How is the amount to be withheld for the Extended Pay Plan (EPP) calculated? »

5) How is the amount to be withheld for the Extended Pay Plan (EPP) calculated?

There are two options for withholding for Extended Pay Plan (EPP). The first option (DED-CD 1) withholds at a rate of 12.5% and is designed for employees with a 10.5 month appointment. Three equal summer checks will be generated regardless of when the employee is scheduled to work. The second option (DED-CD 2) withholds at a rate of 25% and is designed for employees with a 9-month appointment. Again, three equal summer checks will be generated to return the withholdings to the employee.

The calculation incorporates an insurance component to equalize the employee's final take home pay. Employees participating in EPP are also required to have their summer insurance premiums paid in advance through payroll deductions in the month of May. (The insurance deduction codes (DED-CD) should be set to 1.) To maintain an even cash flow, an additional 25% of the employee's out of pocket insurance premium is withheld each month toward the summer insurance premiums. Thus, the employee will not have to find additional funds or have to pay insurance premiums from his/her summer paychecks.

An example of the calculation for EPP Option 1 is as follows:

September - April Payroll (Net Pay) 3,200.00 * (Option 1 Rate) .125 = 400.00

Insurance Deduction Employee Payments:

Medical 50.00
Dental 75.00
Vision 20.00
Basic Life 0
Optional Life 0
Dependent Life 0
Long Term Care - Employee 90.00
Long Term Care - Spouse 70.00
Long Term Disability 0
Accidental Death & Dismemberment 0


305.00 * .25 = 76.25


Total EPP withholding is (400.00 + 76.25) = 476.25

The final take home check for the employee was 3,200.00 - 476.25 = 2,723.75

In May, the calculation above takes place, except that the insurance deduction for the summer is taken from the net and the amount is then returned from his EPP funds (the additional 25% withholding of insurance each month). However, a second calculation takes place and returns three months of the insurance premium to the employee because it has already been withheld through the process described above.

The final May calculation is:

3,200   - (915 + 476.25)      + 915       = 2,723.75
  3 months of
Summer Premium &
EPP Deduction
3 months of
premiums
already taken
Final Take Home
for May

The amount residing in the employee's EPP account at the end of May is 9 times 476.25, less the 3 months summer premium (915), or 3,371.25. This amount will be distributed in three (almost) equal payments of $1,123.75.

This same employee under Option 2 would have a monthly take home pay of

3,200.00 * .25 = 800.00
Insurance withholding = 76.25
Total EPP withholding = 876.25

Final Take Home: 3,200.00 - 876.25 = 2,323.75

The amount residing in the employee's EPP account is 9 times 876.25, less summer premiums (915), or 6,971.25. The amount to be distributed in the summer will be 3 equal payments of $2,323.75.

This page was last updated on 06/11/2010 17:11:59