How should withholding be calculated on a settlement check for lost wages?

I am to receive 2 checks in a discrimination settlement case.  One is for pain and suffering. No tax will be deducted and the check will be supported by form 1099..  I say the second check for lost wages should be treated like a Norman payroll check and taxes withheld accordingly.  Employer says they must take a percentage which results in a deduction $5287.68 more than a normal payroll deduction.  What is correct?