Allowances/ Deductions
Allowances and Deductions allow for dollar values and percentages to be added or deducted to or from an employee's pay. These Allowance or Deductions can be for one pay only or a standard for each pay, and can be applied before or after tax is calculated. If required, they can also be varied by the number of hours worked.
Each Allowance or Deduction must be identified by a unique code.
Superannuation is handled through the Allowance/Deduction facility.
The Remuneration module uses some Allowance/Deduction codes to attach pay components to Salary Packages.
Proration will only be applied when A/D Lots are equal to 1.00. To alert customers, a warning message in the following format will be sent: 'A/D Code xx Proration - Proration not applied as A/D Lots not equal to 1.00'.
Examples of Allowance/Deduction code usage
Payment of extra money due to an employee other than payments for hours worked:
- Tool Allowance
- Meal Allowance
- Living Away Allowance
Deduction of money from employees:
- Lump Sum Termination Tax
- Superannuation
- Loans being repaid
- Payments to Health Insurance
Some Classifications of Allow/Deduct codes may be used for the payment and deduction of amounts to employees who are paid a Salary Package.
- Deduction of extra taxes such as STSL and Extra Tax.
- Deduction codes are used to split employee's pay between bank accounts.
Allowance/Deduction Facilities
The facilities provided for Allowance/Deductions are:
Allowances Before Tax
Amounts paid to the employee before Tax is calculated.
Allowance After Tax
Amounts paid to the employee after Tax is calculated.
Deductions Before Tax
Amounts deducted from the employee's taxable gross pay before tax is to be calculated. The gross is reduced by the value of the before tax deduction unless the deduction is classified as a Workplace Giving Deduction.
A typical use of this would be for Workplace Giving deductions, where the Payment Summary Print Flag is set to A.
The result would be that the deduction would be taken from the gross before taxation, but the value of the deduction would be included in the Total Gross on the Payment Summary. This is only valid if the before tax deduction is a Workplace Giving deduction, otherwise the gross is reduced by the value of the Before Tax Deduction.
The value of the Workplace Giving Deduction is shown as a separate figure on the Payment Summary.
This Classification may also be used for other pay component deductions such as Salary Sacrifice items or Superannuation. In the case of Superannuation the Payment Summary Print Flag is set to zero so that the deduction does not appear on the Payment Summary.
Deductions After Tax
This refers to the amount deducted from the employee's pay after Tax has been calculated.
Allowances with Special Tax Rates
Some types of Allowances attract special tax rates, as specified by the ATO, which are:
- Lump Sum A - Termination Pay
- Lump Sum B - Termination Pay
- Employment Termination Pay
- Employment Termination Pay Tax
- Living Away Allowance
- Meals/Board
- Quarters
Percentage Deduction
This is similar to the Deduction After Tax, but is based on a calculated percentage based on one of the following:
- A percentage of an employee's actual pay, which may vary from pay to pay. The components that make up the pay that the percentage is calculated and selected. The main use of this facility is superannuation based on an employee's actual pay, not theoretical pay. Deduction based on Percentage of Actual Pay.
- A percentage of the Superannuation Gross, which is a fixed gross, held in the employee's Superannuation window.
Allowance/Deduction Limit
A nominated maximum amount to be paid or deducted from an employee's income is nominated. A limit can be specified in the employee's Allowance/Deduction window, along with the amount to add or deduct per pay. This is the Contract amount.
When the maximum value has been reached, the Allowance or Deduction will automatically cease. If only a residual amount is left to be deducted or paid and not the normal per pay amount, then only the remaining residual amount would apply. This is used for Company Loans or Sale to Staff.
Varied by Hours Worked
Allowance/Deduction amounts can be varied by the number of hours worked. Different Hour Types to be included in the calculation and factors to adjust the hourly rate calculations can be nominated. This is used for Tool Allowance or Leading Hand Allowance.
One Pay Only (non-standard)
An Allowance/Deduction for only one pay is entered in various Time Entry windows.
Standard Each Pay
Allowance/Deduction are applied each time the employee is paid and are identified in the employee'sAllowance/Deduction window. These can be overridden for payrun, through the various Time Entry windows.
Multiple Lots of Allowance/Deduction
At times it is required to determine the number of Allowance/Deduction Lots to be paid to or deducted from an employee such as when an employee does not earn a full pay or when an employee goes on holidays and receives multiple pays.
The number of Allowance/Deduction Lots are automatically calculated to apply in a Payrun and is controlled by the Calculate Deduction Lots field in the Tax & Rounding window. Alternatively the calculation of Deduction Lots can be stopped and the employee's standard Allowance/Deductions applied every Payrun (unless overridden by the user entering a Deduction Lot value from Time Card Entry - Overrides window.)
The Tax & Rounding window is used to stop the calculation of Deduction Lots.
If the Deduction Lots are not used, the Allowance/Deductions are defaulted to the employee's pay frequency; Deduction Lot of 1 which can be overridden for a particular Payrun in the Time Entry option.
If Deduction Lots are calculated, the following formula is applied:
Deduction Lots = Hours Worked/(Base Hours x Pay Frequency)
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Example
Round the Deduction Lots up to 1 or If the calculated Deduction Lot is less than or equal to half, Deduction Lots are rounded down to zero (suppress). Otherwise, if the calculated Deduction Lot is greater than 0.5, Deduction Lots are rounded up to 1. |
These options are controlled in the Program Control Option PAY38, Suppress Allowance/Deduction Lots option.
Deduction calculations based on a percentage of employee's gross pay are not varied by the above options.
The number of deduction lots can be overridden for an employee's pay through the Time Entry Override option. However, this will affect most of the employee's standard Allowance/Deductions, with the exception of those calculated by hours worked.
Overrides
Standard Allowance/Deduction amounts may be overridden for an employee's pay through the Time Entry function. When overriding a standard Allowance/Deduction, the following will need to be considered.
- Any calculations associated with the Allowance/Deduction that relate to a percentage, or hours worked, are not carried out
- A Unit value only is specified. The rate is taken from the standard Allowance/Deduction or the Default Allowance Rate on the relevant Allowance/Deduction window.
- If a rate is specified the, Unit is taken from the standard Allowance/Deduction, both the Unit and the Rate may be overridden.
- A standard Allowance/Deduction can be suppressed by specifying a zero Unit value and a zero Rate value.
How to establish an Allowance/Deduction
For Allowances/Deductions to be included automatically each time an employee is paid, the relevant Allowance/Deduction code must be specified in the employee's Salary window along with the following details:
- A Unit value of 1
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- (Optional) Specify a maximum contract amount to pay or deduct. Preceda automatically stops paying or deducting when the maximum is reached. This is useful for an employee paying off a staff loan.
An employee's standard Allowance/Deduction can be overridden or suppressed in a payrun through the various Time Entry windows, by specifying a Time Entry - Allowance/Deduction record using the same Allowance/Deduction code as the standard Allowance/Deduction you want to override.
To override a standard Allowance/Deduction with a different value, specify a different Unit value or specify a different Rate.
- To suppress a standard Allowance/Deduction, specify a Unit value and an Amount of zeros.
- Any Allowance/Deduction value entered in the payrun is taken as the final value. That is, it overrides any other Allowance/Deduction values specified elsewhere.
Standard Allowance/Deductions varied by Hours Worked
The Allow/Deduct by Hourswindow enables the setup of an Allowance that can vary depending on how many hours an employee works, and which type of hours the employee works (e.g. shift allowance may be applicable but only if shift hours are paid).
The calculation formula for an Allowance/Deduction amount by hours worked involves:
- The Allowance/Deduction Units and Rates are used to perform the following calculation
| Hourly Rate | = | Standard A/D Unit x Standard A/D Rate |
| Work Hours x Pay Frequency |
Work Hours may be Base Hours from the Base Hours option, or Standard Hours daily base hours from the Base Hours option, or Blank, where the Allowance/Deduction is varied by the value from a different Allowance/Deduction.
The relevant Base Hours code is specified in the employee's Payment Details window.
- For each Hours Type included in the Allowance/Deduction varied by hours worked calculation process, the following formula is used:
Hours Worked x Factor x Hourly Rate
- The results of the calculation for each hours type are accumulated.
Example 1
The following example demonstrates how the above calculation would be performed on a Tool Allowance:
| Tool Allowance per pay period | $10.50 (unit of 1.00) |
| Pay Frequency | Weekly |
| Employee's Standard Work Hours | 40.00 |
| Hours worked - normal | 39.00 |
| Hours worked - overtime | 03.50 |
| Allowance/Deduction Varied by Hours Worked | |
| Factor for Normal Hours | 1.0000 |
| Factor for overtime | 1.5000 |
| Calculation for Hourly Rate | 1.00 x $10.50 |
| 40.00 x 1 = $0.2625 | |
| Calculation for Normal Hours with A/D factor for Normal Hours | 39.00 x 1.0000 x 0.2625 = $10.2375 |
| Calculation of Overtime Hours with A/D factor for Overtime Hours | 3.50 x 1.5000 x 0.2625 = $1.3781 |
| The Total Allowance/Deduction Value is Calculated | $10.2375 + $ 1.3781 = $11.6156 |
| Allowance/Deduction is amount rounded to $11.62 |
Example 2
If all the employees receive the same rate it is possible to use the factor in the Allowance/Deduction by Hours Worked record as a rate shown in the following example:
| Tool Allowance per pay period | $10.50 (unit of 1.00) |
| Pay Frequency | Weekly |
| Employee's Standard Work Hours | Excluded from calculation of rate |
| Hours Worked - Normal | 39.00 |
| Hours Worked - Overtime | 03.50 |
| Allowance/Deduction Varied by Hours Worked | |
| Factor for Normal Hours | 00.2625 ($10.50 divided by 40.00 x1) for weekly |
| Factor for Overtime | 00.3938 ($10.50 x 1.5 divided by 40.00 x 1) |
| Calculation of Normal Hours with A/D factor for Normal Hours | 39.00 x 0.2625 (factor) x $1.00 (rate) = $10.2375 |
| Calculation of Overtime Hours with A/D factor for Overtime Hours | 3.50 x 0.3938 x $1.00 = $ 1.3783 |
| The Total Allowance/Deduction Value is Calculated | $10.2375 + $1.3783 = $11.6158 |
| Allowance/Deduction is amount rounded to $11.62 |
One Time Payments
One Time Payments may be made to an employee for a number of reasons such as a bonus or back pay owing.
There are two methods of calculating tax on a One Time Payment. Each complies with the ATO and is covered under NAT10146 and for Bonuses and Similar Payments covered under NAT7905.
Option A
This method of calculation used the OTP Weeks for Tax field in the Allow/Deduct Codes window to establish the number of weeks over which to spread the amount of the Allowance before calculating the tax on the payment.
To use option A, a value is entered into the OTP Weeks for Tax field. if left blank, option B is used.
An entry made into the Tax Weeks Override field on the Overrides window during data entry for a payrun will override the entry made on the Allow/Deduct Codes window.
Option B
| Step | Description | Example |
|---|---|---|
| 1 | The employee's Payment Summary Start Date or Hire Date | 1/07/08 |
| 2 | The employee's Paid Up to Date | 15/2/07 |
| 3 | The current Pay Period Date | 22/2/07 |
| 4 | Weeks to last pay - rounded up (weeks between steps 1 and 2) | 33 |
| 5 | Weeks to current pay period - rounded up (weeks between steps 1 and 3) | 34 |
| 6 | Employee's YTD Taxable Gross at last pay | $34810.62 |
| 7 | Employee's YTD Tax at last pay | $8438.00 |
| 8 | $value of One Time Payment being made | $1550.00 |
| 9 | Average OTP - Step 8/Step 5 = (1550/34) | $45.588235 |
| 10 | Average Weekly Taxable Gross - Step 6/Step 4 (34180.62/33) | $1054.87672 |
| 11 | Total Average Gross - Step 9 + Step 10 (1054.8672 + 45.588235) | $1100.4554 |
| 12 | Tax on $1100 | $274.00 |
| 13 | Multiply the tax calculated in the previous step by the number of weeks to last pay. This figure gives the new YTD Tax Value of Step 12* Step 4 ($268.00*33) | $9042.00 |
| 14 | Subtract the old YTD Tax at last pay from the new YTD Tax of Step 13 - Step 7 ($9042.00 - $8438.00) | $604.00 |
| 15 | Divide the value at Step 14 by the value at Step 4 ($604.00/33) | $18.30 |
| 16 | Multiply the value at Step 15 by the value at Step 5 ($12.30*34) | $622.00 |
| 17 | This is the value of the tax on the One Time payment | $622.00 |
The entry made into the Tax Weeks Override field on the Overrides window during data entry for a Payrun will override this calculation.
Allowance/Deductions - Stepped Deductions
The Stepped Deductions option is only used when deductions are made from an employee's pay according to the number of hours worked.
This would commonly be used with Union Fees. Automatic adjustment of a standard deduction from an employee's pay according to the number of hours worked in a week. The Deduction Code may have up to five steps and may be linked to any number of Hours Codes.
If the Deduction is added to an employee's Salary window and the linked Hours Code is paid during the payrun, the Deduction is applied according to the steps defined. It may be overridden during Time Entry.
You may setup as many Stepped Deduction codes as necessary.
To setup Stepped Deductions, the Allow/Deduct Step Rules must be setup.
Non-Standard Allowance/Deductions
An employee's non-standard Allowance/Deduction may be:
- An Allowance/Deduction to be processed for one pay only
- An Allowance/Deduction that varies each payrun
- The automatic Allowance/Deduction requirements vary for one pay only.
In each of the above, only enter the Allowance/Deduction code and value when entering Time Entry details for the relevant employee. No other entries are necessary.
Prioritized Deductions
By allocating a priority level to each deduction and defining a protected net for each employee, the most important Deductions are applied before the employee's protected net is reached.
A protected net is a minimum net amount that an employee must be paid. It is defined in the employee's Salary window. This ensures that Deductions applied to an employee's pay do not take up all of their net.
Deductions priorities are allocated in the Allowance/Deduction window where the following priority levels are:
| 0 (zero) | This indicates the deduction is mandatory; that it must be applied regardless of the employee's net payment amount. It is the default priority level. |
| 1 to 99 | Deductions are applied according to their priority level starting from the highest priority of 1 to the lowest priority of 99. Once an employee's protected net amount is reached, any remaining Deductions are simply not applied. |
When applying deductions during a payrun, the followings steps are performed:
- Applies all mandatory Deductions with a zero priority level provided that the protected net is not reached or the remaining net pay is not negative, and continues to the next two steps.
- Sorts the remaining Deductions in order of deduction priority of 1 to 99, then in order of Deduction amounts within each priority level. The setting of the Program Control option PAY42 determines if the Deduction amounts are sorted in ascending or descending order.
- Starting from the highest priority of 1, the Deduction amounts are applied until the protected net is reached.
Example 1
| Net Pay | $500.00 |
| Protected Net | $200.00 |
| Deduction Amount Allowed | $300.00 |
| Program Control Option PAY42 | Blank (maximize dollar values) |
| Deduction Priority | Amounts | Applied Y/N | Amounts |
| 0 | 150.00 | Y | 150.00 |
| 1 | 100.00 | Y | 100.00 |
| 1 | 80.00 | N | |
| 1 | 30.00 | Y | 30.00 |
| 1 | 10.00 | Y | 10.00 |
| 2 | 10.00 | N | |
| 2 | 5.00 | N | |
| Totals: | $385.00 | Applied: | $290.00 |
The following Deductions are applied:
- $150 is applied because it has a zero which is a mandatory deduction priority.
- $100 is applied as the protected net is not reached.
- $80 is ignored as the protected net would have been exceeded.
- Preceda looks for an amount of the same priority level that can be applied without exceeding the protected net. In this example $30 and $10 amounts are applied. It is at this point Preceda ceases to apply any further Deductions.
Preceda continues to apply Deductions provided all Deductions of the same priority level are applied. If so, it moves to the next priority level. If one Deduction with the same priority level cannot be applied, no deductions from the next priority level are applied.
Example 2 - Deduction Amounts in ascending order
| Net Pay | $500.00 |
| Protected Net | $200.00 |
| Deduction Amount Allowed | $300.00 |
| Program Control Option PAY42 | D (maximize number of deductions) |
| Deduction Priority | Amounts | Applied? Y/N | Amounts |
| 0 | 150.00 | Y | 150.00 |
| 1 | 10.00 | Y | 10.00 |
| 1 | 30.00 | Y | 30.00 |
| 1 | 80.00 | Y | 80.00 |
| 1 | 100.00 | N | 100.00 |
| 2 | 10.00 | N | |
| 2 | 5.00 | N | |
| Totals: | $385.00 | Applied: | $270.00 |
The $150 is applied as it is mandatory. However, the remaining deductions are applied starting from the smallest amount. This example shows that more deductions are applied.
Partial Deductions
The prioritized deduction option has a facility to allow for the deduction of partial amounts.
This caters for the scenario where there is not enough net to cover the total deduction value. In this instance, a portion of the deduction can be reduced.
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Example: An employee has a net pay of $238.50 with a Protected Net of $221.00 with a child support deduction of $30.00. If the child support deduction is set up as a prioritized Deduction with the Allow Partial Deduction field set to No, the Deduction would be dropped as the deduction would cause the net pay to fall below the Protected Net figure. If the Child Support Deduction is setup as a prioritized deduction with the Allow Partial Deduction field set to Yes, the Deduction would be reduced to $17.50 and the employee Net pay would be $221.00. This is calculated as $238.50 - $221.00 = $17.50 The PAY42DRP - Dropped/Reduced Prioritised Deductions Report generated by the Calculate payrun option lists details of the change to the deduction value. |
Allow/Deduct Codes with Express Payments
For Allowance/Deduction Codes with a $ value, and for Allowance/Deductions with a %.
When processing express payments for an employee who has a contract amount that exceeds the standard amount setup, the system will only display the remaining amount and not the fixed contract amount.
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Example: If an employee owes $1,000 and agrees that $90 is paid each pay period to the employer. The contract amount of $90 is paid in the first 11 pay period, leaving a balance of $10. The 12 pay period the system will show the balance of $10 and not the contracted amount of $90. The standard contract amount can be overridden during the express payment process.
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2024