Set Up a Cafeteria-Style Health Benefit

How Do I...

You should first try to set up your cafeteria plan using the Payroll Settings wizard. Many common types of plans are supported. However, if your plan is not currently supported, you can still set it up using the procedure defined in this topic.

This deduction method uses a payroll field set up in Employee Defaults that requires no calculation. Its amount will be deducted from the gross pay before calculating taxes. This type of pre-tax benefit is commonly called a Cafeteria plan. You can use this example for pre-tax employee benefits such as group medical or dental insurance.

Step 1: Set up the employee payroll field

In this example a deduction called GrpHealth is used and each employee will have his or her own fixed rate.

From the Maintain menu, select Default Information, and choose Employees.
Select the Employee Fields tab of the Employee Defaults window.
On a blank line, enter a new payroll field description (for example: GrpHealth).

Note: What you enter here will print on employee paycheck stubs in the deduction area.
Enter a G/L account (liability) associated with the deduction. To display a list of existing accounts, type ? in this field or select the Lookup button. To add a new account, type + or double-click the field, which displays the Maintain Chart of Accounts window.

Next, you must establish the tax-exempt status of the benefit.
Select Fed_Income (the default Federal Withholding payroll field) since GrpHealth is exempt when computing federal taxable income.
Select the Adjust button. Sage 50 displays the Calculate Adjusted Gross window. Make sure the GrpHealth check box is selected as well as Gross.

Since GrpHealth is a deduction (entered as a negative item), it will be subtracted from Gross in computing taxable wages (adjusted gross). This ensures proper calculation of withholding as well as proper taxable gross reporting on payroll tax forms.

Note: You must subscribe to one of the Sage Business Care plans for taxes and withholdings to be calculated within Sage 50. If you do not subscribe, you should still set up the tax fields properly since you will need the fields to manually enter the amounts. The fields will also be set up correctly if you decide to subscribe to a Sage Business Care plan later.
Repeat the above two steps for each applicable tax field (including ER payroll fields).
Click OK. twice to save the field and defaults.

Step 2: Set up your employees

Since you are deducting a set amount that is different for each employee, then you would have to set this up in Maintain Employees.

Go to Maintain menu and select Employees/Sales Reps. Sage 50 displays the Maintain Employees/Sales Reps window.
Enter or select the employee ID. To display a list of existing employees, type ? in the Employee ID field, or select the Lookup button.
Select the Employee Fields tab.
Select the GrpHealth payroll field and clear the Use Defaults check box.

Standard is not used because this employee uses a unique deduction different from the default. The amount box will become highlighted at this time.
In the Amount box, enter the flat rate the employee qualifies for (for example, -9.25).
Save the employee record. Follow this procedure for each employee that applies.

How it works

Each time you enter payroll, the employee will automatically receive a GrpHealth deduction of $9.25 that is subtracted from the gross before calculating taxes.

Note: Taxes will not be calculated unless you subscribe to one of the Sage Business Care plans.

What do you want to do next?

Set up a standard health insurance benefit
Set up other payroll deductions
Set up an employee
Pay employees
Perform other payroll tasks
Read the group health deduction overview