As the tax year comes to a close many are preparing for W-2 reporting and ACA Information Returns. Closely related to both of these is the proper entry of Insurance Plan Rates. The Datatech Payroll software module uses the Annual Plan Costs to perform the DD Compile on the W-2. The HRM Software module also uses the share rates when compiling 1095-C information. Below are some reminders for how to properly enter these costs, whether the plans use flat rate Costs or Age Rated Costs.
The Costs tab in the Plan Setup window registers several different plan settings as well as flat rate costs. Since every insurance carrier seems to have their own method for providing the costs associated with their plan, some calculations may be needed before you can make correct entries on the Costs tab.
Annual Plan Cost
In the screen shot above, the far left column entries are for the Annual Plan Costs. You only use these fields if your payroll deductions are Flat Rates or a percentage of wages. If your payroll deductions are based on the age of the covered individual, continue reading about the rest of the settings on the Costs tab, then see the section below regarding Age Rated Costs.
The amount to enter in the “Self Only” field would be the (annual) total cost to cover one employee for an entire Plan Year. If the insurance company provides a monthly cost amount, multiply this by 12 months to arrive at the Annual Cost to cover the employee.
The “Add Spouse” field is the additional annual cost amount to cover the spouse. If the insurance company provides an ‘Employee+Spouse’ amount, the annual amount for the “Self Only” should first be subtracted from the ‘Employee+Spouse’ amount. For example, if the annual cost for the “Self Only” is $2400.00, and the annual amount for the ‘Employee+Spouse’ is $3600.00, then only the difference of $1200.00 is entered in the Add Spouse field.
Similarly, the “Add Dependents” field and the “Family Coverage” field are only the additional annual amounts to cover the dependents or family. If the insurance company provides an ‘Employee+Dependents’ or an ‘Employee+Family’ rate, first determine the annual amount, then subtract the “Self Only” amount, and enter the difference in the corresponding field.
The center column entries in the screen shot are for the “Employee Share” or payroll deduction amounts. Again, these entries are only for Flat Rate payroll deductions, while age rated deductions are recorded on the Age Rated Costs tab.
Whether you enter monthly or weekly rates depends on a few variables, but mostly upon whichever would be simpler to calculate and comprehend. An insurance broker or carrier may provide deduction amounts in either monthly or weekly increments. The entries in the Plan Setup could either mirror the amounts they provided, or calculations could be performed to modify their amounts to an opposite increment.
If the deduction amounts provided are monthly amounts, you can enter that monthly amount and allow the software to calculate the amount for each pay period. The software will use the “Pay Cycle” setting on the Deductions tab (see below) to calculate the rate for each pay period.
For example, if the monthly share amount for the “Self Only” is $40.00 and the Pay Cycle is set to “Biweekly,” the software will multiply the $40.00 by 12 months to determine the annual (52 weeks) share amount of $480.00, then it will divide that figure by 26 pay periods (52 weeks divided by 2) to determine the payroll deduction amount of $18.46 per check.
As you might imagine, this can lead to questions from employees as to whether the deduction is correct. An average employee being paid biweekly might assume that $40.00 per month divided by two checks per month would equal a $20.00 deduction per check. This assumption supposes there are only going to be 24 paychecks annually and rules out the two additional pay periods that will occur during the year.
So the method you use for entering these Share amounts could depend on what information you provide to your employees during the sign-up or open enrollment phase. Rather than simply repeating what your insurance agents have provided, it may be beneficial to perform some calculations and provide a more ‘real world’ amount in the application documents.
For a “Weekly” Pay Cycle, many prefer to enter weekly amounts in the Share fields. This way they can inform the employee of the exact deduction amount, and they can enter that same exact weekly amount in the Share fields. This can be beneficial even in the above biweekly scenario. But their can be an issue of rounding that may need to be addressed.
For example, you have a Biweekly Pay Cycle and the insurance agent provides you with a Weekly amount of $12.29 and a Biweekly amount of $24.59. Note that the Biweekly amount isn’t simply double the weekly amount, which would be $24.58. Due to rounding, the actual weekly amount is slightly higher than $12.29, but not high enough to round up to $12.30. But once the weekly amount is doubled, the actual amount is significantly higher than $24.58 and gets rounded up to $24.59.
If you enter the weekly $12.29 amount in the Plan Setup, the software will actually only take a Biweekly deduction of $24.58, which is $.01 less than the actual rate. If you round the weekly amount up to $12.30, the software is going to take a Biweekly deduction of $24.60, which is $.01 more than the actual rate. If either of these is acceptable, then it may prove helpful to advertise the actual amount in the employee documentation.
You could also enter monthly amounts to try to deal with this issue, but rounding still plays a part. If you base the monthly amount on the weekly deduction, you would enter $53.26 as the monthly amount. The software will use that amount to calculate the annual deduction of $639.12, and then divide that amount by 26 to arrive at the biweekly deduction of $24.58.
But if you base the monthly amount on the Biweekly deduction of $24.59, you would enter $53.28 as the monthly amount. The software will use that amount to calculate the annual deduction of $639.36, and then divide that amount by 26 to arrive at the correct Biweekly amount of $24.59. So in this scenario, basing the monthly amounts on the biweekly rate proved to be the most accurate. However, all possible calculations would need to first be performed in order to determine the best method.
Note that immediately to the right of the Self Only Employee Share column is a menu to choose what type of amount is entered. This menu only applies to the Self Only amount entered and “Flat Rate” is the default setting. Other options include “% of Plan Cost”, which will treat the value entered in the Self Only Share field as a percentage, and use it to calculate the deduction based on the Annual Cost for Self Only.
The “% of Wages (Self Only)” option also treats the value entered as a percentage, and will use it to calculate the deduction based on the Gross Wages entered on each paycheck. The “Flat/% Cap” treats the value entered as a dollar amount, but will only deduct up to a designated percentage of the Gross Wages entered on each paycheck. Selecting this option enables the “% Cap” field, which allows you to specify the percentage.
Other Costs Tab Settings
The “Max. Dependents” field allows you to specify the maximum number of dependents, if any, that will be charged separately to the employee. For many flat rate plans, the insurer may cover all dependents at one flat rate. For some Age Rated plans, a maximum of three dependents are paid for separately, and any additional dependents are covered at no charge. Check your insurance documentation prior to using this setting.
Once you have determined which type of Share amounts you will enter, the “Employee Share Per” field needs to be set to either “Month” or “Week” to indicate what type of amount was entered.
The “Weeks for Deduction” field is blank by default. A blank entry instructs the software to take the Share deduction from every pay period. If you only desire the deduction to come out of specific pay periods each month, this field will accept up to a quantity four numbers. These must be any combination of four out of these five numbers: “1“, “2“, “3“, “4“, or “5“. These numbers correspond to the first, second, third, fourth, or fifth pay period for any given month.
For example, some employers with a Weekly Pay Cycle may want to only take four Share deductions per month, even when a month has five Pay Periods. They would enter “1234” in the weeks field. This instructs the software to only take the deductions for the first four pay periods of the month. Other employers want to take the entire monthly Share deduction during a specific Pay Period each month. They might simply enter “3” in the Weeks field. This instructs the software to take the entire monthly deduction in the third pay period of each month.
How-To Determine the First Pay Period of Each Month
The software determines which pay period is the first pay period of each month by means of a setting in the Program Setup. Under the Tools Menu, Program Setup, on the Payroll tab you will find a setting field called “Week of Month Calc. Basis”. If your software is set to “Ending Pay Period Date”, then the software will order each Pay Period in a given month based on the last date of the pay period. Or, if your software is set to one of the seven “Check Date” entries, then the software will order each Pay Period in a given month based on the actual date of the check on that day of the week.
For example, January 2019 begins on Tuesday, January 1. If your pay periods run from Monday to Sunday, and your check dates are Friday, you may cut a check for the pay period of December 24 to December 30 on January 4. Your software could be set to use the “Ending Pay Period Date” to calculate this check as the fifth pay period of December. Or your software could be set to use the “Check Date: Friday” to calculate this check as the first pay period of January.
This setting is important when you use the Weeks field to instruct the software to only take the deduction during specific pay periods. For example, you may have newly eligible employees enrolling in coverage beginning January 1. Both you and the employee might be expecting the January 4 check to start taking deductions for this new coverage.
But the deductions would not be processed as expected if your software was set to “Pay Period Ending Date”. The software would not deduct for any newly enrolled employees until the following week, when the pay period ends in the month of January. It is important for the Responsible Officials within each company to determine how they view this issue, and then make sure your software is set accordingly.
The “Frequency” field defaults to a setting of “Each Check”. It is usually advisable to change this field to “Weekly” when you have a weekly Pay Cycle. This is because at times a second check is cut for an employee for the same pay period. “Each Check” would take the deduction out a second time for the same pay period, which is usually not desired. The Weekly setting only allows one deduction per weekly pay period. Other possible settings are “Annual”, “Biweekly”, “Monthly”, and “One Time”.
The “Self Only Payroll Deduction #” field is required whenever a payroll deduction for an employee is needed. Enter the Deduction number, if known. Otherwise, click the menu button and choose from the list of Miscellaneous deductions you have setup in the Payroll Software module. If you do not yet have an appropriate deduction setup, or if you need to setup a pre-tax deduction, this must be done first in the Payroll software before it will appear in this menu. Pre-Tax deductions also require the creation of a specific Wage Type. Contact Datatech Support for assistance if needed.
The “Dependent Deduction #” need only be used when deductions are necessary for dependent coverage. You may use the same deduction number as the Self Only, or you may wish to use a separate deduction number in order to separate these costs on the employee Pay Stub.
Prior Year Costs Tab
The “Prior Year Costs” tab allows you to document the changes in flat rate costs over the time period you are offering the plan. These entries are used by the payroll software module when the DD amounts are compiled on the W-2’s. So it is important that the current Plan Year rates are entered as well as the previous rates. In the example shown above, the Plan Year ends on 11/30. If you did not enter the rates for the Plan Year ending 11/30/2019, then no DD amounts would be compiled for December 2018.
Age Rated Costs Tab
The “Age Rated Costs” tab allows you to enter costs and employee share amounts that differ according to the age of the covered individual. The software will only use information entered on this tab when the “Age Rated” checkbox is selected. If the Spouse and Dependents covered by this plan are also Age Rated, then the “Age Rate All Individuals” checkbox must also be selected.
While the flat rate amounts on the Costs tab may be left blank, all other settings on the Costs tab are still applied to Age Rated Costs. The software will use the employee date of birth to determine the correct age rate whenever a new Health Benefit record is created. At the beginning of each Plan Year, new records for any new Age Rates must be created. The “Deactivate/Switch Plan Enrollment” utility allows you to quickly accomplish this process for all currently enrolled employees.
To complete the Age Rated table, first determine how many different Age Rates you have. For example, if the rates for employees aged 21-26 are all the same, then it is not necessary to enter “21”, “22”, “23”, etc. as a separate row for each Age. Only one entry, “26”, is needed for anyone older than 20 and younger than 27. For each row in the table, enter only the highest Age for each Age Rate.
When only the employee is Age Rated, enter the annual Cost for Self Only coverage in the “Cost Self” column. Enter the share deduction amount in the “Self Share” column. If the spouse, dependent, and family coverage amounts are fixed, then enter the additional annual cost to cover the spouse in the “Cost Spouse” column. The amounts in this column should all be the same for each Age.
Remember, just like the Costs tab, this amount is only the additional amount to cover the spouse. If the insurance agent provided an “Employee+ Spouse” rate, then first subtract the employee only cost and only enter the difference. Now enter the Share deduction amount in the “Spouse Share” field. Similar to the costs, this amount is only the additional deduction amount to cover the spouse. The same is true for the “Cost Depend,” and “Depend Share” fields. The “Cost Family” and Family Share” fields are not normally needed.
If all covered individuals are Age Rated, complete the Age rated table in the same manner as above, making sure that the Spouse and Dependent rates are properly entered for each Age.
Note About Changing Plan Year Rates
When changing from one plan year to the next, Datatech has created a utility to deactivate the existing benefit records and create new ones with the new rates. This is especially important when using Age Rated Costs. You want the deduction for the new plan year to reflect the new age of the employee at the beginning of that plan year.
But using this utility requires some thought be put into when is the right date to use it. Please see the blog post shown at the following link before attempting to use the utility.