401K deduction discrepancies

[jmbaughm]

I work a hotel job where I receive cash tips, which I self report electronically on my paycheck. My employer's 401k program contributions are pre-tax. When I receive my paycheck the 401k deduction amount (20%) from my total gross earnings is not accurate and neither is the employer match. It appears I am being taxed on the full amount of my gross earnings and the 401k deduction amount is coming from what is left over after taxes, often several hundred dollars less than my calculations. After contacting HR about this, they don't have any real answers for me, only that because my tips are cash there is nothing to actually deduct from the paycheck to contribute to the program. Only after reaching out to them on multiple occasions for an explanation, they have now started to send me e-mails post pay period prompting me to write the hotel personal checks to cover the difference in the amount that was deducted and the amount that should have been deducted. This also does not account for the missing portion of the employer match. Am I missing something? I feel like because the 401k program is pre-tax contributions, the deductions should be coming out of my gross earnings, regardless of whether the earnings are self-reported cash tips. It seems as though not only am I getting taxed higher on my full gross earnings, but I am also losing out on money from the inaccurate employer match while also having to come out of pocket to catch up on the contribution amount. Can someone please help me understand this as my HR department has been unhelpful?    

[justanotheradmin]

In reading your post there seem to be several questions - 

Are deferral elections (your 20%) applied on compensation net of tips? There should be something in writing, so that if they are, the participant can adjust their requested deferral accordingly. 

Are deferral elections applied on compensation net of withheld taxes? This would be VERY unusual, but I suppose it could be case. Again, something should be in writing that they can provide to you. 

What compensation is required to be considered when calculating the match?

 

I suggest asking them for a few things - ask in writing, and keep a copy of your written request. 

1. Copy of the deferral election form (or website screenshot if an online portal is used) where it states that deferrals are not taken from tips, and are calculated after taxes are withheld. Or any other written notice that states this

2. Copy of the summary plan description, and safe harbor match notice (if your match is safe harbor). This should state if tips are excluded from the match calculation or not. 

 

It's not unusual for tips to be excluded from deferrals. But that should be stated somewhere, in writing. If that is the case, you would typically need to make a higher deferral election on your non-tip compensation so that overall your deferrals are what you want them to be. In your case 30% or 40% as the case may be. 

[Luke Bailey]

jmbaughm, I agree with justanotheradmin. You seem to have a good grasp of detail, so get a copy of the Summary Plan Description and see if you can show them that what they are doing is inconsistent with what is stated there. Look specifically for the definition of compensation that is included in the SPD and whether anything specifically addresses tips. Note that the 401(k) deduction usually is taken from gross W-2 wages, but plans can differ so you need to find out.