Non-hourly earnings are flat dollar payments that are not tied to hours worked, such as bonuses, commissions, allowances, and reimbursements. In Arcoro Payroll, every non-hourly payment is assigned an earning type, and that earning type controls how the payment is taxed and whether it is included in the employee's net pay.
All of the earning types in this article are available in Arcoro Payroll by default. There is nothing to set up ahead of time. Simply select the right earning type when you add the payment to your payroll run.
Choosing the right earning type matters for three reasons:
- Accurate withholding. Some earnings are taxed as regular wages, some as supplemental wages, and some are not taxed at all.
- Correct pay stubs and W-2s. The earning type determines whether a payment is reported as wages.
- Clean accounting. Your General Ledger (GL) mappings rely on the earning type to post each payment to the right account.
Table of Contents
Earning Types and How They Are Taxed
Arcoro Payroll offers ten non-hourly earning types. Use the table below to see how each one is taxed and whether it is paid out in the employee's check.
| Earning type | How it is taxed | Included in net pay? |
|---|---|---|
| Bonus | Taxed as supplemental wages, which is different from regular earnings | Yes |
| Commission | Taxed as supplemental wages, which is different from regular earnings | Yes |
| Severance | A one-time sum paid at termination; taxed differently than regular earnings. This is not the same as final pay for hours worked. | Yes |
| Cash tips | Taxed normally | No, the employee already received these tips in cash |
| Paycheck tips | Taxed normally | Yes, these are tips the employee has not yet received |
| Group term life | Imputed cost of coverage over $50,000 is included in income and is subject to Social Security and Medicare taxes. See details below. | No, this is imputed income, not a cash payment |
| Other imputed | Taxed normally. Used for imputed income from sources other than group term life, such as use of a company car or a gym membership. | No, this is imputed income, not a cash payment |
| Non hourly regular | Taxed as regular earnings. Used for income not associated with hours, such as paid leave. | Yes |
| NQDC distribution | Taxed as supplemental wages, subject only to income taxes. See details below. | Yes |
| Reimbursement | Not taxed and not reported as wages or income | Yes, paid separately from regular income |
Group Term Life (GTL)
For most employees, the imputed cost of GTL coverage in excess of $50,000 must be included in income. You can calculate the total using the IRS Premium Table. GTL imputed income is subject to Social Security and Medicare taxes and is reported in Box 12 (code C) of the W-2.
For 2% shareholders, the full imputed cost of GTL must be reported as income. For these employees, GTL is reported in Box 14 of the W-2 instead of Box 12.
NQDC Distribution
An NQDC distribution is a payout from a Non-Qualified Deferred Compensation (NQDC) plan. Use it for distributions of amounts the employee previously deferred through the NQDC benefit.
NQDC distributions are treated as supplemental wages and are subject only to federal, state, and local income taxes, withheld at the supplemental rate. They are exempt from Social Security, Medicare, FUTA, and state unemployment, disability, and family leave taxes, because FICA and FUTA were already withheld when the compensation was deferred.
New Jersey and Pennsylvania (including Pennsylvania local) income taxes are also not withheld on distributions, because those jurisdictions tax NQDC at the time of deferral.
2% Shareholder Earning Types
Arcoro Payroll also offers two earning types for benefits paid on behalf of 2% shareholders. Both are taxed differently than regular earnings.
| Earning type | What it is used for | W-2 reporting |
|---|---|---|
| 2% Shareholder Benefits | Health and accident insurance premiums paid on behalf of a 2% shareholder | Box 14 |
| 2% Shareholder HSA | Company HSA contributions paid to a 2% shareholder | Box 14 |
Choosing the Right Earning Type
Start with one question: should this payment be taxed, and if so, as regular or supplemental wages? Your answer points to the earning type. Here are common examples from construction payroll:
| If you are paying... | Use this earning type |
|---|---|
| A taxable allowance (for example, a vehicle or tool allowance paid as taxable wages) | Non hourly regular |
| A non-taxed allowance or expense repayment (for example, a phone allowance your company treats as non-taxable) | Reimbursement |
| Paid leave not tracked as hours | Non hourly regular |
| A safety, performance, or year-end bonus | Bonus |
| A sales commission | Commission |
| A lump-sum payment when an employee separates from the company | Severance |
Not sure whether an allowance should be taxed? Check with your accountant or tax advisor before you pay it. Once you know how the payment should be treated, select that earning type when you add the payment to your payroll run.
Tips and Best Practices
- Decide the earning type before GL mapping. Your GL mapping for allowances and other flat payments depends on the earning type they are paid as. Settle the earning type first, then map it.
- Validate your mappings. Run the General Ledger report in Arcoro Payroll (Reports > General Ledger) to double check that each earning posts to the account you expect. If something looks off, adjust the mapping before your next payroll.
FAQs
- What is the difference between a bonus and non-hourly regular pay?
Both are flat dollar amounts, but a bonus is taxed as supplemental wages while non-hourly regular pay is taxed like regular earnings. Choose based on how the payment should be withheld.
- Will a reimbursement show up on the employee's W-2?
No. Reimbursements are not taxed and are not reported as wages or income.
- I picked the wrong earning type. What should I do?
Reach out to your Arcoro implementation consultant or the Arcoro Support team before your next payroll so we can help you review and correct it.