Process payroll deductions

Thatch calculates employee deduction amounts each pay period. Depending on your payroll setup, deductions are either processed with your payroll system automatically or provided as a report for you to enter manually. In both cases, the deduction report is available as a .csv for your reference.

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Thatch administers a Section 125 cafeteria Premium Only Plan (POP) on your behalf. Under this structure, employee's benefit premiumspremium The monthly amount paid to maintain health insurance coverage, regardless of whether any services are used that month. are deducted from payroll, reducing their taxable income and your payroll tax liability.

Because Section 125 deductions can only begin once an employee has eligible and active coverage, Thatch ties deductions to the pay date, not the pay period. An employee with coverage starting January 1 will have a deduction on a January 2 paycheck — even if that paycheck covers the December 19–January 1 pay period.

How to use deduction reports

Thatch generates payroll deduction reports five business days before the pay dates you specified when you set up your pay schedule(s).

Manual deductions

Upload the deduction report or enter deductions manually into your payroll system if:

• Your payroll provider isn't connected to Thatch, or
• Your payroll provider syncs your employee roster but doesn't support automated deductions, or
• You've chosen to manage deductions manually while getting comfortable with Thatch

Thatch calculates the correct deduction amount for each employee every pay period and generates a Payroll Deductions report for you. Using that report, you'll need to enter the deduction amounts into your payroll system before each payroll run.

To properly handle payroll deductions, Thatch needs to know when and how often you pay your employees. If you have not already done so, set up your pay schedule.

Every employee must be assigned to exactly one pay schedule. Employees not assigned to a schedule will default to monthly.

Process manual deductions

Each pay period, you should:

1. Log in to your Thatch dashboard and navigate to the Payroll Deductions tab.
2. Download the Payroll Deductions .csv report for the upcoming pay period.
3. In your payroll system, enter each employee's deduction amount.
4. Make sure your deduction codes in payroll are set up correctly and don't conflict with other benefits deductions.

That's the cycle — repeat each pay period.

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Your payroll provider may support upload of the payroll deductions .csv to batch enter the information.

Automated deductions

If your payroll provider supports automated deductions, Thatch sends employee deduction amounts directly to your payroll system. Once automated deductions are enabled, Thatch will:

• Calculate each employee's deduction amount based on their plan cost, your employer contribution, and their pay schedule
• Send new and updated deductions directly to your payroll system five business days before each pay date
• Flag any new or updated deductions so you can review them before payroll runs

You'll still have access to your deductions report in the dashboard for auditing, reconciliation, or year-end reference.

How Thatch calculates deduction amounts

Thatch calculates each employee's deduction using this formula:

Per-Period Deduction = (Annual Premium − Annual Employer Contribution) ÷ Number of Pay Periods

Example A: coverage on Thatch begins January 1

• Total coverage period premiumpremium The monthly amount paid to maintain health insurance coverage, regardless of whether any services are used that month.: $24,000 ($2,000/month × 12)
• Total coverage period employer contribution: $12,000 ($1,000/month × 12)
• Employee's share: $24,000 − $12,000 = $12,000
• Pay periods: 26
• Per-period deduction: $12,000 ÷ 26 = $461.54 per paycheck

Example B: coverage on Thatch begins April 1

• Total plan year premiumpremium The monthly amount paid to maintain health insurance coverage, regardless of whether any services are used that month.: $15,300 ($1,700/month × 9)
• Total plan year employer contribution: $9,000 ($1,000/month × 9)
• Employee's share: $15,300 − $9,000 = $6,300
• Pay periods: 19
• Per-period deduction: $6,300 ÷ 19 = $331.58 per paycheck

You can verify any deduction amount directly from the .csv report:

• Pre-tax deduction amounts: Section 125 Deduction Remaining ÷ Section 125 Pay Periods Remaining
• Post-tax deduction amounts: Posttax Deduction Remaining ÷ Posttax Pay Periods Remaining

Deductions are designed to be consistent each period. However, amounts can change mid-year due to premiumpremium The monthly amount paid to maintain health insurance coverage, regardless of whether any services are used that month. updates, dependent changes, or ancillary coverage adjustments. When this happens, Thatch recalculates based on what's already been deducted year-to-date so the employee still pays the correct total by year end.

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Thatch billing — what you pay — and deductions operate on different cadences and may not match within a given month, but they do reconcile over the course of the year.

Features of the deduction report

Deduction amounts for each employee are available in a condensed overview on the Payroll Deductions page, and as a detailed downloadable deduction report.

Key fields in the deduction report

The most commonly referenced fields in the deduction report are shown below. Note which are per pay date amounts, and which are monthly amounts.

This table presents the column names as they appear in the report:

Column name	Calculation frequency	Explanation
Section 125 Deduction	Per pay date	Per pay period pre-tax deduction amount.
Posttax Deduction	Per pay date	Per pay period post-tax deduction amount. This applies to overages for on-exchange medical plans.
Employer Allowanceallowance The amount an employer makes available to help employees pay for coverage or eligible expenses.	Monthly	Monthly maximum health budget the employer will provide the employee.
Total Premiumpremium The monthly amount paid to maintain health insurance coverage, regardless of whether any services are used that month. Cost	Monthly	Monthly cost of the employee’s premiumpremium The monthly amount paid to maintain health insurance coverage, regardless of whether any services are used that month.(s).
Employer Contribution	Monthly	The monthly amount the employer is paying towards premiumspremium The monthly amount paid to maintain health insurance coverage, regardless of whether any services are used that month.. Depending on the premiumpremium The monthly amount paid to maintain health insurance coverage, regardless of whether any services are used that month. cost, it will either be equal to the Employer Allowanceallowance The amount an employer makes available to help employees pay for coverage or eligible expenses. or the Total Premiumpremium The monthly amount paid to maintain health insurance coverage, regardless of whether any services are used that month. Cost, whichever is less.

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With your employee health budget, your contribution is monthly. For reporting and compliance purposes, it is not necessary — and is possibly misleading — to present it as a per-pay-date benefit.

If you wish to add the employer contribution to your employees’ W-2s, present it as a monthly amount.

In addition to these fields, there are many others that will help you understand how the deductions were calculated, when they are effective, and why they occurred. Of particular note:

• Source ID: if available, the ID you use to identify employees. This can be used to map records between Thatch and your payroll system.
• Status: whether the deduction amount is newly Created, is Unchanged since the previous pay date, or is an Updated amount.
• Section 125 Change Explanations: text explaining what has changed. A similar field is available for post-tax deductions and fringe benefits.
• Section 125 Change Details: text explaining why there was a change. A similar field is available for post-tax deductions and fringe benefits.

When you’ll receive the report

The report is generated based on the pay date(s) you set for your Thatch account.

• For monthly, semi-monthly, and biweekly pay schedules, Thatch generates the report six business days before your pay date and makes it available five business days out.
• For weekly pay schedules, the report is generated and available seven calendar days before the pay date.

Administrators receive an email when the report is ready; download the .csv from your Payroll Deductions page.

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If your employee enrolls or updates their coverage after the report is generated, their deduction amount for the plan year will be amortized across the remaining pay periods starting with the next pay date.

Why your deduction report and invoice may not match

The payroll deduction report and the Thatch healthcare invoice are generated at different times — each reflects enrollment data as of that moment, so they may not match each other.

To view your employee’s coverage at the time you receive your deduction or billing report, we recommend downloading the year-to-date enrollment report from your Thatch dashboard homepage as soon as either report is available.

Why a deduction amount might change

The reason for most deduction changes will appear in the report.

• For pre-tax deductions: Section 125 Change Explanations and Change Details
• For post-tax deductions: Posttax Change Explanations and Posttax Change Details

To see how long a policy was in effect, check the Valid Through columns.

Deduction changes during special enrollment and open enrollment periodsOpen Enrollment Period A defined window when employees can make coverage choices without a qualifying event.

Offering an ICHRA for the first time creates a 60 day special enrollment periodSpecial Enrollment Period A time outside the yearly Open Enrollment Period when employees can sign up for health insurance. A SEP is triggered by a qualifying event such as losing health coverage or getting married. for each employee. The 60 days begin on their earliest coverage start date, and employees are permitted to change their election or policy until the period ends.

Employees can also make changes during the national open enrollment periodOpen Enrollment Period A defined window when employees can make coverage choices without a qualifying event. for plan coverage starting January 1 and February 1.

These changes aren’t always cleanly sequenced, so corrections sometimes apply retroactively. Expect more deduction variability in the first two months after a coverage start date.

Qualifying life eventsqualifying life event A change in life—such as marriage, birth, or loss of other coverage—that may allow employees to change benefits mid-year. (QLEs)

QLEs entitle employees to change their coverage — adding or removing dependents, switching plans, or canceling. Any change to the underlying policy may affect the deduction amount.

Administrative corrections

Thatch makes corrections when:

• A member changed their policy directly with the carrier. Thatch may only discover the change when the premiumpremium The monthly amount paid to maintain health insurance coverage, regardless of whether any services are used that month. updates the following month.
• The plan price from Thatch’s data provider doesn’t match what the carrier debits. Thatch corrects the price and confirms with the member whether they’d like to keep or change their plan.
• A member’s individual plan carries a government subsidy, which is not compatible with the health budget. Once identified — usually due to a premiumpremium The monthly amount paid to maintain health insurance coverage, regardless of whether any services are used that month. cost mismatch or reimbursement documentation — Thatch works with the member to return the subsidy or decline their health budget retroactively. Either path may produce historical deduction corrections carried forward.
• The employee’s plan year overage cannot be evenly divided across pay dates. To ensure exactness, those employees will have a $0.01 reduction in their deduction amount at some point in the year. That reduced amount will be consistent until the end of the year, unless other eligible changes apply.

How deduction changes are implemented

When an employee makes a change to their policy that impacts their deduction, Thatch closes out the balance on the old policy in the final pay period before the change takes effect. You’ll typically see two deduction changes:

• A close-out deduction on the last paycheck under the old plan
• The new standard deduction starting with the first paycheck under the new plan

Example with a bi-weekly pay schedule where the first pay date of the year is January 2:

An employee elects Plan One at $300/mo effective January 1. Their employer contribution is $150/mo.

• The employee’s annual share is $1,800 ÷ 26 pay periods = $69.23 per paycheck.

On March 10, the employee has a QLE and switches to Plan Two effective April 1. Plan Two costs $400/mo, and their employer contribution remains $150/mo.

• The employee’s new overage for the plan year is $3,000 ÷ 26 = $115.38/paycheck.

Thatch will close out the remaining overage for Plan One with the new coverage end-date of March 31.

• Plan One has seven paychecks (January–March): 7 × $69.23 = $484.61.
• Three months of Plan One coverage costs only $450.00 — so the employee is over-collected by $34.61.
• The March 27 close-out deduction is reduced accordingly: $69.23 − $34.61 = $34.62.
• From April 10 onward, the deduction is $115.38.

The new deduction should remain consistent for the coverage period, unless the employee makes other eligible changes.

However, disruptions to the new policy’s effectuation — such as an incorrect birthdate, late documentation submission, or a carrier delaying effectuation to the following month — may require Thatch to adjust the amounts once coverage is confirmed.

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Thatch’s deductions are self-correcting and assume that you are applying the deduction amounts in each report.

If it was necessary to change or skip an employee’s deduction, contact support@thatch.com to update the year-to-date deduction total for that employee.

How Thatch handles over- and under-deductions

Thatch's deduction calculations are self-correcting, but it remains your responsibility to review them.

• Under-deductions: The remaining shortfall is re-amortized across the remaining pay periods.
• Over-deductions: If the remaining annual balance is positive, deductions are reduced going forward to recover the overage. If the remaining balance is negative, the employee is credited back the overcharge in the next report.