Elected Deferral Not Deducted

Needing information regarding employees that are allowed to advance on their earnings.  What to do when the employee has over advanced and will be negative or "in the hole."  This is problematic within the Transportation Industry.  At this time, do you suggest that the employer should honor the elected deferral or take whatever earnings are available to cover that advance debt?  We have a qualified Plan that allows both pre and post tax deferral.  This trips me up every week!

How are the advances actually handled?  Are they actual W-2 payments subject to withholding and SS taxes?  If so, then I believe it doesn't matter that they are "advances".  The deferral election that was made is applied to each actual payment to extent it can be; a percentage deferral will always work but a dollar deferral might exceed the paycheck and would therefore be limited.

I don't understand how the employer is covering the "advance debt". I would think it just is an amount of dollars that is NOT paid as additional compensation, so no question about deferrals would arise because there is no actual payment.

Can you explain in more detail the actual transactions involved and how they are reflected through the payroll system?

Thank you Larry.  I work at a trucking company.  All drivers are allowed to advance at fuel stops all over the country via their fuel card.  They are then uploaded daily into our payroll driver settlements to be deducted.  They are not earnings therefore not subject to taxes.  Each driver is allowed two draws weekly of 75.00 each for a total of 150.00 weekly.  Lets say a new hire comes to work, draws both advances so he owes 150.00 of his first paycheck.  Lets say that he elected 50.00 weekly (as most truck drivers choose to defer a flat dollar amount vs a percentage of their earnings) But, his revenue is only 200.00 for that week.  He will not have the revenue to pay the advances back in full unless I take some of his deferral to "cover" them.  This is an issue I deal with weekly as not only can the driver automatically draw 150.00 but they also tend to call their driver manager and get even more money.  So you can imagine the frustration at hand in dealing with this through payroll.  I was wanting to make sure that I can legally take from their deferral to cover the outstanding money owed the company.

I appreciate any information offered on this topic.  

Without any substantive research, I will give you my answer.  The amount advanced to the driver has already been paid to him when his check is issued (which is why the net check is reduced but the gross amount it not). Therefore, it is only practical that the deferral amount be applied to the net check after the payback of the advance.  If it is a dollar amount deferral and the check exceeds that amount, the full dollar amount is taken; if it is less than the deferral amount, the whole CHECK is taken and he gets a zero net check.  If it is a percentage, the that percentage is applied to the net check.

I don't see any other way of handling it, but perhaps others will chime in.

Good luck.

Thanks again Larry as this is the practice we currently use.  I was looking for a "back up" so to speak and you provided it.  Thanks again and have a wonderful weekend!

Can you deduct the deferral at the time the advance is made?  Is that feasible with the software?  

Example (shown on the ATM or whatever device the trucker uses to withdraw the advance)

"You have elected today to receive an advance of $200.  You previously elected to contribute 10% to your 401(k).  The amount you are receiving today is $180.  The remaining $20 will be contributed to your account in the 401(k) plan in accordance with your prior election.   Press yes to confirm or no to change your advance request.  Press 401(k) to modify your 401(k) election.  Press hardship to take a hardship withdrawal from your 401(k).  Press loan to take a 401(k) loan.  Press help if you don't understand any of this."  

Yes this would be confusing.  Yes it could result in lower 401(k) elections, yada, yada, yada.

I am just throwing out an idea.  

Another option is to disallow advances that would lower the net check below the deferral amount for that pay period.  Again, this might cause IT heartburn.

P.S.  Just joking about "press 401(k)" etc.

I'd make sure this is covered well on the participant election form...so that they understand and are authorizing a smaller deferral (and possibly employer matching) amount should their net wages not be enough to cover the full deferral that they have elected.

are your new hires immediately eligible to contribute?

Because having done both payroll and benefits, it would be some crazy programming and data transfer between the fuel card and payroll and possibly the 401k elections/recordkeeper and I doubt the fuel card provider is able to deal with a situation such as this.

(I personally hate wage advances because of all the issues that they bring, but do understand in some industries that they are "normal")

On 8/24/2018 at 4:48 PM, ERISAAPPLE said:

Can you deduct the deferral at the time the advance is made?  Is that feasible with the software?  

Example (shown on the ATM or whatever device the trucker uses to withdraw the advance)

"You have elected today to receive an advance of $200.  You previously elected to contribute 10% to your 401(k).  The amount you are receiving today is $180.  The remaining $20 will be contributed to your account in the 401(k) plan in accordance with your prior election.   Press yes to confirm or no to change your advance request.  Press 401(k) to modify your 401(k) election.  Press hardship to take a hardship withdrawal from your 401(k).  Press loan to take a 401(k) loan.  Press help if you don't understand any of this."  

Yes this would be confusing.  Yes it could result in lower 401(k) elections, yada, yada, yada.

I am just throwing out an idea.  

Another option is to disallow advances that would lower the net check below the deferral amount for that pay period.  Again, this might cause IT heartburn.

P.S.  Just joking about "press 401(k)" etc.

I  still see a problem.  A wage advance is NOT the same as a wage payment.  For example, let's assume someone takes an advance on 12/31/17.  But the actual payment of wages is 1/7/18.  The earlier payment will not show on his W-2 for 2017.  Therefore, I see no way to withhold any money for 401(k) out of the advance since that is not wages being deferred.   FWIW.