# Using Company Contribution Formulas In Patriot Software

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.