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Uncle Sam wants you—to pay military staff properly

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in Office Management,Payroll Management

Employees who are members of the National Guard or Reserves are heroes. They usually serve their two weeks during the summer. Others may be away longer or may be called away suddenly to handle emergencies. Here’s what you need to do to ensure they are paid properly while they are serving the country.

  • Ask military-connected employees about their anticipated 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 from the value of time donated to them by co-workers.
  • Notify the state child support disbursement unit if child support withholding decreases because employees skip a pay period.
  • 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 on longer deployments. 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. 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. Idea: Allow them to prepay.
  • For longer periods of military leave, reservists and their dependents can 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 includes all time spent on military leave. Example: If vacation increases from two to three weeks after five years, military service counts when determining when that threshold is met.
  • Employers’ pension contributions continue during employees’ absence; employees must be allowed to make up contributions when they return to work. Employees called to military duty for a period exceeding 30 days may receive distributions of their 401(k) pretax amounts.

A step-by-step payroll compliance guide to each pay period, month and calendar quarter of the year is now available. Download it free here.

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