Wages means all remuneration for personal services, including:

This discussion of wages relates only to wages for personal services in employment, as the term is defined in the Act. Wages, may be:

Wages paid are payments actually received by an individual. This means the payment has been delivered into the hands of the individual. The general rule is that wages shall be reported for the period in which they were actually paid unless they were constructively paid.

Wages constructively paid are wages which have not yet been delivered into the hands of the employee but are available. Such constructive payments are treated the same as wages paid as of the date they are credited, set apart, or are otherwise available to the employee.

EXAMPLE 1: Employer A customarily pays employees monthly on the last working day of the month. On December 31, 2001, all employees were handed their paychecks except Mrs. Z who was absent from work due to illness. Mrs. Z was handed her December paycheck when she returned to work on January 2, 2002; however, it was available to her on December 31, 2001. Since her wages were available to her on December 31, 2001, they are considered paid on that date.

EXAMPLE 2: Employer B customarily pays employees monthly on the last working day of the month. On December 31, 2001, employees in the headquarters office were handed their paychecks, and Employer B mailed paychecks to employees working in the branch offices. Since the employer has done everything within the employer's power to pay all wages on that date, all wages are considered to be paid on that date.

EXAMPLE 3: Employee Smith's sales commissions vary considerably from month to month due to the seasonal product he is selling. Although Smith can receive payment on his commissions at the time they are credited to his account, he customarily withdraws approximately $2,000 per month from his account for living expenses and "leaves the rest on the books." During the first quarter of 2001, commissions were credited to his account in the amount of $12,000. His withdrawals during the quarter amounted to $6,000. Since Smith's commissions may be withdrawn on the date they are credited to his account, they are deemed to be paid on those dates. His wages for the first quarter of 2001 amount to $12,000.

Wages paid in a medium other than cash include living quarters, meals, or anything else received by an individual as payment for services rendered. Commission Rule 815.104 gives legal guidance for wages paid in a medium other than cash.

1. If an individual receives any part of his wages in any medium other than cash, the reasonable cash value of such remuneration other than cash shall be deemed for all purposes of the Act to be either:

2. If the Agency determines that the amount agreed upon is unreasonable, or if the employing unit and the individual fail to agree upon an amount, or if the employing unit fails to report the terms of an agreement to the Agency, and the employing unit fails to show the cash value of the noncash remuneration prior to the due date of contributions with respect to the wages, the Agency shall fix an amount or value after considering all available information and evidence; and the amount fixed by the Agency shall be deemed for all purposes of the Act to be the cash value of the wages received in any medium other than cash.

The value of noncash items given as a substitute for cash wages is the amount agreed upon between the employing unit and the employee. This agreement may be made either at the time of hiring or at a later time, or it could even be at the time the question of value is raised. The agreement may be written or oral.

In general, the Agency will be guided and will often rely on federal unemployment tax rulings and regulations when ruling on what constitutes wages paid in a medium other than cash.

Noncash wages in domestic employment are taxable, even though only cash wages determine domestic liability.

The U.S. Supreme Court decided that the value of meals and lodging provided employees for the convenience of the employer were not taxable for F.I.C.A. and F.U.T.A purposes. However the value of all items given to an employee as a result of services rendered are still considered state wages under the T.U.C.A., and must be reported by the employer. Employers who have employees that are furnished meals and/or lodging in connection with their work should report the value of these items as wages to the Texas Workforce Commission.

Texas statutes say that if tips are wages for federal purposes, they are also wages for state purposes. The Federal Unemployment Tax Act states; that wages includes tips which are: (1) received while performing services which constitute employment, and (2) included in a written statement furnished to the employer. Therefore all tip income reported by an employee to his employer, including charged tips, are wages in Texas.

EXAMPLE 1: A customer arranges with a hotel for a banquet. The customer makes a lump-sum payment to the waiter in charge of the banquet, with instructions to distribute the payment among the employees serving the banquet, leaving the amount each employee gets solely to discretion of the head waiter. The employer has no knowledge of the amount of their tips, and the amount is not a factor in fixing the pay of the employee. In this situation, tips to the headwaiter are not wages for FUTA purposes, and therefore, not wages for Texas unemployment purposes either.

Tips voluntarily given directly to a waiter or waitress, (or left on a table as a gratuity by a patron), which are reported in writing by an employee to the employer, and are considered to the extent permitted in determining the employee's hourly compensation under the state or federal minimum wage laws, are interpreted as 'Wages.'

A charge for services (commonly called a gratuity) added to a patron's bill for later distribution by the employer to the waiters, waitresses, busboys, etc., constitutes wages. These charged gratuities should be entered as a part of gross wages on Form C-3 and on the Wages List.

EXAMPLE 2: A restaurant prohibited tipping but added a 10 percent service charge to customers' checks. This 10% service charge was distributed to employees along with their salary. In this situation the added service charge was an arbitrary charge fixed by the restaurant that the customer was required to pay, and it was clearly not a gratuity. Moreover, it wasn't paid by the patron directly to the employee, but to the restaurant, and it became part of the restaurant's funds. Since the employer then passes this 10% on to the employees, the amounts become subject to federal and state wage computations for Social Security, FUTA, income tax, and state unemployment tax purposes.

ADDITIONAL INFORMATION

The Texas Unemployment Compensation Act defines wages in part as gratuities considered wages in the computation of taxes under the Federal Unemployment Tax. Accordingly, tips taxable under F.U.T.A. will also be taxable under T.U.C.A.

FUTA Definition of Tips in section 3306 (s) Tips Treated as Wages

For purposes of this chapter, the term wages includes tips which are: (1) received while performing services which constitute employment, and (2) included in a written statement furnished to the employer.

Payments of unpaid minimum wages and unpaid overtime compensation under the Federal Fair Labor Standards Act constitute wages because they are payments for personal services performed. Although back pay awards are wages and taxable when paid, amounts paid as 'liquidated damages' are not wages. Liquidated damages are not payments for personal services.

Liquidated damages are defined as: the sum a party agrees to pay if that party breaks some promise. This sum is usually arrived at by a good faith effort to estimate the actual damage that will occur if the breach of contract occurs.

A payment made to an employee who is reinstated and granted back pay for time lost, pursuant to an order issued by the National Labor Relations Board (NLRB) constitutes wages for federal employment tax purposes. If the NLRB makes the employer and a labor organization jointly and severally liable, the payments are treated as wages paid by the employer regardless of whether the actual payment is made by the employer or the labor organization. However, where the order of the Board is directed exclusively to a labor organization, the payment of the back pay award will not be treated as wages by the labor organization.

When back pay is awarded by the National Labor Relations Board, the payments constitute wages for the quarter in which they should have been paid rather than the quarter(s) in which they are received. Since September 1, 1985, the employer is required to notify the Agency of the back pay award and reimburse the state UI Trust Fund for unemployment benefits, up to the amount of the award.

The Agency agrees with a federal ruling that amounts paid to an employee under a collective bargaining agreement in which employees are guaranteed an annual minimum wage constitutes taxable wages.

A payment made by an employer as the result of an involuntary separation of an employee, are wages. These amounts are wages even if the employer is not legally required to make the payment.

The Internal Revenue Service permits employers to file consolidated payroll reports for related or subsidiary corporations under a Reporting Agent Agreement.

Under this arrangement, one entity (usually a corporation) reports all wages paid to its employees as well as the employees of related entities under one Federal Identification Number. Often, the "payrolling" corporation processes the payroll information and issues paychecks to all employees. However, it is customarily reimbursed by the related or subsidiary corporations not only for the wages, but also for the employer share of federal and state payroll tax expenses. The Payrolling Corporation may also receive a processing fee.

A related term, Common Paymaster, describes an arrangement in which individuals are employed, at the same time, by two or more related corporations, but receive their combined wages from only one of those employers, i.e. the Common Paymaster.

The Federal Social Security and Unemployment Tax Acts provide that a related group of corporations, employing an individual jointly, would not be required to pay dual FICA and FUTA taxes if the individual in question is compensated through a Common Paymaster which is one of the corporations. Under present state law and practice, in such a situation, both corporations would be liable for taxes on the individual's wages up to the statutory limit. Although some of the states have indicated that they will follow the federal law, the majority, some thirty-three, have indicated that they will not.

The issue of payrolling is not precisely addressed in the TUCA, however, the Commission does not allow one employer to report another employer's employees. The Commission requires each separate legal entity to report its employees under its own account number. Employers often believe that payrolling by related corporations is acceptable for state reporting since the IRS permits it for federal tax reporting.

Reference: Status Manual, Chapter 6 - "Common Paymaster and Payrolling" or Tax Law Manual, Chapter 4 - "Payrolling or Common Paymaster" for additional information.