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Company Deduction Code Setup

Introduction

Payroll Deductions refer to the process of an employer withholding money from employees' paychecks to address both mandatory and voluntary financial liabilities owed by employees. Empeon's deductions are used for both voluntary deductions (health benefit contributions, life insurance, 401k contributions, etc.) and mandatory deductions (child support and other court ordered garnishments) outside of tax withholdings. Before deductions can be applied to an employee, Deduction Codes representing the deduction requirements need to be set up on the company-level.

Setting Up Company Deduction Codes

To set up new Deduction Codes at the company level or review and manage those that have already been configured, navigate to the Payroll section within the Company tab and select Deductions Card.

The Deductions Card will display all active Deduction Codes that have been set up and are available for use. To set up a new deduction, click the blue button that says "+ New Deduction" in the top right corner of the screen.

Types of Payroll Deductions

When creating a Deduction Code, the first requirement is to select the Deduction Type. This is the most important item to apply correctly when adding Deduction Codes. Setting the deduction to the proper type applies the appropriate taxability depending on the type of deduction that it is. See below for explanations of the various deduction types Empeon supports.

Section 125 Pre-Tax Types

  • Type 125 should be applied for any Section 125 qualified pre-tax Health, Dental, and Vision benefit deductions. Though Section 125 employee contributions can be controlled using just the deductions feature, Empeon recommends that clients use the system's Benefit Administration Module for section Health, Dental and Vision deductions. Empeon's Benefits Module has additional features such as the ability to track employer contributions and offers the ability for employees to sign up for new plan years within their Employee Self-Service (ESS) portal.
  • The FSA Health, FSA Dep Pre, and HSA types are for Deduction Codes used to handle employee contributions to FSA Health, FSA Dependent, and HSA accounts. Empeon Workforce will stop applying the deduction in payroll for these types of contributions automatically once the employee reaches the contribution limit for the tax year.
  • The Transit section 125 type is for applying employee parking and transit expenses as a pre-tax deduction, usually with a matching 'Add to Net' deduction, for the purpose of reducing parking and transit expenses from employees' taxable wages.

Pension & Retirement Deduction Types

  • For any deduction needed for employee contributions to their retirement plan, it's important to apply the exact type (401k, Roth 401k, 403b, etc.) that corresponds with the organization's retirement plan(s). Each type applies the appropriate taxability, yearly contribution limits, and reporting requirements on employee's yearly W2.
  • For deductions needed for the purpose of employees paying back loans from a retirement plan, be sure to use the 401k Loan deduction type.

Important Note: Empeon will only cap at the pre-tax yearly contribution limits for Pension and 125 type deductions when being applied on a check from the deduction setup on the Employee's Profile. If the contribution limit is reached but either deduction type is manually applied in Pay Entry (directly on the check), the system cap will be overridden.

Garnishment Types

  • For any local, state, or federal ordered deduction garnishments use the appropriate type (Child Support, IRS Levy, Levy, State Levy) matching the type of garnishment order received. 
  • The Child Support garnishment types have a unique "Maximum Disposable" field when setting up this type of deduction on an Employee's Profile. Keying in the maximum disposable percentage identified on the child support order will ensure that the child support deduction amount is capped so that the employee receives the minimum take home pay requirement.

Miscellaneous Deduction Types

  • Type Add is short for "Add to Net". This type is Empeon's solution for employers to reimburse non-taxable funds to employees for business expenses such as travel and supplies. When this type of deduction is used on an employee level it will apply a negative deduction for the amount identified, which ultimately adds this amount to the net of the check.
  • Type General is for any post (after) tax deduction need for employees. Supplemental insurance benefits contributions like life insurance are after-tax. Union dues, uniform fees, and loan pay backs are also examples of after tax deduction needs.
  • Type FSA Dep Post is for FSA Dependent Care contributions that are made by an employee after reaching the yearly pre-tax FSA contribution limit.
  • Type Memo is for applying a deduction and amount record to an employee, but it's for information purposes only. No actual funds will be deducted from employees for deduction codes with a memo type.

For any further assistance needed to ensure that the correct deduction type is being applied, please don't hesitate to reach out to Empeon's Customer Service for further guidance.

Deduction Code General Settings

Once the Deduction Type is determined, there are additional general settings to consider in association with the Deduction Code. Review below for more detailed information about each general settings field.

  • Unique Deduction Code - Create a 10-character max code representing the deduction need. When creating Empeon codes, avoid using spaces or special characters.
  • Deduction Description - Enter a short, title-like length for the deduction's description. Please note: It is this description that prints on employees' checks associated with the deduction amount.
  • Exempt Tax Codes - Depending on the Deduction Type that was applied, a field will confirm which tax codes are exempt if applicable; ultimately reducing the taxable wages for that code by the deduction amount.

  • W-2 Box - Some benefit contributions' total yearly amounts are required to be reported in a designated box on employees' W2's. For applicable Deduction Types, Empeon confirms which W2 box the deduction total will be reported in this system field. For any circumstance where the W2 field identified is not matching what you feel is required for W2 reporting, contact Empeon Customer Service for assistance.
  • Include on Pay Stub? - Determine whether this deduction should be displayed on employees' pay stubs. Empeon recommends displaying all Deduction Codes on paystubs that affect employees' net pay.
  • Third Party Agency - Deductions can be set up for Empeon to debit the employer's account for the total amount deducted from employees. Empeon will then send a check or ACH payment of the same amount to the third-party on the employer's behalf. If the deduction needs to be transmitted to a third-party agency, use this dropdown to select the appropriate agency. In order for agencies to be available within this dropdown, they first need to be set up and registered on the company-level. For more information on this process, please refer to Empeon's article Agency (Third Party) Payment Setup.

Deduction Code Calculation Settings

After completing the General Settings fields, click "Next" to proceed to the deduction's Calculation Settings. Here, the Administrator determines the default or mandated calculations for the Deduction Code. At the company level, it's typically appropriate to apply these settings only for deductions that require the same calculation across all employees. Otherwise, these calculation settings can be left blank, as they can also be configured when adding the deduction to individual Employee Profiles.

There are two ways to apply company level calculation settings on a deduction. By leaving the Block Override option unchecked, the corresponding field will only apply the calculation by default when setting up for the employee. An authorized Empeon User will be able to change the calculation setting to another option when adding or changing the deduction in the Employee's Profile. However, by activating the Block Override feature, the associated field cannot be changed when adding or changing the deduction in an Employee's Profile.

The circumstances of the deduction determines whether to set calculations as just a default or as an Block Override in the Employee Profile setup. A common example of where a Block Override activation may be appropriate is for a flat dollar amount life insurance contribution where the deduction/contribution amount is always the same for all employees that opt for the benefit.

Here is a breakdown of each field on this screen:

  • Deduction Occurrence - This field determines the frequency of the deduction. Common frequencies are every check, Once Per Pay Period, and last check of the month. For deductions that apply every payroll, it's usually appropriate to apply percentage-based deductions on every check and flat amount deductions as OncePerPay (once per pay period). If a frequency preference is not available as a choice from the dropdown, contact Empeon Customer Service for assistance.
  • Calculation Type - The setting on this field controls the calculation of the Deduction Amount field. Standard options are withholding by a dollar amount ($) or by percentage amount (%). There are then "Custom" calculations that are created per an employer's need. If there is a need for a custom calculation to be set up, contact Empeon Customer Service for assistance.
  • Deduction Amount - The amount identified here will be applied on the employee's check per the deduction occurrence set.
  • Goal Amount - Use this field for deductions where there is a limit on the total deduction amount that should be paid. Once the total deduction amounts reach the value identified in this field, the deduction will stop.
  • Max Deduction Per Check - A value entered here will prevent a deduction from applying a dollar amount greater than the amount identified in this field. This is usually only appropriate for deductions calculated by percentage.
  • Min Deduction Per Check - A value entered here will prevent a deduction from applying a dollar amount less than the amount identified in this field. Again, this is usually only appropriate for deductions calculated by percentage.
  • Max Deduction Per Year -The value entered here is a cap for deductions where only a certain total amount should be deducted for the calendar year. Once this cap is hit the deduction will stop applying on the employees' check.

As noted, these settings are more relevant when configuring the Deduction Code on the Employee Profile. Any configurations made to the Calculation Settings at the company level will apply uniformly to all employees assigned the code. For more information on setting up a deduction on an Employee Profile, refer to Empeon's article Employee Deduction Setup.

Deduction Code Arrears & Priority Settings

Below are Empeon's optional arrear (deduction makeup) system options that can be used if needed. It's sometimes appropriate to apply makeup deductions on following payrolls if not enough was withheld on the employee's last payroll.

Please Note: Empeon's standard deduction arrear settings are only applicable for circumstances where employees are paid, but not enough to cover all of their deductions. Arrears do not calculate for circumstances where an employee is not paid at all.

  • 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 if the whole amount can't be deducted.
  • Auto-Deduct Arrears - If checked, when the deduction in the employee profile has arrear amounts, the arrears will automatically be deducted at the first available opportunity. If unchecked, arrears will not automatically be deducted.
  • Suppress Arrears When Deduction is Blocked - Only applicable if “Auto-Deduct Arrears” is on. When checked, if deductions are blocked from a particular check, the Arrears will also be blocked. If unchecked, the arrears will be deducted even if the deduction is blocked in the check.
  • Deduction Priority - Deduction priorities can be set to ensure that certain deductions are applied first before other ones. This is usually only needed if there are circumstances where not enough of an employee's pay is available for all their deduction needs. Priority defines the order in which the deduction will occur. The lower the number, the higher the priority (0 = highest priority). When a paycheck does not have sufficient wages for all deductions to be withheld, the system will deduct based on the set priority order. If multiple codes have the same priority number, then priority for those codes will be calculated in alphabetical order. 

    • Please Note: Pre-tax deductions are always calculated before post-tax deductions regardless of their priority number.