Handling Negative Net Pay

General Information on Negative Net Pay

“Negative Net Pay” is a situation where an employee’s gross pay is not sufficient to cover all the deductions calculated on a given payroll. While this is generally rare, there are some common causes of this to be aware of:

• Misconfigured benefit contributions
• Employee election for additional tax withholdings
• Large amounts of cash tips or other imputed income

In a negative net pay scenario, the sum of all the deductions can exceed the gross pay leaving the employee with a negative net pay, which should not be allowed. To address this issue, Check’s system modifies the amounts of certain deductions in a specific order so that the employee’s net pay is no longer negative. This is common and expected behavior of a payroll product.

How Check handles Negative Net Pay

In most cases negative net pay situations will be gracefully handled by Check. When calculating the payroll through the preview and approve endpoints, Check will automatically skip or partially apply certain deductions to resolve the situation. The response will be similar to a regular payroll, but the list of warnings will be populated with all the deductions Check had to adjust. For example, here’s what the warnings list might look like on a payroll where Check partially applied a FICA tax deduction, and completely skipped a Medicare tax deduction:

{
   "id": "pay_281PfRQNnFyBK4kuezO5",
   "items": [
       {
           "id": "itm_sRX9iXjFQUuhTmG1cZZ1",
           "warnings": [
               {
                   "code": "partially_applied",
                   "reason": "negative_net_pay",
                   "deduction_type": "tax",
                   "deduction": "tax_ibU8cGhC5OlpOjoQFIXV",
                   "actual_deduction_amount": "37.56",
                   "expected_deduction_amount": "41.95"
               },
              {
                   "code": "skipped",
                   "reason": "negative_net_pay",
                   "deduction_type": "tax",
                   "deduction": "tax_1XHqR9Qf5t18SD2sfYEe",
                   "actual_deduction_amount": "0.00",
                   "expected_deduction_amount": "9.81"
               },
           ],
       }
   ],
}

These warnings should be surfaced to employers in the payroll approval screen so that they can be aware of any deductions that were partially applied or skipped.

Handling Logic

Check determines if a deduction can be applied by going through an internal priority list and checking if sufficient gross pay remains to take out the full deduction. If the employee does not have sufficient funds remaining then the deduction will be either partially applied or completely skipped.

All taxes and post-tax deductions are eligible to be partially applied if the employee has enough funds to cover a portion of the deduction. Benefits have three different handling methods:

• If the benefit is a Roth benefit then it can be partially applied or skipped if needed.
• Any pre-tax health benefits will all be skipped if one pre-tax health benefit needs to be skipped.
• Finally if our system determines that any pre-tax retirement benefits need to be skipped or partially applied, the system will raise the net_pay_negative error.

If this error is raised by Check, the payroll will not be calculated. The employer should be contacted to decide on the best approach to move forward. More details on the possible implications on how partially applying or skipping benefits can be found in our Knowledge Base.

If the employer decides they would prefer Check to completely skip pre-tax retirement benefits, please open a support case with Check so we can enable this feature on the specific payroll. After the feature is enabled the employer will be able to go back and preview and approve the payroll successfully.