How is a payroll calendar used to calculate per pay period deductions of Tax saving products in Payroll Deduction Report?

For the application to provide an accurate per-pay period deduction amount for all Tax savings products, the client needs to set up Payroll Calendar.

Payroll Calendar set up is done by providing both paycheck dates and payroll cut off dates for the entire effective period of the benefits package. The effective period of the benefit package is the duration between the effective start date for the earliest effective product and the effective end date of the last effective product. To ensure correct calculation logic for the employee’s deductions, a payroll calendar should be set up for every applicable payroll frequency in your census.

Payroll cut off dates are used to drive per pay period cost calculations. The first cutoff date must be after first benefit earliest effective date.

What are the different enrollment use cases that can impact how the benefit deductions are calculated?

Benefit deduction calculations are done against the employee’s yearly election amount versus how many pay periods are left in the year on the basis on expired cutoff dates.

Below are some scenarios to help you understand how the benefit deduction calculation works in a variety of different use cases:

1. Per pay cost calculation at the effective period start date (no LSCs filed)
   1. An employee elects an HSA benefit effective from 1/1/18 to 12/31/18, contributing $1,000 annually, with a weekly payroll frequency (considering 52 paychecks in the plan year).
   2. The employee's pay period deduction amount would be $19.23 (1000 divided by 52).
2. Per pay cost calculation for a new hire employed in the middle of the benefit effective period
   1. An employee is hired on 5/1/2018 and enrolls to contribute $1,000.00 to an HSA annually with a weekly pay frequency.
   2. This new hire only has 34 paychecks between the time of his hiring and the end of the plan year.
   3. As a result, the new hire employee's pay period deduction amount would be $29.42 ($1,000.00 divided by 34).

3. Per pay cost calculation after a change in contribution mid-year due to an LSC
   1. An employee elects an HSA benefit effective from 1/1/18 to 12/31/18, contributing $2,400.00 annually, with a bi-weekly payroll frequency of total 26 paychecks. The initial per pay cost becomes $92.31 ($2,400.00 divided by 26).
   2. On 6/19/18, the employee changes his contribution to $3,000.00 through an LSC. 14 paychecks are remaining in the plan year.
   3. The amount of the annual contribution already paid will be $1,107.72 ($92.31 multiplied by (26 - 14)).
   4. The remaining annual contribution to be paid becomes $1,892.28 ($3,000.00 minus $1,107.72).
   5. Therefore, the new per pay period cost will be $135.16. This calculated by taking the remaining annual contribution divided by remaining paychecks in the year. ($1,892.28 divided by 14).

4. Per pay cost calculation after change in contribution mid-year due to an LSC that has a retroactive effective date
   1. An employee elects an HSA benefit effective from 1/1/18 to 12/31/18, contributing $2,400.00 annually, with a bi-weekly payroll frequency of total 26 paychecks. The initial per-pay period cost becomes $92.31 ($2,400.00 divided by 26).
   2. The employee changes their annual contribution amount to $3,000.00 by running an LSC on 6/19/18 with event date as 6/1/2018.
   3. In the case of a retroactively effective LSC, the tax savings plan deductions will be effective from the current date instead of event date. Then, with 14 Balanced paychecks, the amount of the annual contribution already paid will be $1,107.72 ($92.31 multiplied by (26-14) released paychecks).
   4. The remaining annual contribution to be paid becomes $1,892.28 ($3000 minus $1107.72).
   5. So, new per pay period cost will be $135.16. Calculated as Remaining annual contribution divided by balanced paychecks ($1892.28 divided by 14) with effective date as 6/19/18 Instead of 6/1/18.

5. Per pay cost calculation when LSC is submitted after the last cutoff date
   1. An employee elects an HSA benefit effective from 1/1/18 to 12/31/18, contributing $2,400.00 annually.
   2. The last paycheck has cut off as 12/27/18 and corresponding pay date as 1/4/19.
   3. Now an employee changes his HSA annual contribution to $2,500.00 after the last cut off date of the plan year (12/29/18).
   4. The prepay cost after the last cut off date will display the remaining goal amount of $100.00 ($2,500.00 - $2,400.00) with effective date start date of 12/29/18 and effective end date of 12/31/18 (plan end date).

6. Per pay cost calculation in case of Off-cycle plan year
   1. An employee elects an HSA benefit effective from 4/1/18 to 3/31/19, contributing $2,400.00 annually, with a bi-weekly payroll frequency of 26 paychecks per year. The initial per-pay period deduction is $92.31 ($2,400.00 divided by 26).
   2. The employee changes their annual contribution to $3,000.00 by running an LSC on 6/19/18. The remaining contribution amount will be deducted in the 20 pay checks remaining in the effective period. In this specific case, the tax saving deduction calculation will happen as per the Plan Year INSTEAD of Calendar Year for an Off-Cycle plan.
   3. The amount of the annual contribution already paid will be $553.86 ($92.31 multiplied by (26 – 20) released paychecks).
   4. The remaining annual contribution to be paid becomes $2446.14 ($3,000.00 minus 553.86).
   5. So, new per pay period cost will be $122.31. Calculated as Remaining annual contribution divided by balanced paychecks (2446.14 divided by 20).

7. Per pay cost calculation in case of reduced/increased Paychecks
   1. When setting up a payroll calendar, an employer has the option to reduce or increase the number of paychecks per year, then Saved paycheck count will be considered for all the calculations.
   2. An employee elects an HSA benefit effective from 1/1/18 to 12/31/18, contributing $2,400 annually, with a bi-weekly payroll frequency with saved initial per paychecks as 24. The initial per pay cost becomes $100.00 ($2,400.00 divided by 24).
   3. On 6/19/18, the employee changes his annual contribution to $3,000.00 through an LSC with 13 balanced paychecks as per the expired cutoff date.
   4. Then, the amount of the annual contribution already paid will be $1,100.00 ($100 multiplied by (24-13) released paychecks).
   5. The remaining annual contribution to be paid becomes $2000.00 ($3,000.00 minus $1,100.00).
   6. So, new per pay period cost will be $153.85. Calculated as Remaining annual contribution divided by balanced paychecks (2000 divided by 13).

How is YTD Employee Paid Premium calculated in YTD Deduction Report Tab?

Once you have set up the payroll calendar(s), YTD Deduction Report shows the estimated YTD deductions based on all eligibility updates in the system. This information can be used to determine the final adjusted amounts for payroll processing.

The Estimated YTD deductions are calculated based on the cut off dates passed as per the payroll calendars.

For non-Tax Saving benefits like Medical, Dental, Vision, Voluntary Life/AD&D and Voluntary Supplemental benefits, the benefit deduction amount that is calculated in the Payroll Deduction Report tab does not refer to the payroll calendar set up. Instead, the amounts are based on the system's default pay periods (i.e, 52 for Weekly, 26 for Bi-weekly, 24 for Semi Monthly and 12 for Monthly).

If the payroll calendar set up has a difference in the number of pay periods, then it is possible that the amounts in the YTD Deduction Report tab will not match the amount in the Payroll Deductions tab for the respective benefit category. The system expects the pay periods set up in the payroll calendar to match the default number of pay periods for the non-Tax Saving benefits.

Important things to note:

1. The tax saving deduction calculation will happen as per the plan year applicable for that particular tax saving benefit.
2. In the case of an enrollment reset, cases where the proposal is edited mid-year, or incomplete calendar, the payroll deduction calculation will be done based on default per paycheck count for the eligibility group’s pay frequency.
3. If employee reduces his annual contribution amount in the mid year through LSC, per pay cost can become negative. In that scenario, negative prepay amount will be displayed as $0.
4. In the case of a future-effective LSC, updated payroll deductions will be considered from the future effective date of the change.
5. If the final paycheck date is falling in next plan year, the calculation will occur until the plan year effective end date instead of final paycheck date.
6. Proration has not been considered in any of the calculations.
7. These calculations will not impact any employer contribution amounts. Additionally, the system does not do these calculations against Commuter plans.