Knowing How to Pay Your Employees – Vacation, Sick, Bonus, Advances and Loans

Laura now understands the two tests (previous post) that can be used to determine if an employee’s pay can be deductible.  Now, she must become familiar with the different types of pay that she can use to keep her employees happy and grow her business.

Laura already understand the sick and vacation pay from being an employee herself.  She knows she can pay her employees if they are sick or injured, but she also needs to keep track of how much the insurance will cover, because her deduction will be limited to the amount not covered by insurance or other programs.  Laura will also give her employees vacation pay and she needs to know that regardless of when the employee takes the vacation she can only deduct it when the employee receives it.

Laura could also give her employees bonuses and can normally take the deduction if it is for payment of additional services and those services were performed.  To deduct a bonus, it cannot be a gift and in must be reasonable.

Barbara, an employee at the salon, has asked Laura for an advance on her pay.  This can be deducted as wages if they are for services she expects Barbara to perform.  In the event that Barbara does not repay the advance and performs no services, Laura can treat it as a loan.  If Laura loans money to an employee and it doesn’t get repaid, she can treat that as income to her employee.

There are quite a few more ways for Laura to pay her employees.  Tomorrow, she will find out what kinds of monetary awards she can give and their limitations.

For more information contact Excerebus at or 407-988-5647.

Categories: Tax Information

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