Introduction
Arrears refer to deductions that were not fully or partially processed within the appropriate timeline, typically within the current pay cycle. As a result, adjustments are required in the next pay cycle to reconcile the outstanding funds. A common scenario involving arrears occurs when an employee misses a pay cycle or doesn't earn enough to cover their portion of a health plan contribution they owe. Since the premium is typically split between the employer and employee, the company needs to reconcile the difference to avoid covering the employee’s portion in addition to their own.
Empeon manages arrears through company-level Deduction Code settings and automated tracking within both payroll and the Employee Profile. When arrears rules are applied to a Deduction Code, the system will detect when a paycheck cannot cover the full deduction amount and automatically apply the configured arrear settings associated with the Deduction Code. The system then tracks outstanding balances and attempts to reconcile them in the next payroll cycle.
Empeon's standard arrears solution applies only when an employee is paid but cannot cover the full deduction. To track arrears for missed pay altogether, clients can enroll in Empeon's Premium Arrears feature.
Deduction Code Arrear Settings
Within the Calculation Settings tab of each Deduction Code, there is an Arrears Settings section where arrear rules can be configured. Please note that these settings control how arrears are managed for the Deduction Code, determining how the system handles situations where a paycheck cannot fully cover the deduction amount.
- Deduct Partial Amount - If checked, when a paycheck doesn’t have enough wages to withhold the full deduction amount, the system will deduct the partial available amount. If unchecked, nothing will be deducted and the full amount of the deduction will be placed in arrears.
- Auto-Deduct Arrears - If checked, when the deduction has arrear amounts that are owed, the arrears will automatically be deducted at the first available opportunity to reconcile the outstanding balance. If unchecked, arrears will not be automatically deducted and must be manually reconciled. It is recommended to keep this setting enabled for accurate and automated reconciliation.
- Suppress Arrears When Deduction is Blocked - This setting applies only when "Auto-Deduct Arrears" is enabled. When checked, if there are outstanding arrears, they will be blocked along with the deduction and pushed to the next pay cycle. If unchecked, the system will still deduct any outstanding arrears, even if the deduction itself is blocked.
- Deduction Priority - This setting is applied when an employee has multiple recurring deductions with arrear rules but insufficient wages to cover all of them. The priority designation will determine which deductions will be withheld first if possible, with deductions assigned a lower number having higher priority (0 = highest priority). Deductions with lower priority will be subject to arrears if there are insufficient funds. If multiple deductions share the same priority, they will be processed in alphabetical order.
- Please Note: Pre-tax deductions are always calculated before post-tax deductions regardless of their priority number.
Recurring Deductions
Once the Deduction Code is set up at the company level with the appropriate arrears settings, it needs to then be assigned as a recurring deduction on the Employee Profile in order for the system to enforce these arrears rules in payroll, when applicable.
The system will not recognize one-time deductions made in payroll as circumstances that trigger these arrears rules. This is because arrears tracking is primarily used for recurring deductions that are collected over time. If a one-time deduction cannot be fully withheld, it is recommended to set it up as a recurring deduction to allow for arrears to calculate.
Adding New Recurring Deductions
When adding a recurring deduction on the Employee Profile, there are additional arrears-related settings that may need to be configured if there are existing outstanding arrears balances associated with the employee prior to setting up the deduction on the Employee Profile.
- Arrear Balance - Represents the total amount in arrears owed for the deduction, if applicable. This field will auto-populate if arrears are incurred or it can be manually adjusted as well.
- Arrear Cap Per Check - Determines the maximum amount that can be deducted per paycheck to cover the outstanding arrears balance. If no value is entered, the system will attempt to deduct the full arrears balance in the next scheduled payroll. However, if wages are still insufficient to cover the full amount, the system will deduct what it can and any remaining balance will carry forward to the next scheduled payroll.
- Last Deducted - Displays the date when the arrears deduction was last applied in payroll.
It is important to note that the Auto-Deduct Arrears setting within the Deduction Code being set up on the Employee Profile impacts whether the Arrear Balance and Arrear Cap entered will be automatically deducted in the next scheduled payroll.
If the Auto-Deduct Arrears toggle is turned off, the Arrear Balance will need to be manually reconciled within Pay Entry by manually adding the Deduction Code and assigning an amount. The deduction will already be applied for the recurring amount or percentage that it was set up with, however it will not account for the outstanding arrear balance.
Once the payroll is processed, a Workforce User will need to update the Deduction Code on the Employee's Profile with the updated Arrear Balance.
Managing Outstanding Arrear Balances
On the Employee Profile, each deduction that has been set up will display whether there is an arrear balance.
Using the three dot menu, there is also an option for "Arrear History" where it will provide a transaction log of arrear payments, listing the dates the payments were made and the updated balance after each payment.
On a company-wide scale, there is an Employee Deductions Live Report where additional columns for "Arrear" and "Arrear Cap" can be included within the report using the Column Chooser feature. Since this is a live report, it will display any outstanding arrear balances at the time the report is run, displaying the balance along with the date it was incurred or when a payment was made toward it.
This report is located under the Live Report category for "Employee".
Benefit Plan Arrears
For organizations that have registered their Benefit Plans in Empeon Workforce and have linked the appropriate deduction to the plan, any arrear balances will be displayed within the Benefits Enrollment section of the Employee Profile. If any arrears have been incurred associated with the plan the employee is enrolled in, it will show it on this screen. Using the three-dot menu, there is an option for "Arrear History" to view the transaction log of arrear payments.
On a company-wide scale, there is an Employee Benefit Enrollments Live Report where additional columns for "Arrear" and "Arrear Cap" can be included within the report using the Column Chooser feature. Since this is a live report, it will display any outstanding arrear balances at the time the report is run. This report is located under the Live Report category for "Benefits".
For any questions regarding how arrears are handled in the system or to inquire about Empeon's Premium Arrears feature for missed pay, please contact Empeon Customer Support.