Deduction Calculations

Article by Elizabeth Ingram
VP of People Strategy  – CU Insurance Solutions 

Determining an employee’s Insurance Deduction Calculations isn’t always a lot of fun, but making sure they are correct is essential for both the employee and employer.

Deduction calculations happen at renewal time (before and after), as well as any time an employee comes on or off the plan mid-year OR makes changes.  If the employer changes how much they contribute to premium, the employee calculation needs to be re-done as well.

How to make deduction calculations? First you need to determine several items, preferably in tandem with your accounting department.

  • Are deductions paid for the current month or paid in the month ahead? If possible, we recommend paying in the current month so that if an employee leaves, they haven’t overpaid.
  • Are deductions calculated on a monthly or annual basis? Your accounting team may have a preference.
    • Either way there may be ‘odd’ pennies, so let your accounting team know when to expect them.
    • If calculating monthly, in months with an extra payroll (5 for weekly or 3 for bi-weekly) those ‘extra’ payrolls will not get a deduction.
    • If calculating on an annual basis, there will be a deduction for each payroll.
  • Odd pennies: it is unlikely that your employee premiums will be perfectly divisible by year or month, so you will need to decide when to charge these. We do ours at the beginning of the plan year.
  • Some deductions are weekly; these do not require calculating the deduction. Examples include: 401ks and Long-Term Care.
  • Some deductions are weekly but may require calculating the deduction to allow the employee to max out their coverage. Examples include: HSAs and FSAs.

You will then need to calculate the deductions.

Sample calculations for weekly payroll:

Dental (monthly premium – calculated on a monthly basis)

  • $40.25 (sample premium)
  • 4 weeks/month: $10.06/week ($40.25/4) – if there’s a fifth paycheck, no deduction is taken
  • Annual premium: $483/year (40.25*12)
  • Determine odd pennies
    • 4 months have 5 Fridays, so only 48 deductions should be taken
    • $10.06*48=482.88
    • $483-482.88=0.12
    • First deduction should be: $10.18
    • $10.06+0.12=$10.18
  • If an employee is only eligible for 11 months, you would use 11 months and 44 weeks to calculate the total.

HSA (annual maximum – calculated on an annual basis)

  • $4150 (individual 2024 maximum) – keep in mind the family maximum is higher, individuals age 55+ can put in an additional $1000/year, any employer match comes out of the maximum, and an eligible employee can put in any amount up to the maximum.
  • $4150/52=$79.8 (to max out the HSA for the year with a weekly payroll)
  • Determine the odd pennies for maxing out the deduction
    • $79.8*52=$4149.60
    • $4150-4149.60=0.40
    • First deduction should be $80.20

After deduction calculations are made, you need to communicate them to employees.  We recommend the use of a payroll deduction worksheet which includes all benefits and requires an employee signature.