IF a percentage of payroll:
- It would be a percentage of GROSS pay
- Example: Gross pay is $2050
- Employee elected to have 5% of salary deferred
- 8% of $2050 = $164
- You would enter $164 as a 401K deferral into your payroll software or if your software allows it, 8%
Calculating Employer Match
- Let’s say this is a safe harbor plan that match that matches the first 3%, dollar for dollar, then the next 2% 50 cents per dollar.
- Let’s convert the employee’s paycheck into units of 100:
- 2050 divided by 100 = $20.50
- Each 1% of salary is $20.50
- The first 3% is matched dollar for dollar: so 3% is $61.50
- The next 2% is matched 50 cents for each dollar. 2% is $41…. and half of that is $20.50
- You would enter $82 into your software system as the employer match
- There also may be a setting / button in your software to do this automatically.