Ever look at your paycheck and wonder what certain acronyms and abbreviations mean? Or how specific taxes or deduction affect your overall earnings? What’s the difference between filing zero or one anyway? Although a paystub is loaded with important information, it can also be frustrating for an employee who doesn’t understand where his or her hard-earned money is going every payday.
While many bosses may take for granted that their employees know how to read a paystub, the new “Engaging Employees through Payroll” survey of 1,013 American workers from The Workforce Institute at Kronos Incorporated has found that 42 percent of respondents find their paycheck confusing and difficult to read. There is a clear generational divide as well: While just 19 percent of survey respondents over the age of 55 find their paycheck confusing, that number jumps to almost half -- 45 percent! -- for millennials aged 18-29 years old.
As organizations seek out new avenues to support employee engagement, these findings present an opportunity for HR and payroll teams: 45 percent of American workers also reported they would feel more engaged in their jobs if their employer helped them better understand the impact of taxes, deductions and withholdings on their overall earnings.
Here are four opportunities that organizations can quickly leverage to empower employees on payday:
1. New hire onboarding
Benefits enrollment is a cornerstone of new hire onboarding. While the entire new hire process can be overwhelming, it represents the first opportunity for new employees to see what their paycheck will look like and how their pre-tax and post-tax deduction decisions can impact their overall earnings.
For example, many health and wellness benefits, along with 401(k) retirement investments, are pre-tax deductions. Fully taking advantage of these programs will reduce the employee’s total taxable wages, reducing tax withholding liability, which many younger employees may not realize. Post-tax deductions, such as union dues, uniform fees, United Way deductions or court-ordered garnishments, will reduce net take home pay without reducing the employee’s taxable wage base.
Taking time during orientation, or offering informational worksheets that demonstrate various scenarios that an employee can review when selecting their benefits or completing their tax withholding forms, will help them better understand the advantages -- or consequences -- of their choices.
2. Employee handbook
New hire onboarding can be a whirlwind, and once employees have settled into their new role, they may not remember the choices they made or the information that was shared with them that first week. For this reason, the employee handbook -- which most organizations issue to every employee in either a printed or digital format -- can serve as another great resource.
Instead of focusing a handbook on policy do's and don’ts, it can also include educational resources. A “know your paycheck” reference card can explain the difference between gross pay, net pay, taxes, deductions and all those different acronyms that an employee could face on payday. The inclusion of sample paychecks will also help new employees understand what the information in each section really means. Informational worksheets shared during onboarding can be included in the handbook, too.
3. Company intranet
A company intranet site will provide even more flexibility than the handbook to empower employees to learn about their paycheck. On an intranet site, organizations can provide self-service tools such as online paycheck calculators that allow employees to input anticipated changes to tax status, 401(k) withholdings or benefits to see the anticipated impact on net pay. It can serve as a central hub for any and all payroll resources shared during new hire onboarding and the employee handbook to keep them easily accessible for employees.
The intranet can also host a secure portal that allows employees to take self-service one step further by allowing them to update their own address, tax status and deduction changes within the HR and payroll system. In addition to empowering employees with transparency, trust and control over how this information is edited, it also eliminates the need for HR or payroll to make these changes manually, freeing them up to focus on larger, strategic initiatives.
4. “W-2 season”
Every year, organizations invest significant time and resources to distributing W-2 tax forms to all eligible employees. In fact, it may be one of the most anticipated employer communications of the year for those who wish to get their taxes filed early!
Although more organizations are providing these forms digitally for employees to print, many are missing the opportunity to share valuable information at the same time. Taxes change each year, and understanding new social security limits or 401(k) thresholds could prompt employees to make additional changes to their withholdings. Updated benefits offerings for the new plan year can be shared at this time, or new earnings codes can be flagged.
Solving the payroll puzzle
The “Engaging Employees Through Payroll” survey also found that 58 percent of respondents feel they live paycheck to paycheck. This telling statistic could explain why employees are so eager for employers to provide guidance on how to maximize their overall earnings in their paycheck.
Organizations are making increasingly significant investments in new benefits, professional development opportunities, managerial training and other progressive programs to build the most engaged workforce possible. With a little bit of effort, organizations can eliminate paycheck confusion to reap huge dividends by making sure employees fully understand how all the pieces of their paycheck fit together to influence their take-home pay.