How Human Resources Figures Out Payroll Deductions

Calculating payroll deductions can be a complex task---one that takes good knowledge of the subject and solid mathematical abilities. The amount to deduct from employees' paychecks is often determined by the human resources department.

Taxes

Upon a new hire's employment, human resources will generally provide her with federal and state tax forms to complete. This is required to be in compliance with the law, to have written proof of employees' requested tax deductions and to know how to compute employees' taxes.

Taxes are statutory deductions, and the deduction amount depends on the employee's filing status and how many allowances she claims. To determine the amount, most employers use a payroll system, which allows them to simply enter the employees' filing status and allowance amount; the system then calculates it. In the case of a manual payroll, the HR personnel would need to consult the IRS withholding tax tables and check with their state's department of revenue for applicable rates.

Benefit Days

The human resources department is responsible for tracking employees' sick, personal and vacation time. If an employee is granted a certain amount of days for the year, the HR department must ensure that the employee is not paid for more time than she is granted. For example, if the employee has 38 regular hours and took one sick day that she did not have available, HR can deduct the sick day from her upcoming paycheck, leaving her with 30 hours to be paid.

Retirement Plan

Many companies have retirement plans, usually 401(k)s. For employees to participate in these plans, they must first meet eligibility requirements. These requirements vary from company to company; however, most companies require that the employee work a full calendar year before he can be eligible. Once eligible, the employee must complete the necessary paperwork stating how much he wants allocated to his 401(k) each pay period.

Health Insurance

Employees who opt to participate in the company health insurance plan are often required to pay the premiums. They must also complete the necessary forms supplied by HR, stating what type of plan they would like to be enrolled in. For example, the employee may choose an HMO family plan, which comes with a premium. The amount of the premium is determined by the rates the employer receives from the insurance carrier and how much of it he chooses to charge to his employee.

Payroll Advances

Companies that grant payroll advances will often set an advance limit. For example, an employee may be entitled to $1,000 in payroll advances annually. The HR policy may state that the employee has to repay the amount in full on his next check, or it may dictate that he repays it over the next six pay periods. The amount and frequency are entirely up to the company.

References

• Federal and State Payroll, Tax and Labor Links