California Code of Regulations › Title 22 - Social Security › Division 1 - Employment Development Department › Subdivision 1 - Director of Employment Development › Division 1 - Unemployment and Disability Compensation › Part 1 - Unemployment Compensation › Chapter 4 - CONTRIBUTIONS AND REPORTS › Article 2 - "WAGES" THE BASIS OF THE CONTRIBUTION › Section 931.5-1 - Third Party Sick Pay

Current through Register 2024 Notice Reg. No. 28, July 12, 2024
(a)
						  Wages. Wages include payments made for sickness or accident disability pursuant
						  to Section
						  931(a) of the
						  code, unless the payment is made under a worker's compensation law or after the
						  period specified in Section
						  933 of the code. Payments for
						  sickness or accident disability made by a third party are considered wages for
						  purposes of unemployment insurance and the employment training fund and are not
						  wages for disability insurance purposes. Payments for sickness or accident
						  disability made by a third party are not subject to California personal income
						  tax withholding unless a request has been filed pursuant to Section
						  13028.6 of the code.
(b) Reporting Requirements. A third party
						  payer who makes sick pay payments shall be treated as the employer unless the
						  third party payer complies with the notification requirements of Section
						  931.5 of the code. If the third
						  party payer does not meet the notification requirements of Section
						  931.5 of the code, then the third
						  party payer must comply with the reporting requirements of subdivision (a) of
						  Section 1088 of the code and must pay any
						  contributions which are due for unemployment insurance and the employment
						  training fund. See Section
						  13050(d) of the
						  code for reporting requirements pursuant to Division 6 of the code.
(c) Third Party Payer. For purposes of this
						  section a third party payer is the party who makes payments on account of
						  sickness or accident disability and who is not the party for whom the employee
						  performed services. The payments must be made on account of employment, as
						  defined in Section
						  601 of the code, and must result
						  from funding by an employer which was not includible in the gross income of the
						  employee; therefore, payments made through funding by an employee for sickness
						  and disability are excluded under this section. Contributions paid by an
						  employee to fund the State disability insurance program pursuant to Part 2 of
						  Division 1 of the code are a contribution by the employee, and therefore the
						  benefits do not constitute third party sick pay. See subdivision (d) of this
						  regulation for situations involving payments made partially by the employer and
						  partially by the employee.
A party making a payment on account of sickness or
							 accident disability as an agent of the employer or making such payment directly
							 to the employer, is not a third party payer and will not be treated as the
							 employer under subdivision (a). The determining factor, in distinguishing
							 between a third party payer and an agent for this purpose, is whether the payer
							 bears any risk. If the payer bears no insurance risk and is reimbursed on a
							 cost plus fee basis, the payer is not a third party even if the payer is
							 responsible for making determinations of the eligibility of individual
							 employees of the employer. Without insurance risk the third party is making
							 payments with the employer's money, and therefore the employer must report the
							 sick pay as wages. If the payer is paid an insurance premium and is not
							 reimbursed on a cost plus fee basis, the payer is a third party payer, but may
							 be treated as the employer in accordance with subdivision (b).
The application of the provisions of this paragraph
							 may be illustrated by the following examples:
EXAMPLE 1. Pursuant to an agreement with Company U,
							 Insurance Company V makes payments on account of sickness or accident
							 disability to U's employees. Such payments are not made under a workers'
							 compensation law. U reimburses V for all such payments and pays V a fee for its
							 expenses of administering the payments. V is an agent of the employer and is
							 not a third party payer.
EXAMPLE 2. Pursuant to an agreement with Company W,
							 Insurance Company X indemnifies W for the amount of any payments which W must
							 make to an employee on account of sickness or accident disability. Such
							 payments are not made under a workers' compensation law. X makes its indemnity
							 payments directly to W. W makes the payments to its employees. X is not a third
							 party payer.
EXAMPLE 3. Pursuant to an agreement with Company Y,
							 Insurance Company Z makes payments on account of sickness or accident
							 disability to Y's employees. Such payments are not made under a workers'
							 compensation law. Z does not notify Y of the amount of such payments within the
							 time required by law. Z is treated as the employer with respect to such
							 payments.
(d) Determination
						  of taxable wages. In those cases where the employer and the employee each pay a
						  portion of the premiums or payments to a plan, the amount attributable to the
						  employer is taxable wages and shall be determined in accordance with the
						  following:
(1) Individual policies. If the
						  sick pay coverage is provided under an individual policy of accident or health
						  insurance purchased by premiums paid partly by the employer and partly by the
						  employee, the portion of the benefit amount received which is attributable to
						  the employer's pro rata share of the premiums for the current policy year
						  represents taxable wages. This rule may be illustrated by the following
						  example:
EXAMPLE. Employer A maintains a plan whereby he pays
							 two-thirds of the annual premium cost on individual policies of sickness and
							 accident disability insurance for his employee. The remainder of each
							 employee's premium is paid by a payroll deduction from the wages of the
							 employee. The annual premium for employee H is $240, of which $160 is paid by
							 the employer. Thus, $160/$240 or two-thirds of all amounts received by H under
							 such insurance policy are attributable to the premiums paid by the
							 employer.
(2) Group
						  Policies. If the sick pay coverage is provided under or is a part of a group
						  insurance policy purchased with premiums paid by the employer and the
						  employees, that portion of the benefit amount received by an employee which is
						  attributable to employer's pro rata share of the net premiums for the last
						  three policy years which are known at the beginning of the calendar year
						  represents taxable wages. Net premiums are the total premiums less retroactive
						  premium adjustments, such as dividends and credits. If the net premiums for
						  coverage for a period of at least three policy years are not known at the
						  beginning of the calendar year but are known for at least one policy year, the
						  determination of taxable wages shall be made by using the net premiums which
						  are known at the beginning of the calendar year. If the net premiums for
						  coverage are not known at the beginning of the calendar year for even one
						  policy year, the determination of taxable wages shall be made by using a
						  reasonable estimate of the net premiums for the first policy year. These rules
						  may be illustrated by the following examples:
EXAMPLE 1. Company X purchased a package of group
							 insurance benefits from an insurance company. The company pays $60 per month
							 per employee and each employee pays $30 per month for the coverage. The company
							 designated its payment of $60 per month as applying to the cost of long-term
							 disability insurance (payable after the employee is off work more than 6
							 months), life insurance, and medical insurance, all of which are included in
							 the coverage. The $30 paid by the employee is designated as a premium for
							 short-term sickness and disability insurance also included in the coverage.
							 Employee B is off sick and receives sick pay of $75 per week for two weeks. The
							 benefit is fully attributable to B's own payments and does not constitute
							 wages.
EXAMPLE 2. Employee C received sick pay of $1,200
							 from an insurance company. The net premiums for the prior policy year were not
							 known at the beginning of the calendar year because certain retroactive premium
							 adjustments and credits are not determinable until after January 1. During the
							 prior three policy years the net premiums were $5,000 the first year, of which
							 the employer contributed $3,500; $6,500 the second year, of which the employer
							 contributed $4,000; and $3,500 the third year, of which the employer
							 contributed $2,500. C received taxable wages of $800 which was determined by
							 using the ratio of $10,000 ($3,500 plus $4,000 plus $2,500) to $15,000 ($5,000
							 plus $6,500 plus $3,500). Thus, $10,000/$15,000 or two-thirds of the benefit
							 received ($1,200) = $800.
(3) Noninsured plans. If the sick pay
						  benefits are paid from a noninsured plan (such as a trust providing incidental
						  sick and accident disability benefits or an association funded to pay sickness
						  and accident disability benefits to which both the employer and employee
						  contribute) the portion of the amounts received which are attributable to
						  employer payments shall be determined in accordance with the rules contained in
						  paragraph (2) of this subdivision.