for Shared Employees

20 Feb Shave Payroll Costs for Shared Employees

If you run your business operations through two or more corporations, the different entities may share some of the same employees. In that case, you can save payroll taxes by using a Common Paymaster.

Instead of having each business pay Social Security and Medicare tax for shared employees, common paymasters remit the appropriate amount of tax just once.

In other words, no more tax would be paid than would be the case with a single employer. The savings apply to employees who on a combined basis earn more than the Social Security tax wage ceiling, which for 2019 is $132,900 (up from $128,400 in 2018).

For example, let’s say you have two corporations equally sharing a business manager who earns $150,000 a year and collects two different $75,000 paychecks. If each company pays Social Security tax for the manager, each separate Social Security tax bill is $4,650 (6.2% of $75,000) for a total of $9,300.

However, if a common paymaster takes over in 2019 the total Social Security tax bill is limited to $8,240 ($132,900 times 6.2%).

Result: The corporations save $1,060 in Social Security tax ($8,240 versus $9,300).

You can only take advantage of this calculation when related corporations employ a worker “concurrently,” or at the same time. However, there are some restrictions on what constitutes a “related corporation.” Ask your tax advisor for more information in your situation.

IRS Definition

 
Concurrent employment is defined by the IRS as the “contemporaneous existence of an employment relationship between an individual worker and two or more corporations.”

The common paymaster option is only available to corporations. Sole proprietors and partnerships are not eligible.

Payroll Partners is committed to helping clients stay informed about payroll and human resource news, developments and current events. This article is intended to provide readers with general information on human resources matters. The article does not constitute, and should not be treated as professional advice regarding the use of any particular human resources practice. All efforts have been made to assure the accuracy of the information. Payroll Partners does not assume responsibility for any individual’s reliance upon the information provided in the article. Readers should independently verify all information before applying it to a particular fact situation, and should independently determine the impact of any particular human resources practice. If you are seeking human resources advice, you are encouraged to consult a human resources professional.