The company needs to be alert to the events that may trigger payments under the plan. And it must have a procedure in place for making such payments. The plan may face strict requirements relative to payment timing (assuming the plan is subject to 409A). Non-compliance can result in penalties.

The company’s plan advisor or attorney can help underscore the payment timing issues.

Payments are processed through the company’s payroll system as bonuses, thereby becoming subject to standard incentive pay withholding requirements. Payroll tax processing varies depending on the type of plan.