Page 240 - Essentials of Payroll: Management and Accounting

Payr oll Deductions
issued. This is also the case when an employee has obtained an advance
prior to his or her normal paycheck.
In all cases, the payroll staff must track the amount of outstanding
advances and make deductions from employee paychecks to recover the

amounts outstanding. Deductions frequently are made in smaller incre-
ments over multiple paychecks, so that employees have enough left for
their personal needs. Managing this process properly calls for interac-
tion with the accounts payable staff (who would have paid out the ini-
tial advances) and the employees (to determine the appropriate amount
of deductions for each paycheck). Standard policies should also be in
place that regulate the amount of advances handed out, and the speed

with which they must be paid back. Such policies serve to ensure that
a company does not become a personal bank for its employees and to
minimize the risk of it losing outstanding advances if employees quit
work before paying them back.
Example. Andrew Wodehouse, a warehouse worker, has requested
an advance of $400 on his next paycheck. Company policy states that
advances cannot exceed the net amount of an employee’s prior pay-
check, which limits the amount to $360. Mr.Wodehouse also requested
that the advance be taken out of his pay over the next six paychecks,

which would be $60 per paycheck. However, company policy requires
all advances to be paid back within no more than four paychecks,so the
amount deducted from his paychecks is increased to $90. After three
paychecks, a garnishment order is sent to the company for a loan repay-
ment that Mr. Wodehouse owes another creditor. He promptly quits
work and disappears. But thanks to the company’s strict rules for
employee advances, only $90 is left on the advance that will not be paid

back to the company.

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