A Presidential Memorandum issued August 8th directed the Secretary of the Treasury to use his authority to defer the withholding, deposit, and payment of the employee’s share of Social Security tax for employees generally earning less than $4,000 in gross wages during any bi-weekly pay period.
This raises a host of questions for employers, namely, who makes the call? And what about employees with fluctuating compensation, for example, someone who makes less that $4,000 in bi-weekly gross wages except if he’s worked a ton of overtime during the period? And is this really a gift? Or, instead, is it a mere holiday?
We’ve got the answers in this post.
Who Makes The Call? This is the number 1 question we’ve received. And, unfortunately, the President’s Memorandum is less than clear. Nonetheless, the existing guidance seems to point to the employer as the party with the right to decide whether it will institute this program.
Is This a Gift? Well, that depends on who you’ve talked to. On the one hand, the program does allow for a holiday on the collection from employees’ paychecks of their contribution to Social Security funds, leading to arguably higher take-home pay for the remainder of 2020. However – and this is a huge however – this is just for a finite period of time, through the end of the calendar year. After that, the employees in question have to re-pay the funds. So come early 2021, they’ll see double the withholding, and take-home pay will be reduced.
But What Does It Mean? Practically speaking, this program means that for a period of about four months (September through December 2020), employers can stop withholding and paying over to the federal government Social Security funds from certain workers’ paychecks. BUT, starting in 2021, all those funds must be then withheld from the workers’ paychecks – meaning there will be double withholding of Social Security so that the employer can then pay the dollars over to the federal government.
What About the Workers With Fluctuating Pay? Well, this is an easy answer. In order to be eligible for this withhholding holiday, an employee must make less than $4,000 in gross pay during any bi-weekly pay cycle, so if she makes more – even for just one of those pay periods – she can’t participate for that pay period.
And What About Employees Who Quit Before The Funds Are Re-Paid? That’s a tough one for sure. If an employee departs during or at the end of the holiday, there is no easy payroll-implementable way to collect the Social Security funds that the employer is duty-bound to pay back to the federal government. Moreover, employers must be cognizant of New York State’s role. In New York, this isn’t just a federal law issue. The State imposes certain limitations and responsibilities on employers that wish to withhold any funds from employee paychecks, whether the employee remains with the company or whether it’s his last paycheck. These are thorny issues, best left to considered analysis by legal counsel.
So What Should An Employer Do? Well, that’s a business decision, which should be made in consultation with a company’s human resources, accounting, and legal advisors. This program plainly isn’t a panacea; rather it’s a delay of certain Social Security withholding and payment – and practically, it means employees who will see more take-home pay for the last quarter of 2020 will see less take-home pay in early 2021, when they’ve got to pay it back. The pay-back obligation remains squarely on the employer, unless Congress decides otherwise.
So if you’re an employer with questions about how to comply with the changing labor and employment landscape, call The Coppola Firm. We’re here to help.