Deduction codes for Payroll

Found under Settings > Payroll > Codes, you can create Deduction codes which can be assigned to your employees for payroll.

You begin with two options: Create Deduction Codes or Add Benefit Plans. At the top of the table, to the right, there are options to manage the deduction codes in bulk, and export.

Create Deduction Code is what you use to create individual Deduction Codes. Add Benefit Plans is the option you select when you want to create multiple deduction codes for a single plan, such as health, to generate different levels of coverage (employee, employee plus family, etc.), life insurance, or retirement. Both will follow the same process.

Deduction Codes tend to be employee-paid, whereas Benefit Codes tend to be employer-paid. A standalone deduction code may be for a phone plan, a gym plan, or a 401K that has no employer contribution.

Generally, it is good practice to create your Benefit Codes prior to Deduction Codes.

After clicking Create Deduction Code, the New Code: Choose Template option will appear. If you have any existing custom templates you'd prefer to use as a starting point, you would select it here. If you don't wish to use one, select Continue.

Code Details

Here you enter the name of the code, how it will display on employee paystubs, and a description. Then select the applicable Deduction Category: Dental, Health, Retirement, Retirement Loan, or Other.

If this is a Catch-Up Code, you would also indicate that here.

Select Next.

Note: Some items will have a blue ?; when you position your mouse over the ?, you'll get additional information. These are written out here for your convenience.)

Catch Up Code: This code will be created as a Catch Up Code. Catch up codes should only be assigned and used for employees that meet catch-up contribution requirements.

Employee Contribution Details

Here you will make a number of choices regarding your deduction, such as the Rate and Tax Type, how much the employee contribution is, and the deduction frequency. Select the options that fit the deduction you are creating.

Tax Type: There are numerous tax types that can apply to your deductions.

Pre-Tax Deduction: Pre-tax deductions are taken from an employee's paycheck before any taxes are withheld.

Employee Contribution: Enter the amount of the contribution per the frequency of the deduction.

Split Evenly on All Pay Runs: Calculate the code's total annual rate and divide it evenly across all scheduled pay runs in a year.

Even Amount per Month: Split the code's rate between the first 2 pay runs in a month for biweekly pay runs and the first 4 pay runs in a month for weekly pay runs.

Full Amount on first Scheduled Pay Run of the Month: The total monthly rate for each assigned employee will be applied to the first scheduled pay run of the month only.

You can also indicate if this deduction should be taken out before taxes.

Prioritize before taxes: In scenarios with low payable wages, an employee may not have enough earnings to accommodate both tax withholding as well as all assigned deductions. Enabling this setting prioritizes this deduction, thus ensuring that it is subtracted from the employee's pay before taxes are withheld. Note: This setting does not control whether deductions impact tax calculation. That decision is controlled by Tax Types. In the case of a Custom Tax Type, refer to the Pre-tax Deduction Setting.

Maximum and Arrears

You can set a maximum for this code. If there are no maximums, then you don't need to set them. If there are, set it by year, quarter, month, or pay period.

Indicate whether or not this deduction code should calculate and track arrears.

If you allow for arrears, you will get three options: do not collect repayment, always attempt to collect full repayment, and Collect a fixed amount per pay period.

Arrears: If you have assigned a deduction to the employee, but the employee's earnings don't cover the deduction while still adhering to minimum wage regulations, the amount that could not be deducted will be tracked as an outstanding amount through a deduction arrear. This signifies that the employee still owes this sum to the employee to be withheld in subsequent paychecks. The amount to be collected from each subsequent check will be determined by the below code setting and/or in the employee's arrears settings per individual code.

Allow Arrears: If there are not enough wages available to take this deduction, then the amount will be put into arrears. The amount that is attempted to be repaid in future pay runs will be determined by the below setting. Note: When deduction arrears are applied to a pay run, it will not ensure that minimum wage is met for the employee that is repaying an arrear.

W-2 Reporting

If this deduction has any W-2 Box 12 code or should have a Box 14 Label, set them here.

Effective Dates

Determine when this deduction code should be effective. Some deduction codes may not have end dates. Deduction Codes may have end dates if associated to benefits. These can be scheduled on the individual employee-level after the code is created and assigned.

Related Benefit Codes

If this deduction code is associated to a benefit, assign it here. When an employee is assigned a benefit they will then be automatically assigned the associated deduction code.

Select Next.

Assign Code Now

This is the end of the Deduction Code creation wizard. If you want to assign the code to employees, select Yes; otherwise, choose No.

Manage Employees

If you decide to assign the Deduction code now, select the employees you want to assign the code to and verify the Employer Contribution is accurate. Select Save Assigned Employees to confirm.

Once assigned, you can go to the employee's information card and verify that the code has been assigned to them.