Payroll in Higher Education: Some Sector Specific Issues
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By Dave Foxall
Higher Education Payroll Operations: Understanding the Issues
Outside of the world of the Ivory Tower, the general impression may be one of rarefied intellectual circles of academe, but the people who work in the higher education sector still require payment for their services; and thusly still require an efficient and effective payroll function. And as with other verticals (most notably that of the manufacturing sector), this efficiency is increasingly coming via automation and payroll software (or a third party service provider using software on the client’s behalf). According to the 2011-12 CedarCrestone HR Systems Survey, higher education adoption of automation technology and employee self-service functions for basic HR and payroll stands at 87%, somewhat below the worldwide average of 93%. However, CedarCrestone’s three-year outlook predicts, “More organizations in late-adopter industries—including public administration, higher education, and even healthcare—that are not yet adopting self service will begin to do so”. And although a number of software vendors and payroll outsourcing providers are now touting their specialist knowledge for these late-to-the-game sectors, the fact of the matter is that certain areas are critical to higher education’s payroll automation success. As such, for buyers in this market, you should know that any product or service should at the very least be able to tackle the following specific issues.
Just as any sector-specific HR or payroll system must be familiar with the peculiarities of that particular vertical, so in higher education any software must be able to deal with the requirements of tenured and adjunct teaching staff. The system of tenure is probably more widely-known; being the arrangement whereby academics are effectively awarded a lifetime employment agreement (the traditional belief is that this protects freedom of research and intellectual endeavor). No teaching professor begins with tenure and, depending on the college, up to 50% of assistant professors will eventually become tenured and promoted. Adjunct professors, on the other hand (also referred to as contract faculty) do not hold a permanent or full-time position at the institution; either because they also hold a non-academic job or are simply employed on a renewable contract basis. Any payroll system must not only be able to handle the differing rates of pay and track the differing hours, but also take into account that some adjunct staff may be working (teaching) insufficient hours to earn a benefits package. Similarly, adjuncts are often used to provide flexibility within the workforce and teaching loads and hours worked may vary over time (or may even result in tenure in one department while providing an adjunct contribution to another within the same university). This flexibility must be matched by the agility of the software functionality.
Higher Education Payroll Issue #2: Federal Work Study Program
At what might be seen as the opposite end of the spectrum to the teaching staff is the contingent labor payroll issue of students. Specifically, the Federal Work Study (FWS) Program provides funds for part-time employment to help students to finance the costs of postsecondary education; and the U.S. Department of Education websites cites a current figure of approximately 3,400 participating postsecondary institutions. The funding is applied for annually and then managed by the academic institution and in most cases, the college or the employer must pay up to a 50% share of a student’s wages under the FWS. The complication lies in the fact that participating students may be employed by the institution itself; a federal, state, or local public agency; a private non-profit organization; or a private for-profit organization. From the payroll management perspective this requires a degree of collaboration and close co-operation between the college and the various employers, all of which must be recorded accurately by any software that hopes to meet sector needs.
Higher Education Payroll Issue #3: Clergy and Members of Religious Orders
Though related by proxy, the prevalence of non-secular educational establishments means that the question of payroll for clergy and other members of religious organizations invariably becomes an issue in higher education. Clerical earnings are themselves subject to very specific (and even intricate) tax rules under the Inland Revenue Code which vary according to the role performed; the requirements of the particular religious order; and even the vows taken by the individual whose tax return is in question. Furthermore, depending on the nature of institution in which the person is teaching, these tax breaks either do or do not apply. For example, on the specific example of housing exclusions, the IRS states, “If you are a minister employed as a teacher or administrator by a church school, college, or university, you are performing ministerial services... However, if you perform services as a teacher or administrator on the faculty of a non-church college, you cannot exclude from your income a housing allowance or the value of a home that is provided to you.” This is, needless to say, a very specific and detailed tax withholding issue that a higher education payroll system should be able to calculate.
Managing Payroll in the Higher Education Sector – Final Thoughts
Depending on the charter or nature of the particular academic institution, some higher education employees will also be government/state employees (others will be working for a private employer) and a payroll system will need to cater for additional specific factors (including contingent labor, fringe benefits, and non-401(k) retirement plans). However, any university or college – public or private, secular or non-secular – will need a payroll process that can handle two or more of the above sector issues.
According to the 2011-12 CedarCrestone HR Systems Survey, higher education adoption of automation technology and employee self-service functions for basic HR and payroll stands at 87%, somewhat below the worldwide average of 93%.”