Non-Salary Compensation
Definition
Non-salary compensation is anything of monetary value provided to an employee — other than their base salary; salary supplements or overload pay (such as for additional temporary, acting/interim, or administrative responsibilities); or an “honor” salary supplement (such as for a named or endowed professorship).
Non-salary compensation – both cash and non-cash – to an employee includes, but isn’t limited to, items like cash awards, gift certificates, tickets to athletic or cultural events, payments for moving expenses, provision of a vehicle or vehicle allowance, club memberships, or other special benefits.
The university’s policy covering non-salary compensation (NSC) is POL 05.15.03 for Non-Salary and Deferred Compensation. The information on Payroll’s website is meant to be accurate and compliant with that policy, though the official policy always prevails.
NSC items are taxable to the employee. However, if some, or all, of the NSC item is used for the express purpose of conducting University business, that portion of the NSC may be considered a “working fringe benefit” and thus not taxable to the employee. That type of NSC, such as use of a vehicle or a club membership, requires the employee to maintain substantiated business documentation, as the business use occurs, to prove the business purpose. If substantiated business documentation is required, a link is included in the detailed instructions provided in these sections.
Taxation of Non-Salary Compensation
Non-salary compensation is taxable compensation. The amount or benefit value is included in the employee’s W-2 totals for Wages, tips, other compensation (Box 1), Social Security Wages (Box 3), Medicare Wages (Box 5), and State Wages, tips, etc. (Box 16).
Cash: All cash items and items that can be converted to cash (including gift certificates) are subject to the following tax withholding:
- Old Age, Survivors, and Disability Insurance (OASDI) also known as Social Security – one component of the Federal Insurance Contribution Act (FICA)
- Hospitalization Insurance (Fed-MED) also known as Medicare – the other component of FICA
- Federal income tax at the annualized rate based on what has been claimed on the Form W-4
- State income tax at the annualized rate based on what has been claimed on the Form NC-4
Non-Cash. The monetary value of non-cash items is subject to the following tax withholding:
- Old Age, Survivors, and Disability Insurance (OASDI) also known as Social Security – one component of the Federal Insurance Contribution Act (FICA)
- Hospitalization Insurance (Fed-MED) also known as Medicare – the other component FICA
- Federal and state income taxes are not withheld; however, the value of the item is added to the
- federal and state “taxable gross” and reported on the W-2.
Types of Non-Salary Compensation
Specific details about each category of non-salary compensation are available from the following links, including the responsibilities of the employee; the department or college/division; and the appropriate central administrative office (e.g., University Payroll or University Controller) for each type.
- Relocation Allowance
- Vehicle & Parking Expenses
- Club Memberships
- Athletic & Cultural Events
- Discounts and Privileges
- Employer-Provided Benefit: Educational Assistance
- All Other Non-salary Compensation
- Incentive Compensation