Salary deferral agreement
A salary deferral is an agreement to pay part of an employee's salary later instead of now. It can mean a retirement plan contribution, such as a 401(k) deferral taken from pay before tax, or a deferred pay arrangement in which the employer pays the salary at a later date.
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Sample Salary deferral agreement clauses
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CSX CORP (CSX)Salary Deferral Agreement. “Salary Deferral Agreement” means a Deferral Agreement filed in accordance with the salary deferral program described in Article V.
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CSX CORP (CSX)All other provisions of his or her Salary Deferral Agreement shall remain in force and such Member shall continue to be a Member of the Plan.
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CSX CORP (CSX)An individual who first becomes an Eligible Executive on or after the first day of a calendar year may file a Salary Deferral Agreement with the Administrator within 30 days of the date such individual becomes an Eligible Executive, in such manner as the Administrator may prescribe. For the avoidance of doubt, individuals may only be designated by the Administrator and become Eligible Employees as of the first day of any calendar quarter in a Plan Year.
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CSX CORP (CSX)Salary Deferral Agreement. (a) A Member’s Salary Deferral Agreement shall authorize a specified amount as a reduction in his or her base pay with respect to such Member’s Salary Deferrals under the Plan. Salary reductions shall be in whole percentages not to exceed 75% percent. The Agreement shall be effective for the first payroll period beginning (i) in the calendar year for which it is effective; or (ii) in the case of a first-time Eligible Executive, effective as of the first day of the month following the date a Salary Deferral Agreement is filed with the Administrator in accordance with Section (b). (b) An Eligible Executive’s election under a Salary Deferral Agreement shall be effective on the last day such deferral election may be made under Section 5.01(a) or (b). A Salary Deferral Agreement once effective shall not be revoked or modified with respect to prior deferrals and shall remain in effect for subsequent calendar years until such time as the Member files a new Salary Deferral Agreement for a subsequent calendar year with the Administrator.
Amount and Compensation. A Participant’s Salary Deferral Contributions with respect to a Plan Year shall not be less than such amount the Employer prescribes in the Salary Deferral Agreement nor more than one hundred percent (100%) of the Participant’s Compensation (minus required payroll deductions and deductions for any other Employer-sponsored plan or program) or such other amount the Employer establishes in the Salary Deferral Agreement. A Salary Deferral Agreement shall be made (and/or limited) with respect to such Compensation prescribed by the Employer and set forth in one or more Salary Deferral Agreements.
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SOUTH STATE Corp (SSB)The employee may enter into a salary deferral agreement at any time to select an alternative deferral amount or to elect not to defer in the plan.
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PARDES BIOSCIENCES, INC.Dr. Lopatin’s current annual base salary is $450,000, which is subject to review and modification, provided, however, that Dr. Lopatin entered into a salary deferral agreement with the Company pursuant to which a portion of Dr. Lopatin’s 2020 base salary was deferred until the earlier of March 15, 2021 or an Equity Financing as defined in the salary deferral agreement.
A participant elects under his salary deferral agreement whether the resulting deferred compensation will be distributed to him in annual installments or a lump sum payment upon separation.
The Company offers a retirement savings plan under Section 401(k) of the Internal Revenue Code to certain eligible salaried employees. Each employee may elect to enter a written salary deferral agreement under which a portion of such employee’s pre-tax earnings may be contributed to the plan.
All Participants. All existing Participants, regardless of any prior Salary Deferral Agreement.
The Company entered into a salary deferral agreement with various employees. Contingent upon the Company closing an institutional financing of at least USD25 million, the Company was to pay the employees a bonus of 20% of the deferred salary as of that date. Upon completion of the initial public offering on the TSX the Company paid the deferred salaries and associated bonus.
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DEERE & CO (DE)Prior to 2007. Prior to January 1, 2007, pursuant to a salary deferral agreement in force under the SIP and subject to the provisions hereof, any amount of contribution up to 6% of Compensation for a calendar year that is restricted under Section 401(a)(17), Section 402(g) or 415 of the Code shall be allocated to a Participant’s salary deferral account under the Plan.
“Salary Deferral Agreement” means an agreement between a Participant and the Employer, whereby the Participant elects to reduce Compensation by a specific dollar amount or percentage and the Employer agrees to contribute such amount into the 401(k) Plan. The election may be made electronically in a manner permitted by the Employer. A Salary Deferral Agreement may require that an election be stated in specific percentage increments (not greater than one percent (1%) increments) or in specific dollar amount increments (not greater than dollar increments that could exceed one percent (1%) of Compensation). A Salary Deferral Agreement may not be effective prior to the later of: (a) the date the Employee becomes a Participant; (b) the date the Participant agrees (including by automatic consent) to the Salary Deferral Agreement; or (c) the date the 401(k) plan is adopted by the Employer or applicable Participating Employer. A Salary Deferral Agreement is valid even though it is executed by an Employee before he or she actually becomes a Participant, so long as the Salary Deferral Agreement is not effective before the date the Employee becomes a Participant. A Salary Deferral Agreement may only apply to Compensation that becomes currently available to the Employee after the effective date of the Salary Deferral Agreement.
Salary Deferral Agreements and Deferral Elections. Each Participant in the Elective Deferral Component of the Plan may submit a Salary Deferral Agreement to the Administrator at any time authorizing the Employer to withhold all or a portion of the Participant’s Compensation as an Elective Deferral, subject to the following provisions:
Effective Date. A Participant’s Salary Deferral Agreement may be entered into as of such date or dates (but at least once per Plan Year) as established by the Administrator in an administrative policy. Salary Deferral Agreements will be effective as soon as administratively feasible after receipt thereof by the Administrator (unless a later pay period is specified by the Participant in the agreement) and will remain in effect until such time or times as established by the Administrator in an administrative policy (or until such time or times set forth in the Plan with respect to any automatic enrollment program that may be established under the terms of the Plan).
Modification, Suspension or Cancellation. A Participant may modify an existing Salary Deferral Agreement to increase or decrease the percentage or amount being withheld as permitted under an administrative policy. The Participant may also at any time suspend or cancel a Salary Deferral Agreement upon reasonable written notice to the Administrator, in which event, the Participant will not be permitted to file a new Salary Deferral Agreement until such time as set forth in the administrative policy. If necessary to insure that the Plan satisfies the ADP Test, or upon a Participant reaching the Elective Deferral limit of Code §402(g), the Employer may temporarily suspend a Participant’s Salary Deferral Agreement upon notice to the Participant.
What is a salary deferral?
A salary deferral is an arrangement in which part of an employee’s salary is not paid out now but set aside or paid at a later date. The term covers two different things:
- Retirement plan deferrals: the employee chooses to put part of each paycheck into a plan such as a 401(k), usually before income tax.
- Deferred pay agreements: employer and employee agree that part of the salary or a bonus will be paid later, for example at retirement, after a set date, or when a cash-strapped company recovers.
A salary deferral agreement is the written contract that sets out how much is deferred, until when, and what happens if the employment ends.
What does salary deferral mean in a 401(k)?
In a 401(k), a salary deferral (or elective deferral) is the amount an employee chooses to have taken from each paycheck and paid into the plan. Traditional deferrals are made before income tax and taxed when withdrawn; Roth deferrals are taxed now and can be withdrawn tax-free later, once the plan’s age and holding rules are met. The IRS sets a yearly limit on how much an employee can defer, with an extra catch-up amount for employees aged 50 and over, and a higher one at ages 60 to 63. Many employers add a matching contribution on top.
How does a deferred pay agreement work?
- The parties agree the deferral in writing: the amount or percentage, the period and the payment date.
- The employer records the deferred amount as owed to the employee, sometimes with interest.
- The deferred salary is paid on the agreed date or event, such as retirement, a fixed date or a funding round.
In the US, nonqualified deferred compensation must follow Internal Revenue Code § 409A: the deferral election is generally made before the year in which the work is done, and payment dates are fixed in advance. Missing these rules can make the deferred amount taxable at once, with penalties. Deferred pay also cannot push an employee’s current wages below the minimum wage.
In Germany, the common form is Entgeltumwandlung: employees can convert part of their salary into a company pension, and they have a legal right to do so up to a limit (§ 1a BetrAVG).
Salary deferral: pros and cons
| For the employee | For the employer | |
|---|---|---|
| Pros | Tax saving now, retirement savings, sometimes interest or a bonus for deferring | Lower cash costs today, keeps key people |
| Cons | Less pay now, risk of not being paid if the employer becomes insolvent | Liability on the balance sheet, strict tax rules |
What a salary deferral agreement should include
- Amount: a fixed sum or a percentage of salary or bonus.
- Period: which pay periods the deferral applies to.
- Payment date or event: when and how the deferred amount is paid.
- Interest or uplift: whether the deferred amount earns interest or a premium.
- Leaving the company: what happens on resignation, dismissal, death or disability.
- Tax compliance: a statement that the agreement is meant to comply with applicable tax rules, such as § 409A.
Salary deferral clause example
Sample clause: Salary deferral
Add this clause to a contract, send it and get it signed in fynk.
Use it in fynk for freeHow to keep track of deferred pay
Deferred salary turns into a payment promise that can run for years. In fynk, the deferred amount, interest and payment date are fields in the agreement, the contract calendar shows when each payment is due, and user roles keep salary agreements visible only to HR and finance.
Which contracts contain a salary deferral?
Deferred compensation agreements, executive employment contracts, change of control and retention agreements, and salary sacrifice or pension conversion agreements. These free templates include deferral terms:
Free templates with this clause
Change of control agreement template (executive retention)The annual bonus is paid after the fiscal year, unless the employee elects to defer it under a company deferred compensation plan.
Use the free template
Executive employment agreement templatePayments triggered by the end of employment follow the tax rules on deferred compensation, including separation from service and payment delays.
Use the free template
Related clauses
- Deferral agreement A deferral agreement is a contractual clause allowing parties to postpone certain obligations, such as payments or performance deadlines, to a later date. This type of agreement provides flexibility and temporary relief to parties facing unforeseen circumstances that hinder their ability to fulfill initial terms.
- Eligible compensation Eligible compensation refers to the specific types of earnings that qualify for consideration under a contractual agreement, often determining the basis for calculating benefits or contributions, such as in retirement or bonus plans. It typically includes regular wages but may exclude bonuses, overtime, or other irregular payments, with the exact definition varying depending on the terms outlined in the contract.
- Retention bonus A retention bonus is extra pay an employer promises an employee for staying until a set date or through an event, such as a merger, a restructuring or a big project. It is paid only at the end of the retention period, usually as a lump sum, and the employee loses it if they resign early.
- Equity compensation Equity compensation refers to non-cash benefits that give employees ownership in the company, often in the form of stock options, restricted stock units, or employee stock purchase plans. This form of compensation is intended to align the interests of employees with those of shareholders, incentivizing employees to contribute to the company’s success.
Frequently asked questions
The part of an employee's pay that they choose to put into a retirement plan such as a 401(k) instead of receiving it in their paycheck, usually before income tax.
For retirement plans, usually yes: it lowers taxable income and builds savings, especially with an employer match. For deferred pay from a struggling employer, it depends on the risk that the company cannot pay later.
Generally no. Agreed wages must be paid on the normal payday. Deferring them needs the employee's written agreement, and some wages, such as the minimum wage, cannot be deferred at all.
Nonqualified deferred pay is usually an unsecured claim, so the employee may recover only part of it. Retirement plan deferrals in a 401(k) are held in trust and protected from the employer's creditors.
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