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How to handle pay for Guard and Reserve members

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If you have employees away on extended military deployments or who will train for two weeks this summer as members of the National Guard or Reserve, you face tricky pay problems. Here’s what Payroll needs to know.

√  Ask employees about their periods of their military leave.

 For military leave beginning midweek, offset military pay against exempts’ salaries; nonexempts need no offset, since they need not be paid if they don’t work.

  Employees may use vacation time for military leave. Withhold taxes from vacation pay and the value of time donated by co-workers.

  Watch child-support withholding; em­­ployees’ disposable pay may decrease when they’re gone, or they may skip a pay period entirely. Notify the appropriate state office.

 Withhold income and FICA taxes from military differential payments made to employees who are absent for up to 30 days. Withhold only income taxes from differential pay paid to employees who are serving for longer periods. You may treat the pay as supplemental wages.

  If your cafeteria plan allows, employees who are away for at least 180 days (or indefinitely) may take qualified reservist distributions from their health flexible spending accounts. Such distributions are fully taxable.

 Nonseniority benefits (e.g., health benefits) provided to employees must match benefits provided to employees on nonmilitary leave. If leave is for 31 or fewer days, you can’t charge reservists more than the regular amount.

 For longer periods of military leave, the law allows reservists and their dependents to elect COBRA-like benefits (i.e., benefits for 24 months at 102% of the premium). Warning: This applies to all employers, including small employers that aren’t covered under COBRA. For COBRA-covered employers, COBRA also applies.

  The accrual rate for seniority-based benefits, such as vacation, includes all time spent on military leave.

  Employers’ pension contributions continue during employees’ absence. Employees must be allowed to make up contributions when they return to work.

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