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What is Payroll Data Aggregation?
Points North • Jun 17, 2019
Employers often have to face complex issues regarding employee withholding taxes. This gets even more challenging when employees on their payroll, earn a mix of regular and non- standard income.
The non-standard income is known as supplemental wages and there are very strict rules regarding if the employer or the head of payroll can combine both types of withholding into an aggregate amount. This aggregate amount is then used for calculating
the final withholding tax owed by the contractor or the employer.
Payroll Data Basics
The Internal Revenue Service (IRS) categorizes employee wages as regular wages and supplemental wages. Regular wages are any amount paid through standard methods like hourly income or monthly salary. Every other kind of payment falls in the category of supplemental wages. It can be in the form of lump-sum, commissions, or advances.
Special payments covering vacations and illness are also categorized as supplemental wages. For this type of withholding, they can either opt for the aggregate method or a flat rate of 25%. In the aggregate method, the employers can pay taxes on both supplemental and regular wages at the rate specified for the regular wages.
Payroll Data Calculations
For calculating the withholding via the aggregate withholding method, the employer or the head of payroll needs to aggregate the payroll data. Then the tax rate for regular wages is used to calculate the total amount of withholding tax. The rate being used for this calculation is specified by the employee’s W-4.
The head of payroll or the employer then subtracts any tax amount which was previously deducted as withholding from the regular wages. And the rest is subtracted from the supplemental wages.
Payroll Data Required Use
Sometimes it becomes necessary that employers use the aggregate method rather than the flat-rate method. This happens if the employer failed to deduct withholding tax from the employee’s regular wages in the last fiscal year. It also becomes necessary if the payroll department of the company doesn’t separate the supplemental and regular payments.
The utilization of the aggregate method also depends on whether the employee received the regular wages and supplemental wages as separate payments or they received them together.
Common Scenarios
The IRS has specified 9 common scenarios for reducing confusion and helping employers regarding the calculation of their withholding taxes in an easy and accurate way. If the employee receives only semimonthly advances against future commissions, monthly commissions, or irregular commissions exceeding $1000 then the head of payroll must use the aggregate method. And if the supplemental wages were given in the form of severance pay, termination payoff, signing bonuses, lump-sum, sick pay, or vacation pay then the employer and the head of payroll is free to choose between the flat-rate method and the aggregate method.
Payroll Data Aggregation can be a very challenging task especially if you have multiple payroll systems and locations. If you are facing problems regarding this and need professional help then you should contact Who’sWhere, a division of Points North. We specialize in providing innovative and smart solutions for ACA compliance, certified payroll compliance, and workforce reporting.
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Points North, established in 1994, is a nationally recognized software company located in Duluth, Minnesota. The Points North team has been dedicated to providing companies of all sizes with the best compliance, reporting, and data aggregation solutions. We focus on learning about the needs of your company and customizing our products specifically for your requirements. Our products include ACA Reporter, Certified Payroll Reporting, Who’s Where, Attendance Advisor, and EEO Reporter. Through our partnerships, software, and customer support we create an experience that is seamless and predictable.
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