July 23, 2020
I thought compensation was capped at $100,000, not excluded completely. What am I missing?
Posted by Armanino Financial Advisory Team
You are missing the distinction between payroll costs and the Salary Reduction Factor. Both use $100,000, but for different purposes. For payroll costs calculations, you are correct that compensation is capped at $100,000 on an annualized basis (either $15,385 or $46,154 depending on the length of your Covered Period). For the Salary Reduction Factor, the $100,000 threshold applies to annualized 2019 pay in any one or more payroll periods and determines whether you need to include or exclude that employee from the calculation. It is unrelated to the payroll costs calculation.