Common Paymaster: What you need to know

After the close of every quarter, businesses are reminded of the many existing tax code intricacies. One lesser known layer not to be taken lightly is the common paymaster rule. This rule can have a major effect on employers with distributed workforces where employees work in multiple locations.

common paymaster

What is a Common Paymaster?

The IRS describes the common paymaster provision as a special rule for paying taxes.  When an employee simultaneously works for several related entities during a given year, the parent entity as a whole will end up overpaying certain payroll taxes. A common paymaster is a designated entity that pays wages to that employee on behalf of the related entities, thus only being charged for that employee’s share of payroll taxes once.

Let’s look at an example:

restaurant serverTom works at a restaurant, Dining Inc. He works at Location A on the weekdays and Location B on the weekends. Dining Inc. will be charged for Federal Unemployment Tax (FUTA) on all of Tom’s wages from each location separately, even if together his wages exceed the $7000 wage base.

This is where a common paymaster comes into play. Under certain conditions, the IRS grants Dining Inc. the right to designate Location A or B as a common paymaster. If Location A is deemed the common paymaster, it can issue Tom a consolidated paycheck that reflects his hours worked at both locations. Instead of the employer being subject to two wage bases for FUTA (and state unemployment tax (SUTA) in states where common pay is allowed) with respect to Tom, the employer is only subject to one.

The IRS also allows the use of a common paymaster for Social Security tax purposes. State laws vary on recognizing a common paymaster for SUTA reporting. StratEx clients can check with their Service Team, and anyone can check with applicable state agencies to see if common paymaster is a feasible option in your state of operation.


Common paymaster provisions can also come into play when calculating overtime. First, a company and its related entities must meet the IRS’s criteria for common paymaster AND the Department of Labor’s requirements for joint employment. Then, the designated common paymaster can be used to calculate overtime for employees who work across the related corporations. Since it is a single entity, the common paymaster makes it much easier to calculate overtime for the employees paid under it rather than manually calculating overtime across the different entities.

Is common paymaster in play for your business?

The exact verbiage of the rule states that “If two or more related corporations employ the same individual at the same time and pay this individual through a common paymaster that is one of the corporations, the corporations are considered to be a single employer.”

Corporations are considered “related” for instances such as when fifty percent of one corporation’s officers are also officers of the other corporation, or when thirty percent of employees simultaneously work between the two corporations. The common paymaster is also responsible for keeping payroll records and remitting payroll taxes for the employees it pays as a common paymaster.

For more information, you can see how the IRS lays out exact provisions for common paymasters in Publication 15-A and Regulations section 31.3121(s)-1.