Typically, people enter the workforce between the ages of 18 and 25, depending on whether they go to college, seek professional certification, or go straight into the world of work from high school. This means that we can expect to be active for at least 40 years, if we are to assume that most people work through to retirement age at 65. When leaving the world of employment, then, it is fair to say that our lifestyle will see a significant change. The idea of a pension is to give us financial stability during our retirement and, if we have saved enough, to allow us to enjoy the years after we stop working for a living. More than a few people decide they will carry on working, particularly if they have not earned enough to have a comfortable retirement, or they believe they can still contribute or have unfinished business to complete. However, it is for the average worker, the person who has logged 40-plus years of paid work in a steady job, that the pension plan is designed.
Most employers these days have a specific pension plan. It tends to form part of the benefits package that is a standard part of most jobs in any given employment sector and generally will follow the pattern of any of these benefits. A contribution will be taken from the employee's monthly salary and put to one side in a pension plan; and this will build, year on year, into a retirement fund that will let us see out the years after our retirement.
In many companies, a pension plan will be an automatic part of the benefits package as per the job description and will be taken by almost all full- time, permanent staff members who qualify because it represents an investment in the future for those concerned. For the employee, it has the benefit of being convenient. You can shop everywhere for the best pension plan; but with the best will in the world, some of us just are not as financially literate as others, and an employer-chosen pension plan will have been checked and judged sufficient before being accepted. The contribution will be automatically deducted from workers' monthly salary and, generally, employees will be able to look at the state of their pension finances at any given time to see what lies in wait for them at retirement.
As a payroll professional, it will be part of your job to know the ins and outs of a pension plan. Employees or their line managers will direct numerous inquiries your way, all pertaining to different elements of the plan. Having the requisite knowledge is helpful in this case; although with so many different elements to keep in mind, it is only natural that you will not be able to keep it all in your head. Having detailed information on hand will be advisable. The records kept in the payroll department certainly will include pension contributions paid by employees and for how long, but you may need to refer employees to the pension company to ask for more specific information on their own plans.
It is possible to opt out of a companywide pension plan and, in some cases, to negotiate how much one pays as a contribution. Thus, when calculating how much an employee will receive each month, it may not be a straightforward matter of including a standard pension deduction in your calculations. The records held by the company will include all relevant contribution data.
Based on the terms of the 401(k) plan, employees designate a dollar amount or a percentage of income to be deducted from their gross pay and contributed to the plan on a regular basis. Such factors as length of service, age, compensation, and union status determine each employee's options for making contributions as well as the employer's matching amount. Over time, all contributions grow on a tax-deferred basis, and typically, employers contribute funds to match the employees' contributions.
For example, an employee earning $750.00 per week may designate 8% of his gross pay, or $60.00 per week, as his 401k contribution. The employer may match this with a contribution of 4%, or $30.00 per week. At retirement, separation from employment, or upon the occurrence of some defined event, such as medical or other qualified emergency, employees may be entitled to take withdrawals, either as taxable distributions, or as loans which must be repaid according to the plan's terms.
In this example, at tax time the employer would issue a Form W-2 reporting gross FICA wages of $39,000.00 ($750.00 x 52 weeks) and taxable wages of $35,880.00 ($39,000.00 - $3,120.00 ($60.00 x 52 weeks). Federal and state income tax withholding are calculated from the applicable table in IRS Publication 15 based on the employee's withholding certificate information shown on Form W-4.
Amounts designated as compensation for sick time, vacation time, maternity leave, and certain other benefits are calculated generally by applying an employee's hourly pay rate to the number of hours being compensated. For example, an employee earning $20.00 per hour who takes 80 hours of vacation time would be compensated $1,600.00 of gross pay, less applicable withholding for FICA, federal and state income tax withholding, and 401k contribution
One of the most sought after fringe benefits today is health insurance, particularly in the current uncertain state of health care reform. Most employers still provide such coverage either at little or no cost, or as a pre-tax fringe benefit to their employees. For example, an employee who contributes $3,000.00 on a pre-tax basis against a gross salary of $39,000.00 would receive a Form W-2 reporting taxable wages of $36,000.00.
When an employer maintains a pension plan, the business makes regular contributions to the plan on behalf of its employees without necessarily requiring contributions by the employees. In the last ten to twenty years, such plans have become increasingly rare as foreign competition and other factors have made pensions cumbersome and expensive to maintain.
DEALING WITH ERRORS
The major reason for a great many workers doing their job is financial remuneration. This is not a cynical remark; the simple truth is that money is necessary for anyone to live a comfortable life. However much we enjoy our jobs, it would be a lot more difficult to go about our business without the wages being paid at the end of the month or week. The regular pay packet allows us to eat, to sleep under a roof, to enjoy ourselves, and to do just about anything that forms a major part of our everyday lives. It is that vital to us.
In this respect, the work of a payroll professional is a matter of huge importance to everyone working for a company. The timely, accurate transmission of a person's wages can mean the difference between a good day and a bad day, between peace of mind and utter panic, between comfort and meltdown for the person due to receive the money. It sounds extreme when put like that, but when you take into account that people have their payday set as the day to pay their rent and other bills, plus do their grocery shopping, it is not difficult to understand why payday is such an all-important day on the calendar for so many people.
For people on the receiving end of a wage payment, it is a transaction the importance of which cannot be underestimated. So to be among the people calculating and transferring the payments is a position of absolute … power? Pressure? Some combination of the two? It is undeniable that being part of the payroll department is a position of some responsibility. People rely on you to make sure they can go about their life normally and, if a mistake is made, you can be certain that you will hear about it the moment people check their pay stubs. An error in the payroll department is the error that detects itself, because if people get a dollar less than they think they were entitled to, they will start asking what happened. They will ask you and, chances are, they will not ask politely.
The important thing is to ensure that errors occur as rarely as possible and when they happen, they are quickly remedied. The first of these is a prevention method while the second is a cure, and the better you do the first, the less you will have to do the second. It is a difficult job, but that is why it requires dedicated professionals to do it. The way to avoid mistakes is not complicated, but it is hard work. Every detail that goes into a worker's pay stub requires checking. The raw data, such as hourly rate, hours worked, tax rate, and any other standard information, must be verified and corrected where it is wrong. The calculations arising from this must be done with care and caution and done again for verification. At this point, you will know whether the information resulting from your calculations looks correct. This can often be the first warning that something is not as it should be. Having the information for previous months at hand will be instructive in such situations, as it allows you to see immediately if something is out of line with how it should be done.
After the details have been checked the requisite number of times, it is time to transfer the payments. At this stage, you should re-check that everything that has been transferred is accurate. This will be your last chance to correct mistakes before the money lands in the account of the employee concerned. If all looks correct at this point, all you can do is assume that things have been done correctly. The next time you will hear if something is incorrect will be when an employee complains that they have not been paid the right amount.