Voluntary Payroll Deductions Overview

The below standard establishes the process for implementing new, voluntary payroll deductions and managing related refunds.

It provides a consistent framework for authorizing and processing employee-elected deductions from wages, ensuring compliance with applicable laws and internal controls. The standard also outlines the responsibilities of fiscal officers and the payroll department in initiating deductions and issuing refunds in the event of errors or overpayments. This standard does not govern employee-initiated elections to participate in voluntary payroll deduction programs. By defining clear procedures, this standard promotes transparency, accuracy, and accountability in the payroll deduction process.

UCO-PAY-10.00: Voluntary Payroll Deductions

Prerequisites

Prior to reading the standard on Voluntary Payroll Deductions, it is beneficial to review the below items to gain foundational information:

1. FIN-PAY-001: Payroll Compliance
2. Indiana Code 22-2-6-2

Preface

This standard provides information and guidance on establishing new, voluntary payroll deductions, and related refunds. For non-voluntary payroll deductions (child support, tax levies, garnishments, etc.), and other payroll withholdings, please reference the Payroll Deduction Code Matrix.

Introduction

Payroll deductions include any voluntary or involuntary (legally required) deduction from an individual’s paycheck. Voluntary payroll deductions are amounts an employee chooses to have withheld from their paycheck for university approved programs in which they voluntarily participate. These may be employee or employer-paid deductions. Employee-paid deductions can be pre- or post-tax based on the rules of the program. Employer-paid deductions are usually non-taxable to the employee. These may include various types of insurance, retirement contributions, flexible spending/health savings accounts, or other voluntary deductions outside of benefit elections (e.g. Crimson Card, Parking, IU Foundation, United Way, Rec Sports, Union Dues, Auditorium tickets, etc.). Amounts withheld are remitted or deposited to the appropriate program agencies and designees.

Involuntary payroll deductions are amounts that are automatically withheld from an employee’s paycheck due to legal requirements. These deductions are not optional and are mandated by federal and state laws, such as FICA taxes, state-run family leave plans, court-ordered garnishments, and levies, etc.

This standard provides guidance to define the criteria which must be met by a university department to establish a new, voluntary payroll deduction and related refunds. This standard does not govern employee-initiated elections to participate in voluntary payroll deduction programs. Please see the relevant university office (e.g. University Human Resources) or program agency (e.g. United Way) to establish or change an employee deduction.

Importance and Impact of Voluntary Payroll Deductions

The state of Indiana Code establishes criteria for how to setup and discontinue voluntary payroll deductions. Because of the compliance requirements and administrative burden associated with these regulations new voluntary payroll deductions will only be established in very limited circumstances. Additionally, Indiana Code 22-2-6-2 states that voluntary payroll deductions are revocable at any time by the employee upon written notice to the employer. The employer will face penalties as described in IC 22-2-7-7 for non-compliance.

Voluntary Payroll Deductions Discussed in Detail

In order to establish a new voluntary payroll deduction, the following criteria must be met by the initiating university department and preapproved in writing by their Vice President or Chancellor and approved by the VPCFO.

Establishing a New, Voluntary Payroll Deduction:

To establish a new, voluntary payroll deduction, the deduction must meet one of the following criteria:

1. A deduction for an organized union which is officially recognized by the university. (With regard to staff employees, qualifications for deductions shall be governed by policy HR-12-20 Conditions for Cooperation Between Employee Organizations and the Administration of IU.)
2. A charitable deduction to the Indiana University Foundation (IUF).
3. A deduction to an external charitable organization such as the United Way. Only charitable federations representing a number of organizations will be considered.
   • Charitable federations are fundraising agencies that normally conduct fundraising campaigns within a single metropolitan area or some part of a particular state and allocate part of the net proceeds to each participating organization on the basis of the donors’ individual designations and other factors.
   • Charitable federations must be recognized under Section 501 C (3) of the Internal Revenue Code and must expend at least 60% of their budgets in the counties surrounding the campus.
   • Charitable federations must be able to demonstrate that a minimum of 80% of the funds contributed is granted to the beneficiary agencies.

Any exceptions to the criteria above require pre-approval in writing by the university department’s respective Vice President or Chancellor and the VPCFO.

Refunds:

University Payroll will refund voluntary payroll deductions to employees when it is determined that such deductions were made in error. Refunds will only be made at the request of the organization (IU or external entity) which initiated the deduction. Employees should contact the appropriate IU or external organization (e.g. IU Parking Operations or United Way) to request a refund.

As a standard practice, the refund will be included in the next payroll check issued to the employee.

Refunds of required taxes and social security deductions cannot be made except as provided for in federal and state regulations and pursuant to University Tax Services policies and procedures.

Requirements and Best Practices

Requirements

1. Any new voluntary payroll deduction must meet the criteria outlined in this standard and be preapproved in writing by the university department’s respective Vice President or Chancellor and the VPCFO.
2. Inquiries and requests should be sent to the University Director of Payroll in UCO.
3. It is the responsibility of the university department (e.g. Parking) or external agency (e.g. United Way) receiving the benefit of the payroll deduction to reconcile the deductions received on a payroll cycle basis.
4. University departments or fiscal officers must notify University Payroll immediately upon being notified by an employee to stop a voluntary deduction.

Questions regarding voluntary payroll deductions should be sent to UCO payroll.