SS & HCF Contributions
All employers doing business in the Republic of Palau are required to pay two kinds of contributions to the Social Security Administration: Social Security (SS) contributions and Healthcare Fund (HCF) contributions.
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Social Security Contributions
Social Security benefits are based upon a worker’s earnings as reported to the SSA, and such earnings are used to determine an applicant’s entitlement to retirement, survivors, and disability insurance benefits.
Currently, the SS contribution rate for each employee or wage earner in Palau is 6% of the total gross wages earned in each quarter and matched equally 6% by the employer. However, wages above $5,000 is not taxable. Therefore, a total of 12% of each employee’s wages – not exceeding $5,000 – including owner share, is reported and paid to the SSA at the end of each quarter.
Palauan citizens who are full-time farmers, fishermen, and taxi-drivers may also participate in the Social Security program in order to become eligible for Social Security benefits. To acquire eligibility for SS benefits, you must declare a minimum of $300 gross wages per quarter and pay as required. This arrangement is also open to unemployed persons who would like to voluntarily pay for SS taxes in order to become eligible for SS benefits.
Depending on whether or not you have employees, SS contributions are reported and paid differently. Read more about how SS contributions are reported and paid for Businesses with Employees and Businesses without Employees.
Healthcare Fund ContributionsOpen or Close
HCF contributions are relatively new to employers doing business in Palau. Deductions for the HCF began in October 2010. Funds that become available in employees' Medical Savings Accounts and their eligibility for National Health Insurance are based on these contributions.
Currently, the HCF contribution rate for each employee or wage earner in Palau is 2.5% of the total gross wages earned in each quarter and matched equally 2.5% by the employer. Unlike SS contributions, there is no maximum taxable income that is subject to HCF contributions. The employee's 2.5% contributions goes into his or her Medical Savings Account (MSA), while the employer's matching 2.5% share goes into the pooled account that funds the National Health Insurance (NHI).
Therefore, an employer must file and pay a total of 5% of each employee's total gross wages, including owner share, to the SSA at the end of every quarter.
The SSA also allows unemployed persons and self-employed persons such as full-time farmers, fishermen, and taxi-drivers, to voluntarily participate in the Healthcare Fund program. Read more about voluntary participation in the HCF.
Depending on whether or not you have employees, HCF contributions are reported and paid differently. Read more about how SS contributions are reported and paid for Businesses with Employees and Businesses without Employees.
SS & HCF Contribution Exemption Open or Close
Under the Social Security Act and Healthcare Fund regulations, retired chiefs and state legislators who are 60 years and over shall not be subject to Social Security and Healthcare Fund contributions on any money earned from their services. This exemption shall not apply to wages and salary received from any voluntarily assumed functions. In other words, such exemption shall not be applied to wages earned from other jobs other than the above mentioned.
Quarterly Report Form and Due DatesOpen or Close
Under the Social Security Law, all employers or business owners are required to submit their completed Quarterly Report Form every quarter. Please ensure that all information submitted on the Quarterly Report Form, such as EIN, Business Name, employer and employee names and SSNs, are accurate. Otherwise, a $1.00 per error will be charged to you.
The following people must sign Quarterly Report forms:
Sole-proprietor - Owner / Employer and/or a duly authorized representative
Corporation - Any one of the officers and/or a duly authorized representative
Partnership - Any one of the partners or a duly authorized representative
Association / Organization - Any one of the officers and/or a duly authorized representative
Domestic Helper - Employer
Quarterly Reports are due one full month after the end of each quarter:Quarter EndingMarch 31June 30September 30December 31Report and Payment Due DatesNo later than April 30No later than July 31No later than October 31No later than January 31
Employers who prepare their Quarterly Report form and mail them to the SSA must make sure that the postmarked date stamped on your envelope falls before or on the due date.
Under Part VI, Section 601 of the Social Security Operational Rules & Procedures, the SSA assumes that an employer or business owner is aware of the legal responsibilities of operating businesses within the Republic of Palau. The Administration has no obligation to remind employers of this responsibility. A claim of ignorance by any employer or business owner failing to report shall not be a valid legal defense for not reporting or non-payment of contributions.
Offenses & PenaltiesOpen or Close
Employers who fail to report and pay Social Security contributions due are liable for a civil penalty of not more than 100% of the amount owed or $250, whichever is greater. In addition, all outstanding or overdue Social Security contributions, including penalties, will carry a 12% interest charge per annum. In the event that any contribution, interest, or penalty is referred to an attorney for collection, the employer shall, in addition, be liable for reasonable attorney's fees and cost of collection, including court costs.
False Statements & ReportsOpen or Close
Any employer who knowingly makes a false statement or falsifies any report or record in an attempt to defraud the Social Security Administration is guilty of a misdemeanor and is liable to imprisonment for a period of twelve (12) months or a fine of not more than $2,000.00, or both.
Refunds of Excess Employee ContributionsOpen or Close
Excess employee contributions during the four quarters ending on December 31 are refunded to employees with no outstanding Social Security debt. No refund shall be made on any amount less than $5.00. In addition, no refund shall be made to any employer other than to correct an error.