Banking Hours System Follow-Up

Option 2 – Banking after-tax dollars rather than hours

Some of you have been asking about the banked hours system and how to handle the taxes on the banked hours income for the employee. So here’s another option. In this scenario, we’re not using the number of hours the employee works as our benchmark, we’re using the take-home dollar amount that the employee requires. 

For this scenario, let’s say you want to guarantee 30 hours per week for an employee that makes $25/hour. The pre-tax amount is $750.00. The after-tax amount (assuming 18% tax) is $615.00. The employee will take home $615.00 each week, as long as they work 30 hours. Any amount over $615.00 is placed in a separate account and can be transferred to the employee on weeks when they don’t work as many hours. Here’s an example:

Here's an example of an employee's hours:

• Week 1 - employee works 20 hours @ $25.00/hr = $500.00 (pre-tax), employee has no extra income in the “bank”, so the employee’s cheque is for $410.00 after tax. 
• Week 2 - employee works 30 hours @ $25.00/hr = 750.00 (pre-tax). Employee still has no income banked, so will take home $615.00 after tax. 
• Week 3 - employee works 45 hours @ $25.00/hr = $1125 (pre-tax). The after-tax amount is $922.50. The employee will take home $615.00, and the remaining $307.50 (which has already had tax deducted) will be placed in a separate account, either set up by the employee or the employer.  
• Week 4 - employee works 40 hours @ $25.00/hr = $1000.00 (pre-tax). The after-tax amount is $820.00. The employee will take home $615.00 and the remaining $205.00 (which has already had tax deducted) will be placed in the separate account. The separate account now has a balance of $512.50 of after-tax dollars. This money is available to the employee when they want it. Often employees find this “forced savings” really valuable and don’t want to touch the money. 
• Week 5 - employee works 20 hours @ $25.00/hr = $500 (pre-tax). The employee takes home a cheque of $410.00 (after-tax amount) but has the option of pulling money from the separate account to top-up his/her paycheque.

For more information or if you would like help implementing this please email Grant [email protected] to set up a time to connect.