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What is exempt pay?

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Exempt payments refer to payments that are excluded from taxable income and certain payroll taxes, like social security and Medicare.

What qualifies as an exempt payment varies depending on the country and its employment law and payroll regulations.

Organizations need to make sure that regardless of where they’re operating in the world, they are adhering to tax laws and regulations regarding exempt payments.

Examples of exempt payments

  • Benefits such as contributions to retirement plans, health insurance premiums, and educational assistance programs
  • Compensations like disability payments
  • Government payments or charitable donations

Processing exempt payments

How exempt payments are processed will differ from country to country. With that said, certain components can be boiled down to something like this:

  • Exempt payments are identified and recorded separately from other payments
  • During a global payroll process, employees may use codes and categories to distinguish between exempt and non-exempt payments
  • Financial institutions may have their own specific protocol for processing exempt payments – including verifying eligibility and making sure all the correct documentation is present

Managing exempt payments on a global scale

Variation in handling exempt payments around the world can leave the employer tangled in confusing tax laws and reporting requirements.

A payment distribution platform in this case can help minimize the stress by offering solutions that automate the process, while ensuring that exempt global payments are handled in accordance with local regulations.

Additionally, the right payment distribution platform will have tax and compliance experts keeping track of any changes in rules or processes concerning exempt payments.

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