Supplemental Payments

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After clicking Pay > Make a payment, you'll see a list of pay types that includes each of the different types of supplemental payments: bonuses, commissions, retroactive pay, severance pay, taxable moving expense, and other supplemental payments.

Once you know the pay type to schedule, you’ll be able to continue creating the payment.

Bonuses & Commissions

When scheduling a bonus or commission, start by choosing whether to manually enter payment information or upload it via CSV. If you're entering it manually, you'll enter the pay date and employee amounts together in a single step.

Bonuses can also be paid out via physical check, but commissions must be paid via direct deposit. You may use the physical check option when you need to make a payment outside of the platform, such as when you give employees gift cards, physical checks, or cash.

Next, you'll enter the applicable period of work done. Here, the applicable pay period is the period in which the bonus was earned. Keep in mind that the start & end dates here won’t change how the payment is taxed, but these are required fields as they will be present on company invoices and your employees’ paystubs once they receive the payment. For non-exempt employees, these fields will be used to calculate any additional overtime owed. Read more about overtime on incentive pay.

For bonuses, you'll also specify whether the payment is discretionary or non-discretionary in this same step. Read more about non-discretionary bonuses here. You'll also choose whether the amounts you enter are gross or net payments.

You'll also select a flat or cumulative federal tax withholding rate in this step.

Flat 22% Rate of Withholding for Supplemental Pay

If supplemental pay is included with an employee’s regular wages and the amount of the supplemental and regular wages are not specified, the two types of wages will be treated as a regular payroll payment and withholding will be calculated as such.

If the bonus or commission is identified or paid separately from regular wages, a flat 22% rate will be withheld from the employee’s supplemental pay, regardless of what the employee filled out on the Form W-4. Depending on a number of factors, the employee may be required to pay additional taxes on the supplemental pay at the end of the year. State and local taxes will also be applied in addition to the flat 22% for federal tax rate.

If, however, the amount of supplemental wages paid to an employee in a taxable year exceeds $1 million, then all supplemental wages that exceed $1 million will be subject to a withholding rate of 37%.

Withholding on the Basis of Cumulative Wages

Withholding on the basis of an employee’s cumulative wages requires an employee’s written request and the employee retains the right to revoke their request, which also must be done in writing. Employers are not required to agree to withhold on the basis of an employee’s cumulative wages.

The cumulative wage method calculates how much should be withheld on a given payroll payment based on the amount the employee has been paid during the year and how much has already been withheld. When choosing a bonus/commission payment frequency, you have two choices: monthly and quarterly. You should choose the most appropriate frequency to ensure accurate withholding amounts. There are a few circumstances when you may want to consider using the flat 22% withholding rate instead of the cumulative rate:

1. If the employee receives more than one supplemental payment per year (commission or bonuses), but the amounts vary greatly;
2. If a company makes quarterly supplemental payments at the beginning of a quarter;
3. If a company makes monthly supplemental payments at the beginning of a month;
4. If the employee is receiving both a monthly and a quarterly supplemental payment in the same month;
5. If this is the company's first calendar year on the platform, and their first payday on Justworks was not in January;
6. If a new hire or current employee is receiving their first supplemental payment partway through the year.

Should any of these situations apply, the cumulative tax method may result in higher or lower withholding than expected. While this would be accounted for in any future supplemental payments, you may want to consider using the flat 22% in these situations. If you are unsure if a situation applies, the flat 22% will withhold a more predictable amount from supplemental payments.

With the cumulative wage method, all of the wages that have been paid to the employee during the current calendar year, including the current payroll period, are added together. This would be the “total gross wages.” Next, the Total gross wages should be divided by the number of pay periods that occurred to get the “average gross wages.” The number of pay periods depends on the payment frequency selected when the cumulative payment is scheduled. For the monthly cumulative rate, the number of periods is the number of months, including the current month. For the quarterly cumulative rate, the number of pay periods is the number of quarters that have occurred, including the current quarter. Keep in mind that the number of pay periods in this calculation is not the same as the number of payroll periods that have occurred in Justworks.

Once you get the “average gross wages,” we then calculate how much should have been withheld during that period using the appropriate the monthly or quarterly IRS wage bracket tables. We then multiply that by the number of pay periods that have occurred. Lastly, you would subtract the total amount of taxes that have already been withheld from the total amount that should have been withheld. The difference will be the amount that needs to be withheld on the supplemental payment.

For example, an employee regularly earns $2,000 on a semi-monthly basis with a current bonus of $5,000, scheduled with the monthly cumulative frequency. It is the 17^th of October, which makes this is the 10th monthly pay period of the year. $14,000 has already been withheld from the employee’s wages. Including prior commission payments, the employee has already received $83,000 this year.

APPLYING BENEFITS DEDUCTIONS

Choosing 'Make All Deductions' will apply any and all insurance deductions, such as Medical, Dental, and/or Vision premiums, as well as deductions for other perks such as 401(k), unless the payment is scheduled to deposit the same day as regular payroll. Please note that Medical, Dental, and Vision deductions will not be applied to supplemental payments if they are scheduled to deposit on the same day as regular payroll.

If you are using our integrated 401(k) provider, 401(k) deferrals will be taken out if the recipient of the supplemental payment has an active deferral set up. If your employee would like to change the amount deducted here, they can set up a separate deferral amount that will apply to only supplemental payments. To do this they should log into their Justworks account and select "Retirement Planning" under the Benefits tab. From there, they should go to "See details" and click "Edit" on the bonus and commissions box. Any changes made to bonus and commission payments will be processed within 24 hours.

If you are working with an external 401(k) provider you will also have the option of making only 401(k) deductions when scheduling a supplemental payment. The employee must have a separate deferral amount set up for off-cycle payments in order for deductions to occur. Please note that this setting will only apply deductions for 401(k) plans and will exclude all other types of retirement plans.

Those with external 401(k) providers will also have the option of not applying any benefit deductions.

You can also add a note that will be visible to the employee when they receive the payment.

You’ll also select the payees on this page. You can sort by department, office, member type, and employee name. You’ll also see a helpful summary of all the payments and amounts you’ve entered on the right-hand side.

Once you’ve entered all the payment information, click "Continue" to a final review.

After submitting these payments, you’ll see information about when you can edit the payment until, when your company’s bank account will be debited, and a reminder about when the employees will receive their payment.

Other Supplemental Pay Types

Retroactive Pay

Admins should use the retroactive pay type when needing to schedule pay to a worksite employee back wages attributable to pay periods during which the employee was on Justworks' platform.

This payment type should not be used to pay employees for any time worked prior to their Justworks start date, or prior to the company's premiere date. You will, though, need to enter an applicable work period when scheduling this payment type.

Severance

Severance payment is payment that is paid to separated employees. It’s taxed as a supplemental payment, which means that the 22% federal withholding rate, as the cumulative rate is no longer an option due to the recipient’s separation from employment.

Additionally, please keep in mind that severance payment should not be scheduled to employees who were no longer with your company when you joined Justworks. If you need to schedule severance payment to an employee while in the process of joining Justworks, you can schedule the payment via your current PEO, payroll provider, or with assistance of your CPA.  

Taxable Moving Expense

Admins can schedule taxable moving expenses for relocation expenses that are fully taxable as earnings. These payments are often scheduled for employees who relocate to join your company.

Taxable moving expenses are also taxed at the supplemental rate, with a 22% flat federal withholding rate.

Tips

Admins should use tips to schedule or record tip payments to employees. Tips will be taxed as regular income, similar to off-cycle salary payments.

When scheduling a direct deposit payment of cash or credit card tips, the admin must enter the gross tip amount. Justworks will calculate taxes on that gross tip amount and remit the net amount to the employee. The employer will be invoiced for the gross tip plus employer taxes.

When recording cash or credit card tip payments for physical distribution, the admin must enter the amount that has been paid to or reported by the employee. Justworks will gross up that tip by calculating the appropriate employer and employee taxes. The employer will then be invoiced for both employer and employee’s tax liabilities.

Other Supplemental Pay Types

If you didn’t see the supplemental pay type you need, use this to pay an employee supplemental pay. This is pay that’s in addition to your employee’s regular salary or wages.

Disclaimer

This material has been prepared for informational purposes only, and is not intended to provide, and should not be relied on for, legal or tax advice. If you have any legal or tax questions regarding this content or related issues, then you should consult with your professional legal or tax advisor.