Accounting Best Practices, Fifth Edition

17–3. Minimize Payroll Deductions

A company can offer a large number of benefits to its employees, many of which require some sort of deduction from payroll. For example, a company can set up deductions for employee medical, dental, life, and supplemental life insurance, as well as cafeteria plan deductions for medical insurance or child care payments and 401(k) deductions. If there are many employees and many deduction types, the payroll staff can be snowed under at payroll processing time by the volume of changes continually occurring in this area. Also, whenever there is a change in the underlying cost of insurance provided to the company, the company commonly passes along some portion of these costs to the employees, resulting in a massive updating of deductions for all employees who take that particular type of insurance. This not only takes time away from other, more value-added accounting tasks, but also is subject to error, so that adjustments must later be made to correct the errors, which requires even more staff time.

There are several ways to address this problem. One is to eliminate the employee-paid portion of some types of insurance. For example, if the cost to the company for monthly dental insurance is $20 per employee, and the related deduction is only $2 per person, management can elect to pay for the entire cost, rather than burden the accounting staff with tracking this trivial sum. Another alternative is to eliminate certain types of benefits, such as supplemental ...