Reply With QuoteWhy not only accrue 3 hours per pay period for twelve pay periods?
I am, of course, not an accountant.
Here's a hypothetical I'm puzzling through.
A company allows employees to accrue general leave at the rate of 8 hours per paycheck (there's no distinction between sick and personal leave).
An employee becomes very ill and misses a LOT of work, far more than the normal amount of leave allotted. Because of the illness, company doesn't fire employee for absenteeism and instead continues to pay the employee throughout this period. The employee ends up in the hole about 60 hours on leave, which means he has been paid for 60 hours he didn't work.
The solution arrived at and agreed to by all parties is to allow the employee to pay back this overpayment via a small deduction from several paychecks. The deduction is based on the employee's effective hourly rate and is paid back at the rate of 5 hours per paycheck.
So the puzzle: During the time the deductions are being taken, should the employee continue to accrue 8 hours of new time per pay period, or 13 hours to reflect the 5 hours he is paying back?
Why not only accrue 3 hours per pay period for twelve pay periods?
I am, of course, not an accountant.
If not that, then certainly 8 hours, I would think. The deduction is going against leave time he didn't have the working time to accrue; giving it to him in new accrual too would be double-dipping, wouldn't it?
Strange that a company would do that. I would probably agree to have the employee accrue 3 hours instead of the normal 8 until such time as the extra leave was paid back.
This is not really an accounting question, more of a company policy or employee agreement question.
I don't understand how one would accrue while at the same time having deductions taken.
Why not just NOT accrue and use that loss in lieu of deductions? Then once the overpayment is taken care of the employee can start to accrue again.
Well, let's assume the idea is to get the employee back in the black leave-wise so that he's not in the hole at the end of the year.
If that's the case, giving him less accrual per check (and skipping the monetary withholding altogether) is likely going to make the situation worse. The withholding allows him to buy his way out of the hole.
I'm not a CPA either but that doesn't make sense. They should accrue 8 hours irregardless, and if they're giving up 5 hours to their "debt", only accrue 3 hours per pay period until the debt is paid. In other words, subtract, don't add :).Originally Posted by jerri blank
It depends on how time accrual is deducted. Does the employee essentially have no PTO until the 60 hours is paid back? If so, then 13 hours per pay check with the bank of PTO sitting at 0 until things are paid off (So for the next 4 months he earns 0 hours of PTO net, and in month five he earns only 5 hours instead of his normal 8). If not, then the employee earns 8 hours of PTO (which he presumably can take at will) and in 1 year will have paid back the 60 hours of PTO he was generously "loaned".
(There's an implicit assumption that he's being paid monthly here, but 8 hours of PTO per month seems about right for a salaried employee. If it's actually per paycheck where paychecks are more frequent than months, then convert months to paychecks above, and 1 year becomes 12 paychecks.)
Ah, I see now.
I happen to be a CPA, with a Masters in Tax, but I'm pretty sure this is more a question of practical sense (having training as an accountant who works with employee benefit plans doesn't hurt).
Personally, unless I am looking at this incorrectly, I think the right answer is to have the employee accrue the new leave time at a rate of 8 hours per pay period.
First, this isn't PTO people, it's not vacation time, it's an employer plan which is meant to give employees paid time away from work if they need it, in this case, for medical reasons. I would think of it as akin to the employer's short term disability plan, funded from the employer's general assets as opposed to being funded through an insurance company.
The reason I say 8 and not 13, to me, is simple math. Prospectively this employee is being treated like any other when it comes to accruing new leave under this plan. Every pay period worked, they get another 8 hours of potential leave time should they meet the conditions for a new leave (whatever those might be). The fact that the employee previously used up more leave than they were entitled to under the terms of the plan has nothing to do with how they are going to accrue additional, or prospective leave time. The way this equation is being balanced is not through the accrual formula, it's through their regular compensation (i.e., over 12 pay periods, they are being docked an amount which, over 12 pay periods (5 hours x 12 paychecks = 60 hours too much leave taken) will make the employee whole as far as previously accrued leave time goes.) Once that period has ended both the employee and the employer will be whole, i.e. the employee will be in a position where they did not use more than the allotted time they should have been permitted under the leave plan.
You don't want them to accrue more than 8 hours a pay period because if you do that, you put them in a more favorable position than they would have been otherwise. In effect you would be treating them in an anti-discriminatory fashion by giving them better terms under the plan than other employees, which is likely not their intent. If this is what is known as a self insured medical reimbursement plan under IRC Section 105(h) (we don't know enough to be sure), you do have to be careful about discrimination in either eligibility, or the amount of benefits provided under such a plan, particularly if this employee would be a "highly compensated individual" under the tax law (I'm not going to look it up, but for this purpose think of it as someone who earns more than 100k or shareholders, etc.).
I hope that makes some sense in how to look at it ... and helps. It's an interesting question Jerri!
Nixxter, I think your explanation makes a lot of sense. Thanks for weighing in.
YW Jerri.
The one thing I would add, because it is not a concept that most folks are aware of, is that the discrimination issues are basically prohibitions against discriminating in favor of highly compensated employees, i.e. generally you don't want to discriminate in favor of HCEs and let them have more favorable benefits, or more favorable eligibility requirements.
The rules are more prevalent with retirement plan benefits as opposed to what we have here (I'd call these more welfare plan benefits, or fringe benefits). If you feel the plan exists not only to provide medical leaves but other leaves that the employees can take (assuming they go through proper procedures and notifications to the employer, under the terms of the plan), you could have someone review the terms of the plan to see if it is really a self insured medical reimbursement plan under the tax law. If it isn't, or the employee is not an HCE, there is no prohibition against discriminating in their favor, so if they want to allow the employee to end up in a more favorable position and come out with some unused leave time (catch up, as you were intimating), I don't see any problem with them letting the employee accrue additional leave time at a rate of more than 8 hours a pay period, but they should recognize they are treating the employee in a more favorable way than other employees, and also, likely are not following the terms of the plan itself, which might open them up to other employees asking, hey, why don't I get that kind of deal?
Edit, the more I think about it, it's not really a medical reimbursement plan, and you don't have to worry about discrimination issues. The leave, when taken, is taxable compensation, I believe (i.e. the employees get paid their normal compensation, through payroll, but don't have to come in to work to earn it). The medical reimbursement discrimination rules work to tax what are otherwise excludable benefits from compensation, if there is a discriminatory plan. This doesn't change my thinking about the rate to accrue at, because I think the 8 hour a pay period answer is the right way to go, unless they somehow want to reward the employee with additional leave time than they are entitled to, and when it gets taken, the employee would be taxed on it ...
Last edited by Nixxter; 12-22-2011 at 11:50 AM.
If I am reading this correctly, I think Mouselock is correct (Im not sure why Nixxter thinks the type of leave is relevant.)
The employee normally accrues 8 hours per pay – that is he is given a credit of 8 hours that is put in a bank. In addition, he is “purchasing” a further 5 hours per pay. This would also go in his bank – for a total credit of 13 hours per pay. After 12 pays he would have accumulated 156 hours. You would then take off the 60 hours he owes for a balance of 96 hours.
Alternately he has 2 banks. One currently at zero, which will accumulate at 8 hours per pay and that will reach 96 hours after 12 pays, and another at minus 60 hours which accumulates at 5 hours per pay until it reaches zero in 12 pays. 96+60=156 hours, same as above.
Merry Christmas All
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That's nice of that company. At my company, and in my experience working in Vegas, when your PTO runs out, you stop getting paid.
Wow. I've never seen that, Bill. Some of the policies I've read state that if you're negative at the end of the calendar year, you get docked to get yourself back to zero. A lot of them, however, just shake their finger and say "stop doing that!" with the understanding that the balance really only counts if/when the employee leaves the company.
Yeah, some companies don't like firing people with stage 4 breast cancer.
I got retroactively converted to an hourly employee without my knowledge, and in April was told that I actually wasn't accruing sick leave for the whole year (all four months). This brought me to a negative sick-leave balance, and HR graciously offered to just cut the losses and cap it at 0 for me for the next few months. I told them to shove it* and left a month later.
* Actually, I burst out in tears and spent the next hour sobbing in the bathroom.
Don't get breast cancer, Bill, regardless of how tempting it may sound.
Yeah, I'm facing job loss in the next couple of months along with loss of health insurance, so I'm hoping my every-six-months mammos stay clear.
I hope your new employers are doing right by you.
Last edited by jerri blank; 12-26-2011 at 03:45 PM.
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