Payroll snafu costs dearly

Posted Dec. 8, 2006

Human error is to blame for an apparent miscalculation, or under-withholding, of the State Disability Insurance tax on University of La Verne employee paychecks for all of 2006.

This mistake means the University owes the state more more than $200,000, which it must pay back before the end of the year.

And now all ULV employees are being asked to pay the difference between what was withheld monthly in 2006 and what should have been withheld.

They have a choice: either pay it in one-lump sum – up to several hundred dollars taken from their last paycheck of 2006 – or in installments, like a loan, over the next 12 months.

“The University has the responsibility to take into consideration the financial impact that’s why we chose to offer paying on behalf of the employee,” said Ani Kechichian, payroll manager.

At the beginning of 2006, there was a SDI tax rate change, and while inputting the numbers, payroll misread the figures entering .08 percent instead of the correct .8 percent.

While federal tax changes update through software, state tax changes, which differ among the 50 states, are inputted manually. The assumption the number was correct carried through the year.

While recently reviewing the changes for 2007, Kechichian noticed the SDI tax had decreased to .7 percent.

The number sounded odd to her memory of the inputted number for 2006.

She then researched the figure and found the mistake in mid-November.

Payroll’s next step was to make sure employees’ W-2 forms would come out correctly.

Kechichian then notified the University’s software company, BiTech, accounting software geared toward universities, and her supervisors.

“It would be an extraordinary financial burden to deduct the full amount out of this last paycheck,” said Philip Hawkey, executive vice president.

Because the financial impact would have been so great, the decision was made by management to pay on behalf of the employees so their W-2s would be correct, Kechichian said.

The University is offering, with the employees’ authorization, to pay the amount for 2006 and have employees repay in a form of a loan, with no interest.

The loan would consist of 24 installments for the 24 pay periods throughout 2007.

However, employees have the option to arrange other paying options if they wish to compact the payments.

“The law prevents us from rolling over the tax onto 2007 without authorization from employees,” Hawkey said.

The SDI tax amount is based differently on each employee’s earnings.

The lowest paycheck difference was less than a $1 for the year and highest was about $500.

The taxes are the employees’ responsibility, but the error has been acknowledged and we are working to lessen the burden, Kechichian said.

This miscalculation effects every University employee – from the president to student workers – except those exempt from the SDI tax.

“Under state law, every employee is required to make deductions from their paychecks,” Hawkey said.

“Under law, it’s not a University obligation,” Hawkey added.

In lieu of the miscalculation and previous need of upgrading, payroll is currently working to improve their system.

“This is an unfortunate situation and embarrassing for payroll,” Hawkey said.”It seems to be a work load problem. They have such a heavy work load that they are rushing and mistakes happen in that environment.”

Now that the mistake has been acknowledged and dealt with, payroll is looking at the source of the problem.

“Like how it is with any organization, any errors that are made are a wake-up call that the system needs to be improved,” Kechichian said.

Kechichian and Randy Del Rio, assistant controller, said payroll is implementing a new system where the numbers are reviewed by more people, several times at the initial entry and throughout the year.

“Payroll is in the middle of an on-going effort to decrease the paperwork and increase their technology,” Hawkey said.

Although some entries are required to be inputted manually still, payroll is working to upgrade technologically.

“We are trying to consolidate the information, but it’s a great deal to get up and going,” Del Rio said.

Despite the staggering cost of the mistake and effect it could have on employees’ holiday season, Kechichian, Hawkey and Del Rio said University employees have been consistently positive with payroll’s actions to the miscalculation.

“I have been overwhelmed by the e-mail responses because the majority say we all make mistakes and they appreciate we admitted the mistake and are fixing the problem,” Kechichian said.

Del Rio agreed with Kechichian on the positive feedback, and said most negative responses have gone to the president or Hawkey.

“Many employees have expressed sympathy for what payroll is going through and appreciate the loan option,” Hawkey said.

“There has also been some complaining on having to go through this, but not man,” he added.

Nicole Knight can be reached at nknight@ulv.edu.

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