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Payroll Deduction and POS What you Need to Know

Point-of-sale (POS) systems have come a long way since they were first introduced as cash register replacements. The fact that POS software applications are based on computing platforms have made it easy for developers to program advanced features to help business owners run their companies.

Payroll integration is one of the most attractive features of POS systems. The earliest POS versions served as a time clock that would tally shifts and hours worked for an easy calculation of wages. This accounting feature was later enhanced with standard payroll deductions such as the ones found on the W-4 form; these may include federal, Social Security, Medicare, and state taxes.

An even more advanced payroll deduction that can be handled through POS involves cashless purchases. One example would be a hospital cafeteria that allows employees to purchase meals and snacks to be deducted from their wages; many employers like this idea because it opens a revenue channel and provides convenience to workers.

How Deductible Cashless Purchases Work

Modern POS systems will likely offer many payment options that do not require cash. The most common cashless payment involves credit and debit cards; other options may include smart wallets, direct billing, prepaid balances, and payroll deductions.

In some POS systems, a cashless purchase can be set up as a custom tender; for example, a bed and breakfast can set up an option to charge purchases to a room account. Another example would be a bar tab or an insurance payment.

The most common POS cashless payment method used to set up payroll deductions involves employee badges. Depending on the peripherals chosen, a POS cash register or vending machine can be equipped with card readers for swiping, magnetic pads, bar code scanners, keypads, or even Near Field Communications for employees who wish to use their smartphones.

Once the payroll deduction is set up within the POS, the amount of the sales transaction becomes instant revenue for the employer and a potential savings since the payment is deducted automatically from paychecks.

Policy Before Mechanism

Even before programming the POS with a custom tender to accept payroll deduction payments, employers should establish adequate company policy related to these purchases. Some of the considerations to make when drafting such policies include:

– Maximum limit of purchases per payroll period: Ideally, employees should not be spend half of their paychecks on cafeteria items.

– Employee discounts: This is a good way to make employees feel appreciated. It is important to remember that payroll deductions carry no transaction fees, and thus generous discounts can stimulate spending.

– Payment method: Having staff members enter their employee codes on keypads or touchscreens is not as secure as a badge with a PIN challenge.

– Software integration: Most POS systems allow integration with Quickbooks and other applications to automate the payroll deduction process. Ideally, employees should have access to a web portal or mobile app to track their spending.


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