In our previous post describing Paying Current Versus Paying in Arrears, we discussed examples and gave scenarios for each of these situations. To refresh our memory, paying in current is when an employer must run payroll before the employee has actually worked the hours based on an estimate of time the employer believes they will work, such as 40 hours for a typical work week. If the employee works more or less than this, the employer must adjust the amount on the next check. This is called "paying current."
But what happens when an employee's check is not enough to cover their voluntary deductions or if an employee does not have a paycheck issued that payroll? Then you have what is called an arrearage.
What is a Benefit Arrearage?
Any unpaid amounts are considered in 'arrears’. A Benefit Arrearage is when the employee owes unpaid amounts toward their benefits. In order to correct this, you will need to track what voluntary deductions the employee was unable to pay. As a payroll administrator, you will have to look at the priority of the deductions the employee owes to determine what to withhold. Your payroll system could be set up with the order deductions should be withheld in to show you which deductions should come first. Frequently, the primary item that goes into arrearage is benefit premiums because we have certain deductions such as garnishments, child support, and taxes that are required to be withheld.
The challenge comes when you are unable to track deduction arrearages in your payroll system. If you are unable to track arrearages in your payroll system, you will need to use a spreadsheet or database that will help you track increases in the arrears amounts, payments to reduce the amount the employee owes, and what the remaining balance the employee owes.
Some systems have the ability to track when an employee goes into arrears when their check is not enough to cover their deductions. Another option that is helpful is when your system is also able to track times when employees are not paid and put their benefits into arrears in those circumstances as well.
We faced challenges with Sage HRMS because we were unable to track arrears. With Scissortail HCM we also have lots and control how we take those arrearages back from employees. Here are some examples of the different controls we have available in Scissortail HCM to use with arrearages:
- We can determine with each type of pay statements (example: Regular, Bonus, etc.) if we want to collect arrears or not. For example, should we deduct an arrearage for health premiums on a bonus check which does not include a health insurance deduction?
- Decide what deductions that should go into arrears and which ones that should not go into arrears. Once you know which deductions should go into arrears if there is an employer portion, you will need to decide if the employer portion should also be underfunded or discarded.
- When it comes time to recover an arrearage, you have some decisions to make. Do I want to take the arrearage this deduction after their normal scheduled deductions or do I have it look based on deduction group priorities?
Arrearages can be a pain for payroll teams to administer, and you want your payroll system to help you identify and collect those arrears rather than tracking it all by hand.
Do you need help with this or any other payroll issues? Contact us today to talk about your needs. As a partner in your business, CS3 will help you solve your payroll software problems, whether it is finding new, better options available to you, or by giving you access to our experienced and knowledgeable staff.