Page 241 - Essentials of Payroll: Management and Accounting

ESSENTIALS of Payr oll: Management and Accounting
Employee Portion of Insurance Expenses
Most businesses offer some form of medical and related insurance to
their employees. This can include medical, dental, vision, short-term
disability, long-term disability, life, and supplemental life insurance cov-
erage. An employer may pay for all of this expense, a portion of it, or

merely make it available to employees, who must foot the entire bill. It
is rare for an employer to pay for all of this expense, since insurance is
very expensive; consequently, there will usually be a deduction from
employee’s pay to cover some portion of the cost.
The type of deduction calculation used is typically employer reim-
bursement of a relatively high percentage of the medical insurance for an
employee and a lesser percentage for that person’s portion of the insurance
that covers his or her family members. For example, the employer might
pay for 80 percent of an employee’s medical insurance and 50 percent of

the portion of additional coverage that applies to the employee’s family.
Additional types of insurance, such as vision or life insurance, are less
commonly paid by employers; more commonly, employees are given the
option to purchase and fully pay for them.
When the payroll department sets up deductions for the various types
of insurance, it is better to itemize each one separately on the employee
paycheck remittance advice, so there is no question about the amount

of each deduction being withheld for each type of insurance. This
approach makes it easier for employees to judge whether they want to
continue to pay for various types of insurance; it also makes it easier for
the payroll staff to calculate and track deduction levels.
The insurance companies that provide the various types of insurance
may enter into a contract with a company to freeze expense levels for up
to a year, which makes this calculation a simple once-a-year event to
determine the amount of employee insurance deductions. Other insur-
ance providers may alter rates on a more frequent basis, necessitating

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