18 February 2020 Texas employers can now establish a common paymaster for state unemployment insurance purposes Legislation enacted in mid-2019 (SB 2296) and effective January 1, 2020, amends Texas state unemployment insurance (SUI) law to include in the definition of "employing unit" the term "common paymaster." The Texas Workforce Commission (TWC) continues to prohibit the practice known as "payrolling" in which an entity that is not a licensed professional employer organization (PEO) attempts to avoid or reduce its SUI tax obligations by assigning its employees to an outside nonrelated entity for which the employees do not perform services. As a result of conforming to the federal definition of common paymaster in IRC Section 3306(p), Texas will allow related companies to establish or designate one entity (the common paymaster) from among the related employer group to pay and report the combined wages of employees who work concurrently for the common paymaster and one or more other of the related companies within the group's members. The TWC adopts new Section 815.117, to implement the requirements of SB 2296 by providing clear guidelines for employers and the TWC regarding the circumstances in which an employer may designate a common paymaster for SUI reporting purposes. Under FUTA, "if two or more related corporations concurrently employ the same individual and compensate such individual through a common paymaster which is one of such corporations, each such corporation shall be considered to have paid as remuneration to such individual only the amounts actually disbursed by it to such individual and shall not be considered to have paid as remuneration to such individual amounts actually disbursed to such individual by another of such corporations." Under Section 201.011(11)(B), related corporations utilizing a common paymaster must still adhere to the requirements of TUCA Chapter 204, Subchapter E, regarding acquisitions and transfers of experience. According to the TWC, the new rule defines certain terms and sets parameters for eligible related corporations that have established an allowable common paymaster arrangement. The new rule section addresses definitions for common paymaster, what constitute related corporations, and concurrent employment. The new rule also sets application procedures that the related companies must submit before putting the common paymaster relationship in place, the TWC method of allocating taxes, examples of common paymaster situations, and how this new tax arrangement will affect SUI benefit claims. The TWC stresses that, under a common paymaster arrangement, an employee must actually perform services concurrently for the common paymaster and each of the related corporations employing the individual for the common paymaster to take advantage of this wage reporting method. The TWC also clarifies that a common paymaster structure is in no way similar to a PEO relationship because there is no co-employment relationship and an employee must actually perform services for the common paymaster. For a group of related corporations to utilize the common paymaster arrangement, the entity chosen as the common paymaster cannot be a purely administrative entity without employees. "Payrolling" is still not allowable under a common paymaster arrangement. The TWC has not yet released to its website an application form to establish a common paymaster arrangement. Presumably, once released, the form will be available here on the TWC website. For more information, call the TWC at +1 512 463 2731 or send an email to tax.statussection@twc.state.tx.us. The fourth quarter 2019 issue of Texas Business Today (page 19) also suggests calling the Employer Commissioner's office for more information at +1 800 832 9394. According to the TWC, an additional purpose of the new rule section is to closely align with FUTA, and its corresponding regulations, so that employers utilizing a common paymaster at the federal level can easily match the same standards at the state level. The TWC notes that for administrative purposes under the newly adopted rules, a group of related corporations meeting all requirements may only designate a single common paymaster.
Document ID: 2020-0397 | |||||||||
