Expert: Shirley McAllister, CPP, PHR - 8/9/2010

Question
I have a potential new client that has been considering using a common paymaster (two corp's). I have little experience in this area. If one corp is the common paymaster, how does each corp show payroll expense? Does non paying corp reimburse the other in some fashion? Does paying corp allocate payroll expense to non paying corp? Not sure as to practical application issues. THANKS!

Answer
"Common Paymaster" is used when two or more related corporations concurrently employ one or more employees and pay them through one of the corporations as a "Common Paymaster".  The total social security and Medicare taxes that must be paid are determined as if the employee had one employer the "Common Paymaster" paying all their wages.

Note: Use of the common paymaster option does not apply to  Federal, State or Local withholding of taxes. It is only used for Fica and Medicare.

To be considered a related corporation the following must all be true:

1) must be a part of a "controlled group of corporations" which generally means one of the corporations owns at least 50% of the stock of the other corporations or the same 5 stock holders own at least 50% of the stock of each corporation.

2) If a Corporation does not issue stock, either 50% or more of the members of one Corporation's board of directors are on the other corporations board of directors or hold 50% or more of the voting power with respect to the other corporation.

3) At least 50% of a corporations officers are concurrently officers of the other corporation; or
at least 30% of one corporation's employees are concurrently employed by the other corporation.

The definition of Common Paymaster: The Common paymaster is a member of a group of related corporations that pays wages to employees working for two or more of the corporations at the same time. It is responsible for all payroll records, as well as withholding, depositing, and reporting for the employees it pays. The Common paymaster may pay the employees by cash or with one check or with separate checks drawn on each employer's account(no other pay method may be used). Compensation in the form of property provided by the related corporations to an employee must be separately taxes by each corporation.

The Common Paymaster is not the same as the Common pay agent.

The employer share of the Fica and Medicare taxes is paid by the common paymaster. Each corporation is liable for it's portion of the taxes and must be paid to the Common Paymaster.

This also works for the Futa tax as well and some state unemployment tax will allow common paymaster.

Federal , State and Local Withholding taxes are paid by each individual corporation.

Shirley