Employee Deduction for Loan Repayment

This process will add a new employee deduction to repay any kind of loan due from the employee to the employer, i.e., 401K Loan Deductions, employee loans, etc. The settings selected affect how payroll is processed.  If you have any questions regarding setup, please contact the Horizon Help Desk.

A payroll deduction needs setup in the Deduction/Benefit Master. See instructions: Payroll Deduction or Employer Expense Setup. Please make sure the “Retain Max at Year End” is NOT check marked.  This will set the deduction to decrease its maximum to each end of year as the employee pays off the loan.   

The deduction would then be added to the Employee Master Deduction tab. The deduction maximum amount is used to set the total to be withheld for the life of the loan.  

Setup New Loan Deduction

NAVIGATION: MAINTAIN menu > Employee Master

  1. Select the employee and then open tab 6-Deduction/Expenses
  2. Deduction Code: enter or select a Deduction Code for employee loans
  3. Tab through Cycle to accept the default or select a different cycle from the drop down menu.  
    1. The Cycle determines which pay(s) the deduction will be withheld from the employee.
  4. Tab through DGR Code to accept the default 
  5. Tab through Fed Pre-Tax to accept the default (usually Y)
  6. Tab through State Pre-Tax to accept the default (usually Y)
  7. Amount: enter the amount of the employee's deduction per pay
  8. Type: select $ - Dollar Amount
  9. Maximum: enter the total amount of the loan to be paid back.   
    1. When End of Year Process is run before first pay of new year, the Maximum will be reduced, i.e., starting max of 1,000.00, 200.00 was withheld this year, new max will be 800.00 to start the new year.  
    2. The maximum amount will be reduced each year until it reaches zero and will not withheld any more.
  10. Employer Expense: do not add/change any information
  11. Press tab to save the deduction to the grid
  12. The amount entered will be deducted from the employee's pay until the maximum amount is reached. 
  13. EXAMPLE
    1. Judy Smith was given a loan ($1,000) in 2023
    2. The loan deduction maximum amount is $1,000

Annual Update of Loan Maximum 

If the deduction maximum amount was not paid in full, the new maximum amount will be calculated automatically during the Process Payroll End of Year process.

Increase Loan Balance

If the loan balance would increase during the year, such as if a new second loan was taken out, the additional amount needs added to the deduction maximum amount.

  1. Determine the new maximum of the current loan and the new loan.
  2. Use the current maximum saved in the deduction (do not calculate how much they still owe today), add to it the new loan amount. 
  3. Enter this amount as the new deduction maximum amount.
  4. EXAMPLE
    1. Judy Smith was setup with a loan of $1,000 in 2023
    2. In 2023, $100 was withheld.  At year end, the maximum amount will be updated to $900 for 2024
    3. In 2024, $200 was withheld.  At year end, the maximum amount will be updated to $700 for 2025
    4. In 2025, $50 has been withheld.  The maximum amount still says $700 (the 1/1/25 balance).
    5. An additional $325 is loaned to the employee.
    6. Determine the new maximum amount.
    7. You will ignore how much was withheld this year to determine the new maximum amount.
    8. $700 1/1/25 balance plus the new loan amount $325 = $1,025 is the new maximum

11/2023

NEED MORE HELP?  Submit a ticket to the Help Desk or call (814) 535-7810 or (800) 889-3388