PAYROLL DEDUCTIONS

Payroll Services

POLICY 4

Effective Date: 01/09/2004

Last Modified Date: 05/26/2005

General

Benefits Program Administration, in the Office of Human Resources, is responsible for communications with SPA (staff) employees (subject to the State Personnel Act) and EPA employees (exempt from the State Personnel Act) about certain statutory and non-statutory deductions.

Statutory Deductions

University Payroll Services is responsible for deducting or withholding, reporting, and remitting these statutory (required by law) deductions and non-statutory (voluntary) deductions as described in the following text:

University employees may be subject to the following statutory deductions:

FICA

All employees, except student employees, are subject to FICA contributions. A schedule of rates appears in PAY Appendix 20.

See the Social Security Web site for additional information.

Retirement

All employees whose appointments are equivalent either to full-time permanent or to permanent part-time over 30 hours per week must hold membership in a retirement program. Withholding contributions for each of these retirement programs are 6% of gross earnings.

Persons who have previously retired under the State system at the time of re-employment with the State are allowed a six- month period before they must become active contributing members again. These provisions do not apply to temporary or to part-time under 30 hours per week employment situations.

See the North Carolina state employees' benefits Web site for additional information.

TSERS

Permanent SPA employees, whether full-time or part-time over 30 hours per week, are enrolled in the Teachers and State Employees Retirement System (TSERS).

Optional Retirement Plans

Full-time EPA employees with the rank of instructor or above may choose, at the time of initial employment, to participate in either TSERS or in an optional retirement program (ORP)(current vendors are TIAA-CREF, VALIC, Lincoln National, or Fidelity). Once an employee has selected and enrolled in either TSERS or an ORP, he or she may not change to another system. Changing from one vendor to another within the ORP is permitted.

All other full-time EPA employees are enrolled in TSERS.

Income Tax Withholding

Federal and State Income Tax Withholding: In accordance with Federal and State laws, Payroll Services withholds amounts for these taxes based on tax withholding schedules and the information submitted by each employee on W-4 and NC-4 forms (see PAY Procedure 7). Payroll Services must receive both the W-4 and the NC-4 forms for new employees before releasing a payroll check.

Taxes are not withheld on the employees' 6% retirement contributions for TSERS or ORPs.

Effective January 1, 1987, taxes and Social Security are not withheld from the employee's health insurance deduction, unless the employee declines this pre-tax option.

Aggregate Tax Method

Effective January 1, 1994, the University implemented an aggregate tax method for all payments made to employees. Instead of using the flat withholding rates of 28% Federal and 6% State, Payroll Services will use the standard method and include supplemental pay with regular pay in performing the tax calculation. The aggregate method is used because the flat withholding rate of 28% does not consider marital status or withholding allowances claimed by the employee (and therefore often results in a higher withholding). The aggregate method uses the tax table to calculate withholding and includes marginal tax rates of 15%, 28%, 31%, 36%, and 39.6%.

Non-Statutory Deductions

Approved payroll deductions and salary reductions other than those statutory deductions listed above are made only when authorized in writing. Among these are the following:

More information about the following non-statutory deductions is available at the appropriate Web sites:

These deductions are also sometimes taken:

Deduction Authorization

Before a non-statutory deduction can be put into effect, Payroll Services must receive a deduction authorization containing the following information:

Credit Union payroll deduction authorization forms may be obtained from any Credit Union branch. Payroll deduction authorizations for parking are obtained from the departmental parking coordinator.

Cancelling a Non-Statutory Deduction

An employee wishing to cancel a non-statutory deduction must contact the company or agency (see preceding paragraph for exceptions) and have a signed authorization of cancellation (with Social Security number included) sent to University Payroll Services at CB #1260 (104 Airport Drive, Suite 3600)(telephone 919-962-0046.)

SPA/EPA Employees on Leave without Pay

To pay premiums while on authorized leave without pay, SPA and EPA employees should contact Benefits Program Administration for assistance.

Termination

Special arrangements can be made with Benefits to continue hospital/medical coverage for a short time after termination of employment.

Insurance Claims

Although premiums are paid by payroll deduction, employees should file insurance claims directly with the insuring company. Please contact Benefits at 962-3071 (104 Airport Drive, Suite 1700, CB #1045) for further information.

University Departmental Services or Products

University employees may use payroll deduction to pay for University-provided products or services that are approved for payroll deduction as described in this policy. Departments wishing to offer this payment method will be responsible for information submission and retention, as well as administration of the deduction program. In order to qualify for payroll deduction under this program, the following criteria must be met:

Program Approval/Legal Review

A department meeting these criteria should obtain program approval to provide the service or product for a fee through appropriate department, school, and division channels, as well as obtain a legal review from the Office of University Counsel. Once the approvals have been received, the department should contact the Director of Payroll Services to coordinate establishment of the payroll deduction program.

FRS Account Number and Signatory Authorization

The department should provide Payroll Services with the FRS account number that will be used to record the deducted amounts, along with the following minimum information in an acceptable electronic format (e.g., Excel spreadsheet) and by agreed-upon timelines:

The format and content of the authorization form should be approved by Payroll Services, which has a sample authorization form to assist departments with this prerequisite. Departments must also provide information on price discounts and other program features to Payroll Services to facilitate the review of any tax implications.

Pre-Tax Parking Benefit

Effective August 1998, all permanent full-time employees have the option to purchase parking permits on a pre-tax basis. Eligible employees who accept the pre-tax parking benefit will be able to reduce the amount of pay subject to tax withholdings by the actual amount paid for the parking permit. The tax savings will occur at the time the employee pays for the permit, whether through payroll deduction or at Parking Services. Pre-tax forms may be obtained from the department parking coordinator or at Parking Services. The following table is one example of tax benefits from electing this option.

NOTE: If the employee is contributing at or near the maximum amount to a supplemental retirement income [IRC 401(k)], a tax-sheltered annunity [IRC 403(b)], or a deferred compensation plan [IRC 457], s/he may need to decline the pre-tax parking benefit or adjust the tax-deferred contribution because participation in the pre-tax parking benefit reduces the income available for sheltering under those plans. Also, Social Security earnings upon retirement may be marginally affected due to the reduced Social Security contribution. Affected employees should consult their tax advisors or contact Benefits Program Administration in the Office of Human Resources (962-3071) with questions about tax-deferred contributions.

Sample Calculation of Tax Savings After-Tax Option Pre-Tax Option
Gross Pay $24,000 $24,000
Less Cost of Parking Permit   -360
Taxable Pay (TP)1 $24,000 $23,640
Calculation of Taxes2    
Federal Income Tax (15% x TP) 3,600 3,546
State Income Tax (7% of TP) 1,680 1,655
FICA (7.65% x TP) 1,836 1,808
Total Taxes 7,116 7,009
Gross Pay Less Taxes 16,884 16,991
Less Actual Cost of Parking3 -360 -360
Net Pay $16,524 $16,631
Savings from Use of Pre-Tax Option4 $107  

1Taxable pay equals gross pay minus $360, the cost of the parking permit, in this sample calculation. The taxable pay reduction for tax calculation purposes does not apply unless the parking benefit is chosen.
2Actual tax rate depends on many factors. The sample calculation uses the lowest federal tax rate.
3The sample calculation uses a parking permit rate of $360. Actual parking permit rates will vary.
4Tax savings of $107 ($7,116 minus $7,009) are realized with the pre-tax parking benefit in this sample calculation.

Student Employees

FICA Exemption

Please review the Student FICA Tax Exemption policy with affected staff members. Remember that the requirement to match the FICA expense for student employees might affect a department's operating budget. Questions or comments about the policy content and procedural matters can be addressed to Dennis Press, University Controller, at 962-7007.

Health Plan

Effective July 1, 1993, the University began providing health insurance coverage under the UNC Student Health Plan and the Supplemental Blue Cross Medical Insurance Plan for all University temporary full-time postdoctoral trainees and postdoctoral research associates. The Student Health fee is mandatory for all full-time postdoctoral appointments, although the supplemental coverage may be waived if the individual can demonstrate that health coverage is available from an alternate source. The individual is required to complete and sign a waiver form. (See also PAY Procedure 11.)

Graduate Tuition and Fees Payroll Deduction

Beginning with the Fall 1991 semester, graduate students may have tuition and fees deducted from their payroll checks. Authorization forms are available online (Appendix 36B, Graduate Student Payroll Deduction Authorization Form.)

Questions Regarding Voluntary Deductions

Questions regarding the amount of the deduction made from an employee's payroll check should be directed to the Deductions Section of Payroll Services, CB #1260 (104 Airport Drive, Suite 3600). Call 962-7986 for EPA employees or 962-7985 for SPA. Some deductions are handled through Benefits Program Administration, 962-3071 (104 Airport Drive, Suite 1700, CB# 1045).

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