Deferred Pay Program
Montgomery College offers all full-time faculty the option of having their salary paid over 12-months (26 paychecks) instead of the default 10-month (20 paycheck) pay structure. This option, known as the Deferred Pay Program (DPP), is available through the Workday HR/Payroll system and will again be offered for the FY24 Academic Year.
Faculty members who elect to participate in the DPP will remain in the program until one of four (4) events occurs:
- Once an updated Deferred Pay Acknowledgement Form is received, the employee notifies HRSTM to cease their participation in the program at the end of the academic year, at which time they will revert back to the 10-month pay default for the subsequent academic year;
- The employee moves into a 12-month position, at which time the accumulated deferment will be paid as a lump sum;
- The employee goes out on any type of extended leave of absence (e.g., FML, intermittent FML, Sabbatical Leave, etc.), at which time the accumulated deferment will be paid as a lump sum; or
- The employee leaves the College, at which time the accumulated deferment will be paid as a lump sum.
The DPP allows the College to distribute an employee’s annual salary using the maximum pay periods available. The actual divisor used in calculating DPP participant’s bi-weekly pay rate will be 20 regardless of whether you elect to receive your payments over 10 months (20 pays) or 12 months (26 pays). During the academic year, a portion of your salary is set aside in a non-interest-bearing internal College account through the DPP. The dollars you earn and defer are later used to continue bi-weekly payments in the summer months (6 pays).
Here is an example of how the DPP works. Note that this calculation is an estimate only and Workday will calculate the exact deferred pay amounts.
- If you remain in the default 10-month pay structure, the bi-weekly paycheck amount would be $2,913.05 during the academic year only (20 paychecks from August-May).
- If you elect the DPP, the bi-weekly paycheck amount would be $2,240.81, which would be paid over the full calendar year (26 paychecks).
- $2,913.05 minus $2,240.81 is $672.24, which is the deferred amount (20 pays during academic year) set aside to pay during the summer months. This deduction is listed as Academic Pay – Amount Deferred on the bi-weekly Payslip.
- $672.24 x 20 pays = $13,444.80, total deferred amount; used to pay during summer months.
- $13,444.80 divided by 6 summer month payments = $2,240.80, which is the same amount paid during the academic year. Though this has not yet been tested, the deferred pay should also be listed as Academic Pay – Amount Deferred on the bi-weekly Payslip during the summer months.
Please carefully read the following Benefits and Limitations of the DPP before deciding if this option is right for you.
- The decision to select Deferred Pay is only available before the beginning of the fall semester. HRSTM must be notified, in writing, of an employee’s wish to sign up for or discontinue participation in the DPP by August 1,2023 with completion of a Deferred Pay Acknowledgement Form.
- Faculty hired on a one semester contract are not eligible to participate in the DPP.
- The College’s payroll system requires that the pay be based on 20 full pays. Employee’s enrolling in the DPP will have their pay divided equally over 200 days, regardless of the number of days in the academic year. The contract and the number of days worked will remain the same for all full-time faculty, but the hourly rate will be lower. For that reason, anyone planning to retire at the end of the academic year should NOT enroll in Deferred Pay.
- Deferred pay is only available on the employee’s primary job. Summer pay, overload pay, and other earnings are not eligible for the DPP. The employee will get paid as normal on these earnings.
- Deferred pay is not a personal savings account. Employees are not permitted to request those funds in advance of the scheduled payout periods.
- Faculty not eligible for the DPP or those who would like to earn interest or exercise more flexibility with their funds may want to consider a summer savings plan with a banking institution of their choice.
- It is important to note that if there are any necessary pay adjustments, then the summer paychecks could be a different amount than originally calculated and the final summer payout will reflect those adjustments and rounding.
- Employee benefits deductions (including group insurance, retirement contributions, dues, group legal, etc.) will only be deducted over the current 20 pay check structure. This means that summer paychecks will not be subject to benefit deductions.
- The election of this option could require an employee to reduce the amount of funds paid toward 403(b) and/or 457(b) supplemental retirement annuity accounts, as sufficient net pay must be available to cover taxes and the payment of benefits.
- Your income taxes are based on a percentage predetermined by the respective governmental agencies and your election on Federal Form W4 and applicable state tax forms. Following IRS regulations, wages are taxed when received by the employee; therefore, the earnings set aside for the summer payments have not had taxes deducted from those amounts. By deferring some of your salary dollars to the summer months through the program, effectively reduces your taxable salary earned during the academic year. Therefore, FICA, Medicare, Federal, and state taxes will be applied to your deferred compensation when it is distributed during the summer.
The online Deferred Pay Acknowledgement Form must be completed if you wish to participate in the DPP during the FY24 Academic Year. This form is also required if you wish to cancel your existing participation. All acknowledgement forms for the FY24 Academic Year are due to HRSTM for processing by August 1, 2023. Employees currently enrolled in the Deferred Pay Program who wish to remain enrolled do not need to complete this form.Enroll in Deferred Pay
Disclaimer: Montgomery College does not give tax advice. You are encouraged to contact a tax professional if you have questions concerning the tax implications of the Deferred Pay Program.