Managing employee deductions requires a lot of time for payroll personnel as well as streamlined communication between the payroll department, the HR department, and managers or supervisors. Payroll and HR departments spend approximately 35 to 41% of their time conducting employee transactions (The Hackett Group, 2008 Book of Numbers), relating to payroll, benefits, time and attendance, etc. Adopting best practices can improve processes and increase productivity within your payroll and HR departments.

Five Best Practices for Managing Employee Deductions

1. Pay Advances – Disrupts the Payroll Department’s Efficiency
2. Provide Accrued Time-off Balances on Payroll Check Stubs
3. Using a Time and Attendance System to Manage Accruals
4. Implement Employee Self-Service to Make Payroll and Benefit Changes
5. Automate Garnishments

Pay Advances – Disrupts the Payroll Department’s Efficiency
Employees earning minimum wage, however it is not unique to this group alone, most often request pay advances. Many employers agree to help their employees make their monthly obligations, but it causes disruptions in the payroll process as well as inefficiencies. When an employee requests a pay advance, a payroll person has to manually calculate the taxes to take out of the payment before a check can be issued and approved. Then, the information needs to be entered into the payroll system to ensure it is deducted from the next scheduled paycheck. Depending on the size of the advance, the payback may be spread out over several paychecks to ensure undue hardship for the employee. When an employer agrees to make pay advances, the employer takes a risk in that if the employee quits before the payment is paid back it is a loss.

By not allowing pay advances, employers reduce additional payroll processing costs, increase efficiency, and reduce repayment losses.

Provide Accrued Time-off Balances on Payroll Check Stubs
Payroll and HR professionals manage thousands of employee transactions, and one of the most common transactions is looking up an employee’s vacation or paid time-off (PTO) balance. Depending on the size of an organization, this could add up to many, many hours a year. Simply providing this information on each paycheck could eliminate the time payroll and HR professionals spend on this task alone.

However, to do this, you need an automated accrual tracking system to make sure you provide accurate information or the payroll office will be overcrowded with unhappy employees. When the accrual system is set up, it needs to be set up to automate different employee accrual rates based on years of employment or level of employment. For example, employees may gain an extra week of PTO after three years of employment, so the system must apply that to each employee at the three-year anniversary date. Employees may accrue time each pay period, each year, each quarter, etc., and the system must be able to support the business rules. Sophisticated time and attendance systems track this type of information automatically to ensure accurate information every time.

Using a Time and Attendance System to Manage Accruals
As mentioned above, a sophisticated timekeeping system helps manage and track paid time-off for each employee as defined by the system. In addition to showing employee accrual balances, an automated system can automate how much PTO an employee has at a future date. Take it one step further and make this information available via an intranet, offering employee self-service (ESS) functionality. This would allow employees to request time-off and see their remaining balance today or at a future date. For example, it is July and the employee wants to schedule vacation in December, the employee can do this and the system will automatically calculate the available PTO balance for the employee.

Implement Employee Self-Service to Make Payroll and Benefit Changes
Within a single year, employees can make several changes that affect their paycheck, including bank account changes for direct deposit, withholding adjustments, benefit changes, updates to personal information, name changes, etc. Depending on the size of an organization and the size of the payroll and HR departments, these transactions could be continuous and therefore a burden to the payroll and HR staff.

Handling this many transactions can decrease productivity. Often, these changes are submitted by the employee on paper and then the information is entered into the payroll system. Sometimes these changes are entered into more than one system and handled by more than one person.This creates a higher chance of entering information incorrectly, resulting in having to do the process again for the next payroll period.

An ESS system can give employees access to pay statements, W-2 forms, earnings history, 401K elections, benefit elections, etc., as well as give them the opportunity to make changes or updates. The employer can also determine what changes the employee is authorized to make. ESS can also allow employees to create ‘what if’ scenarios by selecting different deductions such as medical plans, flexible spending accounts, dependent care accounts, 401K, etc. A payroll personnel typically has to figure that out for an employee to make a decision, but it can be streamlined with ESS.

Automate Garnishments
There are several steps to complete when a garnishment order is received. The payroll department calculates the employee’s disposable income, determines the appropriate deduction amount while taking other garnishment orders for that employee into consideration, and then pays the garnishing entity. The payroll department also makes sure the payment is completed.

Again, this workload can be a major burden for some payroll departments, depending on the size of the company and the number of garnishment orders there are. There are major penalties and fines to the employer when payments are not made correctly or are late. Many organizations have turned to wage garnishing processing services to manage these transactions. The fee is worth the cost of penalties and the time-savings that allows your payroll and HR departments to focus on other responsibilities.