Situation: An employee of a C corp. Company A volunteers to take a
temporary 50% salary deferal for x months. The deferred salary gets
paid to the employee after x months by Company A in a lump sum.

Is it OK for company A to submit payroll taxes on the on the deferred
salary at the time of the actual payment of the lump sum or is it
supposed to continue paying payroll taxes at the 100% salary even when
it is paying the employee at 50%?

WHen you answer please include whether you are a registered CPA.

What you are establishing is essentially a nonqualified deferred
compensation plan.  As long as the deferred amount "...remains subject
to the claims of the employer's creditors in the event of insolvency
(i.e., they must be unsecured)," ("Nonqualified Plan Disadvantages")
then the employer does not collect Social Security, Medicare, and FUTA
taxes until the "...services are performed or the employee no longer
has a substantial risk of forfeiting the right to the deferred
compensation, whichever is later,"  ("Publication 15 A" page 13).  The
employer also does not take a tax deduction until the employee
receives the income.

Therefore, unless the employee has no risk of not receiving payment,
you are correct in not submitting payroll taxes for the lump sum until
it is actually paid.

I am not a registered CPA, but I have an MS management from MIT and
experience navigating the tax code as an employer.

Sincerely,

Wonko

Sources:

"Nonqualified Plan Disadvantages" CCH Financial Planning Toolkit
(2005) http://www.finance.cch.com/text/c40s10d380.asp

"Publication 15 A" IRS (2005) pages 12-13 http://www.irs.gov/pub/irs-pdf/p15a.pdf

Good Answer! 

Thanks

I'm not a CPA, but do have some experience in this area.

Payroll tax liabilities are created as the result of wages being paid, not earned.

You're asking if it is okay to pay the payroll tax at the time of the
actual payment.  Not only is it okay, but is the appropriate action to
take.

Hope this helps.