4.3 Calculating Employee Contributions |
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Universal Payroll Deduction Method Employers must use the universal payroll deduction method to calculate required contributions and contributory service weeks for all HOOPP members.
As the name suggests, the universal method can be used for members who are full-time or part-time, absent for part of a pay period, on reduced pay, on sick leave, pregnancy or parental leave or participating in a pre-paid leave program. The method is also suitable for any length of payroll period, including bi-weekly, monthly, and semi-monthly.
The six-step universal payroll deduction method calculates contributions based on a member’s annualized earnings, and then prorates contributions to reflect the hours worked during the payroll period in question. When calculating contributory service, the figure should be rounded to two decimal places to avoid distorting a member’s annualized earnings and related pension.
Examples
The following examples demonstrate how employee required contributions are calculated using the universal payroll deduction method for regular pensionable earnings. As noted above, contributions for pensionable bonuses are treated the same as retroactive pay, discussed in 4.5 Retroactive Pay (Retro) .
Example 1: Full-time Member Paid Bi-weekly
This example is for a full-time employee who is paid bi-weekly however, the calculation method can be used for any HOOPP member, regardless of hours worked or salary received, and any payroll frequency.
The member in this example works full-time and is paid bi-weekly. The member's current hourly rate of pay is $32. The normal full-time work week or full-time equivalence (FTE) for the member's job is 37.5 hours per week or 1,950 hours per year. HOOPP annualizes earnings on a 52-week basis. The example uses the 2020 contribution rates and the 2020 YMPE of $58,700.
Step 1: Calculate annualized earnings
Annualized earnings = hourly rate × full-time hours in a year for that job
The member’s annualized earnings are:
$32 × 1,950 = $62,400 Step 2:
Calculate earnings per pay
Earnings per pay = hourly rate × hours worked in a pay period
The member works 37.5 hours a week and is paid every two weeks. Therefore, their earnings for the biweekly pay period are:
$32 × 75 = $2,400
Step 3: Calculate contributions at the low rate
Contributions at the low rate are calculated as follows:
Contributions at 6.9% = [earnings per pay × (YMPE* × 6.9%)] ÷ annualized earnings
Use the lesser of the member's annualized earnings or the YMPE.
Therefore, the bi-weekly contributions at the low rate are:
[$2,400 × ($58,700* × .069)] ÷ $62,400 = $155.78
The 2020 YMPE ($58,700) is used here because it is less than the member's annualized earnings ($62,400).
Step 4: Calculate contributions at the high rate
A member must contribute at the high employee contribution rate on the portion of their annualized earnings per pay that exceeds the YMPE. Contributions at the high rate are calculated as follows:
Contribution at 9.2% = [earnings per pay × (annualized earnings* - YMPE*) × 9.2%] ÷ annualized earnings
If the member's annualized earnings are less than the YMPE, they would make no contributions at the high rate. However, because the member's annualized earnings in this example are greater than the YMPE, the member must contribute 9.2% on the portion that exceeds the YMPE.
Therefore, the bi-weekly contributions at the high rate are:
[$2,400 × ($62,400 - $58,700) × .092] ÷ $62,400 = $13.09
Step 5: Calculate total HOOPP contributions
The formula is: $155.78 (the low) + $13.09 (the high) = $168.87
Step 6: Calculate contributory service
A member's earnings per pay and annualized earnings are used to calculate contributory service.
The figure is calculated by converting pay into weeks and rounding off the figure to two decimals.
Contributory service = [earnings per pay × 52 weeks in a year] ÷ annualized earnings = [$2,400 × 52 weeks] ÷ $62,400 = 2 weeks
In this example, the member worked full-time during the two-week pay period, therefore, the contributory service credit is two weeks.
Example 2: Part-time Member Paid Bi-weekly
The member in this example works part-time, is paid bi-weekly, and works a total of 15 hours each week. The member's current hourly rate of pay is $33. The normal full-time work week or full-time equivalent (FTE) for the member's job is 37.5 hours per week or 1,950 hours per year. HOOPP annualizes earnings on a 52-week basis. The example uses the 2020 contribution rates and the 2020 YMPE of $58,700.
Step 1: Calculate annualized earnings
Annualized earnings = hourly rate × full-time hours in a year for that job
The member’s annualized earnings are:
$33 × 1,950 = $64,350
Step 2: Calculate earnings per pay
Earnings per pay = hourly rate × hours worked in a pay period
The member works 15 hours a week and is paid every two weeks. Therefore, their earnings for the biweekly pay period are:
$33 × 30 = $990
Step 3: Calculate contributions at the low rate
Contributions at the low rate are calculated as follows:
Contributions at 6.9% = [earnings per pay × (YMPE* × 6.9%)] ÷ annualized earnings
Use the lesser of the member's annualized earnings or the YMPE.
Therefore, the bi-weekly contributions at the low rate are: [$990 × ($58,700* × .069)] ÷ $64,350= $62.31 * The 2020 YMPE ($58,700) is used here because it is less than the member's annualized earnings ($64,350).
Note: There is a maximum amount of low contributions that can be made within the year. This can be calculated by: Maximum low contribution rate = (6.9% × YMPE) ÷ number of weeks in the year = (0.069 × $58,700) ÷ 52 = $4050.30 ÷ 52 = $77.89 Therefore in 2020, the maximum amount that a member pays at the low contribution rate is $4050.30 per year or $77.89 per week.
Step 4: Calculate contributions at the high rate
A member must contribute at the high employee contribution rate on the portion of their annualized earnings per pay that exceeds the YMPE.
Contributions at the high rate are calculated as follows: Contributions at 9.2% = [earnings per pay × (annualized earnings* - YMPE*) × 9.2%] ÷ annualized earnings
If the member's annualized earnings are less than the YMPE, they would make no contributions at the high rate. However, because the member's annualized earnings in this example are greater than the YMPE, the member must contribute 9.2% on the portion that exceeds the YMPE.
Therefore, the bi-weekly contributions at the high rate are:
[$990 × ($64,350 - $58,700) × .092] ÷ $64,350 = $8
Step 5: Calculate total HOOPP contributions
To calculate total HOOPP contributions for the pay period, add the contributions at the low and high rates.
Total contributions = low rate + high rate
Because the member makes contributions at both the low and high rates, the total HOOPP contributions for the bi-weekly pay period are:
$62.31(the low) + $8(the high) = $71.31
Step 6: Calculate contributory service
A member's earnings per pay and annualized earnings are used to calculate contributory service - the length of time, measured in weeks, that the member has contributed to HOOPP, adjusted for such things as part-time service.
The figure is calculated by converting pay into weeks and rounding off the figure to two decimals.
Contributory service = [earnings per pay × 52 weeks in a year] ÷ annualized earnings
If the member in our example had worked full-time during the two-week pay period, the contributory service credit would have been two weeks. Because the member works part-time, however, the contributory service credit is prorated as follows:
[$990 × 52] ÷ $64,350 = .80 weeks The final figure (.80) is the contributory service the member earned during the two week pay period.
Example 3: Full-time Member Receiving Sick Pay
The member in this example is on an employer-approved health leave, is receiving 80% of their regular bi-weekly salary of $2,400, and has decided not to top up contributions to their pre-leave level. The normal full-time work week or full-time equivalent (FTE) for this position is 37.5 hours, or 1,950 hours a year and the hourly rate of pay is $32. The example uses the 2020 contribution rates and the 2020 YMPE of $58,700.
Step 1: Calculate annualized earnings
Annualized earnings = hourly rate × full-time hours in a year
The member's annualized earnings are:
$32 × 1,950 = $62,400
Step 2: Calculate earnings per pay
The member receives 80% of regular salary as short-term sick pay. The member chooses not to contribute at their regular rate of pay while on short-term sick leave.
The member's earnings per pay for the bi-weekly payroll deduction period are:
0.80 × $2,400 = $1,920.
Step 3: Calculate contributions at the low rate
The formula is:
Contributions at 6.9% = [earnings per pay × (YMPE* × 6.9%)] ÷ annualized earnings
Use the lesser of the member's annualized earnings or the YMPE.
Therefore, the member's bi-weekly contributions at the low rate are:
[$1,920 × ($58,700 × .069)] ÷ $62,400 = $124.62
Step 4: Calculate contributions at the high rate
The formula is:
Contributions at 9.2% = [earnings per pay × (annualized earnings- YMPE) × 9.2%)] ÷ annualized earnings
= [$1,920 × ($62,400 - $58,700) × .092)] ÷ $62,400 = $10.47
If the member's annualized earnings are less than the YMPE, they would make no contributions at the high rate.
Step 5: Calculate total HOOPP contributions
The formula is:
$124.62 (the low) + $ 10.47(the high) = $135.09
Step 6: Calculate contributory service
Contributory service = (earnings per pay × 52 weeks in a year) ÷ annualized earnings
= ($1,920 × 52) ÷ $62,400
= 1.6 weeks for the pay period
Example 4: Member Works Two Different Jobs Concurrently
A member may work two different jobs at an organization at the same time, often at two different rates of pay. To calculate the member's contributions, use blended annualized earnings.
In this example, a member works two jobs at one organization. In job A, the member’s base wage is $28.50 per hour. In job B, the member’s base wage is $35 per hour. In both jobs, the normal full-time work week or full-time equivalent (FTE) is 37.5 hours or 1950 hours per year. During the current two-week pay period, the member has worked 45 hours in job A and 10 hours in job B for a total of 55 hours. However, the member’s hours may change every pay period. The example uses the 2020 contribution rates and the 2020 YMPE of $58,700.
Step 1: Calculate the annualized earnings for each job
Annualized earnings for job A = hourly wage full-time hours in a year = $28.50 × 1,950 = $55,575
Annualized earnings for job B = hourly wage full-time hours in a year = $35 × 1,950 = $68,250
Step 2: Calculate the blended annualized earnings (AE) for the pay period
Blended AE = [(hours worked in job A × AE for job A) ÷ total hours worked] + [(hours worked in job B ×
AE for job B) ÷ total hours worked]
= [(45 × $55,575) ÷ 55] + [(10 × $68,250) ÷ 55]
= $45,470 + $12,409*
= $57,879*
Rounded to the nearest dollar
Step 3: Calculate earnings per pay
The formula for earnings per pay is:
Hours worked in job A × basic hourly wage + hours worked in job B × basic hourly wage
= (45 × $28.50) + (10 × $35)
= $1,282.50 + $350
= $1,632.50
Step 4: Calculate contributions at the low rate
Contributions at 6.9% = [earnings per pay (blended) × (YMPE × 6.9%)] ÷ blended AE
= [$1,632.50 × ($57,879× .069)] ÷ $57,879
= $112.64
Use the lesser of the member's blended annualized earnings or the YMPE.
Step 5: Calculate contributions at the high rate*
Contributions at 9.2% = [earnings per pay (blended) × (blended AE* - YMPE) × 9.2%] ÷ blended AE
*If the member's blended annualized earnings are less than the YMPE, there are no contributions at the high rate.
In this example the member’s 2020 blended annualized earnings of $57,879 are less than the 2020
YMPE of $58,700, therefore, there are no contributions at the high rate.
Step 6: Calculate total HOOPP contributions
Total contributions = contributions at low rate + contributions at high rate
= $112.64 + 0
= $112.64
Step 7: Calculate weeks of contributory service
[Earnings per pay (blended) × 52 weeks in a year] ÷ blended annualized earnings
= $1,632.50× 52 ÷ $57,879
= 1.47 weeks of contributory service for the pay period
Modifications may be required to your payroll system to handle this situation for each pay period. Supply your payroll department or external service provider with a copy of the preceding information.