What are catch-up deductions and when are they used?

If an employee’s deductions don’t match the amount owed on their account, catch-up deductions can be used to resolve the difference. Catch-up deductions are needed when the correct deductions aren’t pushed, which causes a discrepancy between what’s owed and what’s been paid.

Reasons for Discrepancies

Discrepancies can be caused by multiple reasons, including having the wrong number of dependents listed, a pay period being skipped, or the wrong effective date being entered. For example, if an employee has 30 days to enroll in insurance and they don’t enroll until after the effective date, they may have a catch-up deduction.

The Process

The payroll administrator chooses the catch-up amount that’s applied to an employee’s deductions and the period of time over which the catch-up deductions will be applied. If you spread the catch-up amount over multiple pay periods, you risk not being paid back if an under-deducted employee leaves the company. For example, an employee has the wrong of number of dependents listed and has to pay catch-up contributions. The administrator decides to spread them out over a 3 month period. If during the second month the employee quits, the company will lose the funds that the employee would’ve paid back through deductions in the third month.

Final Tips

It’s true that spreading out catch-up deductions over time puts a company at risk of losing funds, but it can also be hard on an employee if you collect the deductions all at once. When deciding how to collect deductions, you should take into consideration how long an employee has been at the company, and the total deduction value.