Understanding Gross and Net Guarantee

This chapter discusses:

• Gross and net guarantee overview.

• Gross to net calculation method.

• Net to gross calculation method.

• Extra period calculation.

Gross and Net Guarantee Overview

When you calculate an employee's total salary, you need to consider some adjustments to the base salary that are specified in the employee's personal agreement. These adjustments may come from an employee's contract. Typically, employee compensation in Spain is defined by a labor agreement. However, you can define compensation in different ways using PeopleSoft Human Resources.

For employees whose personal agreement defines a net or gross amount, the system compares the employee's contract with the compensation defined for the employee (usually in the labor agreement). If these two amounts are the same, no adjustment is necessary. This salary includes both base salary and complements.

Compensation Setup - Gross to Net

A gross to net adjustment is necessary when the annual gross salary stated in an employee's personal agreement is different from the gross salary reflected in the employee's labor agreement (if compensation is defined at the labor agreement level). This agreed value is stored in the Target Compensation Rate field on the Job Data - Compensation Page.

See Increasing the Workforce.

The system calculates and displays the estimated difference between the negotiated gross and the sum of all earnings that the employee would receive by default based on his or her professional category, job code, or other default criteria. This amount is known as the absorbable complement (complemento absorbible).

Compensation Setup - Net to Gross

This type of adjustment applies when an employee's personal agreement states a net amount. This agreed net amount is stored in the Target Compensation Rate field on the Job Data - Compensation page.

The system calculates and displays an estimated absorbable complement as the difference between the targeted net compensation and the sum of all net earnings that the employee would receive by default based on his professional category, job code, or other default criteria. The targeted compensation rate is the net guarantee to the employee.

Note. In both cases, this chapter refers to the estimated absorbable complement because it doesn't consider seniority. The actual amount is calculated during the payroll process and is reflected in the earning element COMP ABSRBLE.

Calculation - Gross to Net

The system calculates an absorbable complement as the difference between the negotiated gross and the sum of all basic earnings calculated for the employee during the payroll calculation (including, for example, seniority earnings) that are defined as absorbable. Absorbable means that increases in the value of the earning are absorbed by the absorbable complement.

Note. To specify that an earning is absorbable, you must include the rate component of the earning EARNING_VLR as a member of the accumulator AJB AC DEV BAS S.

Calculation - Net to Gross

The system uses an iterative process to calculate the gross amount from the net amount guarantee and an estimated gross amount. The difference between the calculated gross amount and the sum of all basic earnings defined as absorbable and calculated for the employee is assigned to the absorbable complement.

Note. To specify that an earning is absorbable, you must include the rate component of the earning EARNING_VLR as a member of the accumulator AJB AC DEV BAS S.

See Also

Base Salary

Gross to Net Calculation Method

To determine the absorbable complement for a gross to net calculation, the system:

1. Calculates the agreed monthly gross income based on the employee's gross guarantee.

   The system retrieves the agreed gross from the Target Compensation Rate field on the Job Data - Compensation page and calculates the daily value, taking into account the number of regular and extra periods. If the Target Compensation Rate field is blank, the system uses the value in the Annual Rate field on this page.

2. Calculates the total daily value of the absorbable earnings specified for the employee on the Job Data - Compensation page.

   This calculation takes into account extra periods defined in the labor agreement and absences.

3. Calculates the difference between the agreed daily gross amount calculated in step 1 and the monthly gross amount calculated in step 2.

   The system calculates the difference using the daily value for both amounts and then multiplies the difference by the number of days worked. This amount is stored in the absorbable complement earning COMP ABSRBLE.

Note. To specify that an employee's earnings must be adjusted gross to net, assign a supporting element override to variable GEN VR TIPO AJ SAL with a value of BRUTO.

Example

Assume that the employee has the salary details in the following table:

To calculate the absorbable complement, the system:

1. Calculates the agreed monthly income by dividing the annual value by the total number of payments in the year:

   40.334,00 ÷ 14 (12 months + 2 extra periods) = 2.881,00 EUR per month

2. Determines the monthly income based on the labor agreement:

   Total monthly income per labor agreement: 750,00 + 500,00 = 1.250,00 EUR/month.

3. Calculates the difference between the agreed monthly gross amount and the monthly gross amount according to the labor agreement:

   2.881,00 − 1.250,00 = 1.631,00 EUR per month

   This is the amount of the monthly adjustment or absorbable complement that the employee receives in addition to the base salary and annual complement stated in the labor agreement. This amount is calculated as Unit * Rate, where Unit is the number of worked days in the period. and Rate is the monthly amount divided by 30 for monthly employees or the number of days of the payment period for daily employees.

Note. The system always considers extra periods in the gross to net calculations to obtain the annual gross.

Net to Gross Calculation Method

To calculate an employee's gross salary from an agreed net amount, the system needs the following information:

• All basic earnings that the employee receives based on professional category or the salary plan. This information is on the Job Data - Compensation page.

• The total number of periods.

• An estimate of the gross salary. This figure is used as the starting point for the iterative calculations. By default, the system calculates the estimated gross by annualizing the net amount and increasing the result by 30 percent to cover statutory deductions. You can override this percentage to get a more accurate starting point for the calculation by changing the value of the variable AJN VR TAX PCT EST. For example, to set the percentage to 20 percent, you would assign 1.20 to the variable.

Note. The net to gross process considers only social security and tax deductions. Other deductions, such as loans and advances, garnishments, and union fees, are not included in the calculation loop because they are applied to the net.

To obtain the annual gross salary, the system:

1. Calculates the estimated gross salary.

2. Calculates the net amount from the estimated gross.

   To accomplish this, the system:

   • Divides the estimated annual gross by the total number of periods to calculate all the monthly gross earnings.

   • Subtracts the tax deductions from the monthly gross. The system calculates the IRPF deduction for that income.

   • Subtracts the social security contribution from the monthly gross.

3. Determines the difference between the calculated net and the actual net.

   The system uses this formula to calculate the difference:

   Agreed Net − Calculated Net = Difference

   If the difference is 0,05 EUR or less, the estimated gross amount is considered to be accurate and the calculation is complete. If not, the process continues to step 4.

   Note. You can define the acceptable variation between the agreed net and the calculated net by customizing the variable AJN VR TOLERANCIA. PeopleSoft Enterprise Global Payroll for Spain delivers the value of the variable as 0,05 euros, but you can change this value during implementation.

4. Calculates a new estimated gross amount.

   Using the difference calculated in step 3 and the following formula, the system calculates a new estimated gross amount:

   New Estimated Gross = Estimated Gross + Difference + (Difference * (1 – (Calculated Net / Estimated Gross)))

5. Recalculates the net from the new estimated gross (repeat step 2).

   The system repeats step 2 to recalculate the net from the new estimated gross. Steps 2 through 5 are iterative and can occur up to five times. If the difference between the calculated net and the actual net (calculated in step 3) is more than 0,05 EUR after five attempts, the system ends with the fifth calculation.

   Note. This iterative process is required because changing the estimated gross can affect the seniority amount, the prorated extra period, the absorbable complement, and social security contributions. More important, the tax percentage can change, producing a different deduction.

Note. To specify that an employee's earnings must be adjusted net to gross, assign a supporting element override to variable GEN VR TIPO AJ SAL with a value of NETO.

Note. The IRPF percent is calculated every month for net to gross employees, even if the corresponding normalization schedule doesn't set it up.

See Calculating Taxes.

Example

According to his contract, Jose earns a monthly net payment of 1.500,000 EUR. His labor agreement stipulates 14 periods per year. Following the preceding steps, the system:

1. Calculates the estimated gross amount: 1500 * 1,3 = 1950 ( Net amount increased by 30 percent).

2. Resolves all basic earnings and calculates the absorbable complement, taking into account the estimated monthly gross amount and the total of all basic earnings.

3. Subtracts the tax deductions from the total monthly gross.

   Assuming a tax rate of 12,12 percent, this deduction is 236,34.

4. Subtracts the social security contribution from the monthly gross.

   Assuming that after the system calculates the social security base, the contribution is 53,30. The monthly net is 1950 – 236,34 – 53,30 = 1660,36.

5. Determines the difference between the calculated net and the actual net: 1660,36 − 1500,00 = 160,36 EUR.

6. Because the difference is greater than 0,05 EUR, the system calculates a new estimated gross and repeats this process until this value is within an accepted range of the actual net.

See Also

Calculating Taxes

Setting Up Social Security Contributions

Extra Period Calculation

With PeopleSoft Enterprise Global Payroll for Spain, you define the earnings that contribute to an extra period and the percentage of each earning. For example, you can define an extra period that consists of 100 percent of the monthly base salary and 50 percent of the employee's monthly transport complement.

For employees whose salary is adjusted gross to net or net to gross, you also define the extra period value as a percentage of the agreed monthly salary. If you define the percentage as 100, the employee's extra period is equal to the agreed monthly salary, regardless of the earnings defined in the extra period. If the extra period is 60 percent of the agreed monthly salary, the system calculates the absorbable complement based on this reduced monthly amount.

You define the percentage using the Percent if Salary Adjustment field on the Extra Period Definition page.

See Defining Extra Period Data.

To calculate the absorbable complement for the employee's extra period, the system:

1. Multiplies the agreed monthly salary by the percentage adjustment specified for the extra period (Percent if Salary Adjustment field on the Extra Period Definition page). This gives the gross extra period amount.

2. For each earning defined for the extra period, the system multiplies the earning amount by the percentage defined for that earning in the labor agreement (Earning Percent field on the Extra Period Eligibility Earnings page).

3. Calculates the total of all the earnings calculated in step 2.

4. Calculates the difference between the extra period amount calculated in step 1 and the total earnings for the extra period calculated in step 3. This is the absorbable complement for the extra period.

Note. For net-to-gross adjustments, the calculation of extra periods is part of an iterative process. For each iteration, the resulting net amount is compared with the agreed net amount. If it does not match, a new gross salary is calculated and the resulting net amount recalculated until it matches the agreed net amount.

Calculation Example

This example explains how the system calculates the employee's salary and extra periods when the extra periods are not based on 100 percent of earnings:

Note. To make understanding the calculation easier, this example uses monthly values. However, the system actually uses daily values in the calculations.

To calculate the monthly agreed salary, the system:

1. Divides the agreed annual salary by the total number of payment periods, taking into account the extra periods:

   50.750 / 14,5 (12 + 0,5 + 1 + 1) = 3.500 EUR /month

2. Calculates the monthly salary according to the labor agreement:

   Total monthly income per labor agreement: 500 + 200 = 700 EUR/month.

3. The system then calculates the difference between the agreed monthly gross amount and the monthly gross amount according to the labor agreement:

   3.500 – 700 = 2.800 EUR

   This is the amount of the monthly adjustment or absorbable complement that the employee receives in addition to the base salary and annual complement stated in the labor agreement.

To illustrate how the system calculates the extra periods for this employee, consider extra period 1 as an example. The system:

1. Calculates the gross extra period amount by multiplying the agreed monthly salary by the percentage adjustment (50%) specified for the extra period:

   3.500 * 0,5 = 1.750,00

2. Calculates the value of all the earnings included in the extra period by multiplying the earning by the earning percentage:

   Base salary = 250 EUR (500 * 0,5) and Transport = 80 EUR (200 * 0,4)

3. Calculates the total of the earnings for the extra period: 250 + 80 = 330 EUR

4. Calculates the absorbable complement by subtracting the total earnings (step 3) from the gross extra period amount calculated in step 1:

   1.750 — 330 = 1.420,00 EUR

Thus the employee's extra period is made up of earnings for base salary and transport and the absorbable complement.

This table summarizes the calculations of all extra periods for this employee:

The employee's annual salary is summarized in the following way:

Regular periods = 12 * 3.500 = 42.000 EUR

Extra periods = 1.750 + 3.500 + 3.500 = 8.750 EUR

Total Annual Salary = 42.000 + 8.750 = 50.750 EUR

See Also

Defining Labor Agreements

Calculating Extra Periods