How to Calculate 401K Payroll Deductions

IF a percentage of payroll:

  1. It would be a percentage of GROSS pay
  2. Example: Gross pay is $2050
  3. Employee elected to have 5% of salary deferred
  4. 8% of $2050 = $164
  5. You would enter $164 as a 401K deferral into your payroll software or if your software allows it, 8%

Calculating Employer Match

  1. Let’s say this is a safe harbor plan that match that matches the first 3%, dollar for dollar, then the next 2% 50 cents per dollar.
  2. Let’s convert the employee’s paycheck into units of 100:
    1. 2050 divided by 100 = $20.50
    2. Each 1% of salary is $20.50
    3. The first 3% is matched dollar for dollar: so 3% is $61.50
    4. The next 2% is matched 50 cents for each dollar.  2% is $41…. and half of that is $20.50
    5. You would enter $82 into your software system as the employer match
    6. There also may be a setting / button in your software to do this automatically.

 

 

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