Pay Stub Requirements

[LLanham]

We are changing to a "cafeteria plan" effective Jan 1, 2009 for our benefits. I have never worked for a company, up to this point, that offered benefits under a cafeteria plan.

I know that each state has their own requirement for what must be itemized for deductions each pay period and listed on the pay stub, and I have those requirements...... my question is do those requirements also apply to a cafeteria plan?

My HR Dept is telling me that we can list one pre-tax deduction on the pay stub for the combined amounts for medical, dental, etc... and one deduction for post tax benefits (if there are any, that point is still unclear)

Does anyone know if it makes a difference that it is a cafeteria plan vs traditional? In other words does that negate a mandate for itemized deductions?

We are in: CA, FL, IL, KY, MA, MI, MN, NY, TX

Thanks for any help!

[samk]

I know MA requires itemization on the paystub. The question is whether this is defined to allow grouping of similar tax items or if this means deduction by deduction.

The problem you will run into is when deductions don't fit into your taxable "buckets" perfectly. My personal opinion is that if you have space on the paystub, you should be fully itemizing. That way, the employee has a better idea (assuming they actually look at it) of what is being removed from their check. At open enrollment time, they can also make a better informed decision on what benefits they wish to continue and which they realize they should add when permitted.

Samuel Kerch, CPA CPP
Board Admin
Symmetry Software

[rrupert]

I agree with itemizing even if there is no current legal need for it. I am in TX and we itemize each deduction. They are split into groups between pre-tax (401k, Section 125) and aftertax (Roth,etc).

Because from an HR standpoint, it can easily answer a lot of questions on deductions if they are NOT added together. And it is easier to find a mistake if one is made -- for example, which deduction didn't get started. Especially if it is over a period of time. And the employee can easily compare it back to other statements (such as a 401k benefit statement, etc).

[pattypa]

Absolutely. In this case, the more detailed you can do, the better, at least on the deduction side.
_________________
Patty Young, CPP

There'll be time enough for countin' when the dealin's done. Being that the dealin' is now done, I'm countin'. And somebody is gonna pay.

[jadegurl]

One other thing you may want to pay attention to - does having all pre tax and post tax deductions lumped into 2 numbers affect your reporting?
How easy is it for you to breakdown where the amounts come from?

I bring this up because our company in addition to our internal auditing also has an audit with our 401K providor and we need to be able to separate the 401K numbers from the Medical and Dental dedutions which are also pretax. Our reports are tied into what is listed on the check stubs so it makes sense to list everything separately.

Just because you CAN list a combined number does not mean it is a good idea.
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Thanks,
Jadegurl

[LLanham]

I completely agree with you all. I just wondered if legally the requirement changed at all... I have researched again and I'm not finding anything that says cafeteria plan excluded.

I will be meeting with the HR Director later today, since the HR Dept is not even willing to discuss it, they just went ahead and requested the change from IT. (I got notified of they change from our IT programmer!) grrrr

It makes no sense to change it, we currently have the capability and that won't change with the new plan. The pay stub is already mapped as such, why spend time to reconfigure it for the worse? Employees will have a much harder time keeping track of everything all lumped together. Additionally, our EE's are facing some major changes next year as it is...you would think HR would not want to rock the boat any more than necessary.

I don't know where they come up with these "idea's".... my gosh!!

[David Warren]

Appoligies to everyone, but I am going to take a contrary view of things.

First, get a copy of the Payroll Source book. It has a nice 50 state chart on the pay stubs rules for each state. We have hard legal requirements on the pay stub reporting that need to be complied with. I am going to suggest that there is a need to not confuse objectives here. While there are many possible things we can do with the paystubs, we must follow the actual state laws.

Past that point, I have worked with companies that had over 100 cafeteria related deductions and it was a real mess. HR (for comp and benefit purposes) had many chiefs and one indian. They never proofed their own data entry work and had a high data entry rate. Payroll did proof their work but it was very difficult to keep things straight, particularly when we had bunches of very similar sounding deductions. After a lot of discussion, HR kept their very complicated benefit tracking scheme but only gave PR just enough information to do their job correctly. Instead of having a deduction called KaiserFamily03DepPreTax eating up the stub, we had MedPlan.

Regarding pre-tax vs. post-tax benefits, we established our benefit plans in such a way as we only had one possible choice for each benefit. Anything that produced income (sick, disability) was post-tax deductions. Everything else was pre-tax. Employers are not legally required to offer benefits and employers are not required to structure benefits plans to present bad choices.

IMO, too much information is not necessarily a good thing. And most payroll systems have limits on the numbers of earnings and deductions codes, and how much space is available on the pay stub.

And my employer just emailed a full benefits statement to all employees quarterly that included a lot more information then would have fitted on the pay stub. And if the objective is to actually inform the employee about their benefit choices, perhaps the paystub is not the best method.

Besides, it is not like employees actually read the pay stubs. Or so I am lead to believe by the many postings made on this website.

[pattypa]

In all my (probably, too many) years in payroll, I've never been with a company that had a separate deduction for every option in every plan. I agree that would be a nightmare. And that's not really payroll's job to keep track of WHICH plan and WHICH option the employee has selected for every possible benefit plan.

When I said more is better than less, I didn't mean more to that extent.
_________________
Patty Young, CPP

There'll be time enough for countin' when the dealin's done. Being that the dealin' is now done, I'm countin'. And somebody is gonna pay.

[rrupert]

David makes a really good point. Part of the reasoning is going to depend on how many deductions (or even wage codes) you have. And also how many possible deductions any one employee will have in any given year -- assuming you show YTD amounts also. Our payroll system and stubs have the ability to only show those deductions that each specific employee has.

We have 2 Section 125 health plan choices (pretax), 401k (pretax)and Roth 401k (posttax).

Going along David's line of reasoning, I do agree that you shouldn't need a deduction code/line explanation for every deduction, but I think it would be wise to at least group deductions together when they are the same type of benefit and same in taxability.

For example, any pretax medical insurance would fall under the code MedPlan regardless of which medical plan they chose (assuming you have multiple medical insurance plans). So in our case, we group the two health plan choices into one deduction/reporting code since they are both pretax medical insurance deductions.

However, we do not group that pretax amount with the 401k deduction just because they were both pretax. Nor would I group the 401k with Roth since they have different tax consequences, even though they belong to the same benefit plan. I want employees to be able to match the YTD 401k contributions back to their quarterly/YTD 401k statement.

But I have a smaller population and our payroll system automatically prints paycheck stubs. I don't have much ability to influence it except when I set up the deduction/wage codes in the beginning.

[LLanham]

Thanks everyone!! I appreciate the support.

[PayLady]

We have a separate "benefit" deduction for each option in our multiple pre-tax 125 benefits program. Each category is then rolled up into one payroll deduction. For instance, we have 10 separate benefit deductions for Dental. They are:

1. Dental Buy Up EE's
2. Dental Buy Up Managers
3. Dental Buy Up Retirees
4. Waive Dental Coverage
5. Dental Managed Care EE's
6. Dental Managed Care Managers
7. Dental Managed Care Retirees
8. Dental Basic PPO
9. Dental Basic Managers
10. Dental Basic Retirees

These 10 dental benefit deductions are rolled up into one payroll deduction titled "Dental." That is what prints on the paycheck stub.

We've learned the hard way that it is much more beneficial to break down the dental coverages into separate deductions. It makes life much easier when plan costs change.