Using Company Contribution Formulas In Patriot Software

January 21, 2016

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To add a new company paid Contribution, see Company Level Contributions In Patriot Software. Your Contributions can be set up to automatically calculate based on a formula. There are two types of formulas: Single and Tiered.

If you select the Single Formula method, you will see the following statement:

__% of deduction up to __% of pay

These formulas will work regardless of whether the deduction method is a Fixed Dollar or Percent.

Single Formula Example

Let’s assume your company offers a retirement savings match of 50% of deduction up to 6% of pay. Here is how the formula calculation will work on a paycheck:

Let’s assume John’s gross pay is $500, and his savings deduction is 15%, which would be $75.00.

Since the deduction amount of $75.00 exceeds the 6% of pay maximum of $30.00, the system will limit the employer contribution to 50% of the $30.00 maximum, which is $15.00.

Now let’s assume John’s gross pay is still $500, but his savings deduction is now 6%, which would be $30.00.

Since the deduction amount of $30.00 is the same as the 6% of pay maximum of $30.00, the system will calculate the employer contribution at 50% of his $30.00 deduction, which is $15.00.

Now let’s assume John’s gross pay is still $500, but his savings deduction is now 3%, which would be $15.00.

Since John’s deduction does not exceed the 6% of pay maximum of $30.00, the system will calculate the employer contribution at 50% of his $15.00 deduction, which is $7.50.

Often a retirement savings plan is designed to place a maximum on the employer match, so the formula is useful when calculating the match.

The Tiered Formula method is most often used for Safe Harbor retirement plans where the minimum amount of employer match can be 100% of deduction up to 3% of pay, then 50% up to the next 2% of pay.

If you select the Tiered Formula method, you will see the following statement:

__% of deduction up to __% of pay
__% of deduction up to the next __% of pay
__% of deduction up to the next __% of pay

For example, a Safe Harbor plan formula would look like this:

100% of deduction up to 3% of pay
50% of deduction up to the next 2% of pay
__% of deduction up to the next __% of pay (the third tier can be left blank)

Tiered Formula Example 1:

Let’s assume your company offers a retirement savings Safe Harbor match of 100% of deduction up to 3% of pay, then 50% of deduction up to the next 2% of pay. Here is how the formula calculation will work on a paycheck:

Let’s assume John’s gross pay is $500, and his savings deduction is 15%, which would be $75.00. The formula tiers are then applied in order. In this example, John’s 15% of pay deduction exceeds the formula maximums so the “% of pay” limits will be applied.

The first tier formula would be 100% of 3% of his pay, which is $15.00

The second tier formula would apply the 4th and 5th percent (next 2% of his pay) by taking the difference between 5% of his pay and 3% of his pay and applying the second tier formula to the difference:

5% of pay: $25.00
3% of pay: $15.00
Difference: $10.00

The second tier formula would then be 50% of $10.00 is $5.00.

The total employer contribution would be $15.00 (first tier formula) + $5.00 (second tier formula) = $20.00

Tiered Formula Example 2:

Now let’s assume John’s gross pay is still $500, but his savings deduction is now 4%, which would be $20.00. In this example, John’s 4% of pay deduction exceeds the first tier “% of pay” maximum, but not the second tier.

The first tier formula would be 100% of 3% of his pay, which is $15.00

The second tier formula would apply only 4th percent because his deduction is 4%. The difference between 4% of his pay and 3% of his pay:

4% of pay: $20.00
3% of pay: $15.00
Difference: $5.00

The second tier formula would then be 50% of $5.00 is $2.50.

The total employer contribution would be $15.00 (first tier formula) + $2.50 (second tier formula) = $17.50

Tiered Formula Example 3:

Now let’s assume John’s gross pay is still $500, but his savings deduction is now 2%, which would be $10.00. In this example, John’s 2% of pay deduction does not exceed either tier’s “% of pay” maximums.

The first tier formula would be 100% of 2% of his pay, which is $10.00.

The second tier formula would not apply, because his deduction is only 2%. The second tier formula would then be $0.

The total employer contribution would be $10.00 (first tier formula) + $0 (second tier formula) = $10.00.

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