New York State Disability. DBL. Statutory Short-Term Disability. Whatever you call it, it is one of the many requirements of doing business in the state of New York. At a maximum of $170 per week the benefit may not be much but providing it to your employees is mandatory for anyone with employees in New York.
Depending on the size and health of your employee population, you may work your way through DBL forms and processes all the time, or it may be something you only think about on rare occasions. But whether you have one employee per year who receives a benefit or one hundred, there is one thing we cannot ignore: tax reporting!
Since your employees are receiving income, the government wants their share. And that really leads to three requirements.
The first is employee taxes. These are withheld from the benefit check, or the employee can pay them when they file taxes at the end of the year. Ultimately this requirement doesn’t fall to you as the employer.
The second is employer payroll taxes. Even though you aren’t the one paying your employee when they are out on disability, their income is related to and funded by your employment of them. That means you are responsible for the 7.65% taxes that go toward Social Security and Medicare.
The third requirement is reporting. While it would be great if Uncle Sam would take our word that we are paying the right amount of taxes, that is not where we are today. The amount of disability earnings and the taxes paid as a result need to be reported on a W-2.
Historically, most employers have relied on their insurance carrier to provide a Third-Party Sick Pay report that can be uploaded to payroll, so the employee’s W-2 shows the total income paid by both employer and insurance company.
Here’s where we run into problems: Since W-2’s have to go out by January 31st, payroll providers tend to want that report faster than insurance companies are able to provide it, leaving you stuck in the middle. Whether its time stuck on hold, vacations delayed, or extra fees charged, we have all had our share of issues in mid-January because of this time crunch.
But what if there was an easier way? In fact, there is. We have the ability to set up your DBL with what’s called Employer FICA Match and W-2 Services. What does that mean? The insurance company will pay your employer share of FICA for you, so you never have to worry about calculating or paying it. The insurance company will also prepare a W-2 for the 3rd party sick pay benefits. Employees who were disabled over the course of the year will receive a separate W-2 detailing their disability benefits.
So, what’s the catch? Well, there is a cost to this service. It’s important to note the insurance company will actually be paying out more in real dollars in this scenario—they will pay the 7.65% FICA taxes that you were paying before. Additionally, some carriers will build in a small fee for the additional administration.
Is it right for you? It’s important to look at your payroll provider, your current disability carrier, and other factors like whether you provider salary continuation or other supplemental disability benefits, but in many cases making a change like this can save you time and headaches for a reasonable cost.
If you would like to learn more about how it works and whether your company is a good candidate, reach out to us today!