Tax Information For Employers

SCESC Policies

Common Paymaster

When two or more related corporations concurrently employ the same individual, but compensate that individual through only one of the corporations, it is a "common paymaster relationship."

Concurrent employment is defined as the existence of an employment relationship between an employee and two or more related corporations.

The total amount of unemployment insurance contributions due is determined as though the individual has only one employer—the common paymaster. The common paymaster is responsible for filing tax returns and issuing W-2s. However, if the employee is compensated by all of the related corporations, then each corporation is liable for unemployment insurance contributions.

South Carolina recognizes a common paymaster when all of the following conditions exist:

• All corporations involved in a common paymaster relationship must be related. That is, they must have some form of common ownership such as parent-subsidiary or connected through stock ownership, board members, corporate officers or employees.

• The corporation designated as the common paymaster must be an existing corporation and not newly established for that purpose.

• Any individual receiving wages through a common paymaster must be performing concurrent employment for two or more related corporations, one of which is designated a common paymaster.
   
• Pursuant to Treasury Regulation Section 307-7701-2, Parent-Subsidiary Legal Entities and Disregarded Entities can not report their employee wages through a common paymaster.

When Wages are Considered as "Paid":

The agency’s policy outlining when wages are considered as paid for tax reporting purposes is outlined below. This policy only applies to the reporting of wages for UI Tax purposes and should not be confused with the reporting of earnings of a claimant during a week that a claim is filed.

There are two methods an employer can use when reporting wages:

• Constructive Receipt
• Constructive Payment

It is important to note, however, that an employer must be consistent in the use of either of these methods for all members of a class or classes for Unemployment Insurance Wage Reporting purposes.

• Constructive Receipt:

This is where an employer, by his policy, historically pays employees on an established "pay day" and the reporting period is determined by the quarter in which the "pay day" occurs. This is determined to be the day the wage earner derives an absolute right to the wages. "Constructive Receipt" occurs on the established "pay day."

• Constructive Payment:

This is where an employer, by his policy, historically pays employees and reports earnings by using the "check date." The employer, for accounting purposes, uses the date of the pay check for determining the reporting period or quarters. "Constructive Payment" occurs on the established "check date."

Employee Leasing:

Employee leasing is a business service under which a company transfers some or all of its employees to an employee leasing company. The transferring employer (or client) then leases the employees back from the leasing company for a fee.

After entering into a contractual agreement, the leasing company sometimes assumes that it has become the employer of the individuals who are leased back to its client. Unfortunately, this position is in conflict with the rules and regulations of the Employment Security Commission as there is no provision that allows a leasing company to report the wages of client companies.

The Employment Security Commission’s position is based on the old English common law definition of master-servant. That definition provides that the employer is the one for whom the services are performed and has the right to direct and control the individual performing the services.

Our position, which has been upheld by the courts, is that the client company is the employer because the services are being performed for them and they retain the right to direct and control the individual performing the services.

Sub-Chapter S Corporation:

An S Corporation is a legal entity (corporation) that has elected, by unanimous consent of its shareholders, not to pay any corporate tax on its income (except certain passive investment income and, under certain conditions, built-in capital gains).

Items of income, loss, deduction and credit are passed through the S Corporation to the shareholder on a pro rata basis. The items are then reported on the shareholder’s tax return in the shareholder’s tax year that ends with the corporation’s tax year, or the shareholder’s tax year that includes the end of the corporation’s tax year. Therefore, a corporation qualifying for S Corporation status is treated similar to a partnership for income tax purposes.

Salaries to Officers:

An active officer is one who is performing services for the S Corporation. Active officers may also be the principal shareholders in the corporation. They are to be counted as employees of the corporation in meeting liability requirements in the same manner as regular corporations.

An S Corporation may or may not pay salaries to participating (active) officers.

Pursuant to Sections 41-27-230 and 41-27-380 of the SCES Law, such services constitute employment any salaries or distributions of profit should be considered as "remuneration paid for personal services," thus falling within the definition of wages.