Third Party Sick Pay

Overview of third-party sick pay.

OVERVIEW

Third party sick pay refers to benefit payments from an insurance company that provide funds to employees in place of lost wages caused by an illness or non-work related injury. You may receive third party sick pay notices throughout the year from third party administrators, or receive a summary sheet at year-end that lists all sick and disability payments made to your employees throughout the year, if you have employees out on disability. 

Payments received by the disability carrier are subject to employee FICA and must be reflected on an employee's W-2. In order to determine how Namely will handle the sick pay notice, a questionnaire must be requested from our Service team and completed. In some instances, your provider will handle W-2s and tax remittance, and in other instances, it will be handled by Namely. 

HOW TO UPDATE THIRD PARTY SICK PAY

There are two ways that Namely can accommodate third party sick pay updates to employee and employer records: 

  1. You can process third party sick pay via manual payroll cycles throughout the year. There are 3 different Pay Types that you can use for entering third party sick pay:

    • The Disability Payment pay type code, the system will know to collect and debit you for employer FICA, but will not collect for employee taxes. These payments will not result in a direct deposit to the employee either, because the employee has already been paid by the carrier. The wages and taxes will be included on the employee's W-2 and all necessary quarterly tax filings.

    • The Disability Payment (No W2) pay type code if wages and taxes should only appear on the quarterly Form 941. This will allow Namely to collect and remit the employer portion of FICA but will not include the wages and taxes on the employee's W-2 as the disability provider is producing one.

    • The Disability Payment-Fed pay type code if the employee has elected to have Federal Tax withheld to view the wages and taxes on both the employee's W-2 and the quarterly Form 941. This pay type functions the same as the Disability Payment code but allows you to enter a Federal Income Tax amount. Please note this code should only be used when the provider is collecting and remitting the Federal Income Tax. If you need Namely to collect and remit taxes, submit a case to have Namely enter the third party sick pay on your behalf.

Tip:

If you want to assume ownership of payment processing, you'll be responsible for entering the payment, reviewing it for accuracy, and approving the manual payroll cycles as needed.

We recommended you enter 3PSP as a separate Manual Cycle for easy tracking. While you can enter 3PSP with your Standard Cycle, please ensure you are issuing it as a separate check. This would include any Non Taxable 3PSP wages that need to be reported in Box 12 Code J of the W2. 

  1. You can elect to have Namely enter Third Party Sick Pay quarterly. It will be your responsibility to review and approve the Manual Payroll cycle once it is entered by Namely.

    • In this instance, Namely will receive sick pay notices from you and complete the required adjustments.

 

TIMING AND DEADLINES

Payments must be processed immediately to ensure they are entered in time for updates to W-2s and quarterly tax filings. We recommend processing your manual pay cycles or sending notices to Namely as soon as you receive them. Payments should be processed before your last standard payroll of the year whenever possible. Requests should be submitted by January 17, 2023 to ensure Third Party Sick payments are included on your employee's W-2.

 If you are unable to process a payment in advance of your final payroll of the year, please reach submit a case in the Help Community for support. Additional fees for amendments may occur if we receive the payments after the deadline.  

CASE SUBMISSION INSTRUCTIONS

If you elect to have Namely enter Third Party sick Pay quarterly, submit a case in the Help Community.

  • Product Name: Payroll

  • Product Feature: Payroll Processing

  • Product Function: Third Party Sick Pay