Understanding Net-To-Gross Payments

This chapter discusses:

• Net-to-gross processing.

• The net-to-gross process sequence.

• Delivered net-to-gross elements.

Net-to-Gross Processing

This section discusses:

• Net-to-gross earnings elements.

• How to determine whether a net-to-gross calculation is required.

• Actual net pay and target net pay.

• Upper and lower limits.

• PIRAMIDADO earning calculation.

Net-To-Gross Earnings Elements

Gross-ups are required when you want to pay a payee a specific net amount. Starting from the net amount, the system determines the gross amount to process so that after tax deductions have been made, the required net amount remains.

As part of this feature, Global Payroll for Mexico provides two earnings elements:

• PIRAMIDADO

• EXC PIRAMID

PIRAMIDADO is used for paying the net amount. The PIRAMIDADO earning contributes to the PIRAMIDADOS accumulator, which is the element used in formulas to arrive at the required net.

You enter the PIRAMIDADO earnings amount using positive input or with the Earning/Deduction Assignment page. The system calculates the amount by which it must gross-up earnings to have the required net after deducting taxes. It then assigns that amount, discounting the PIRAMIDADOS accumulator, to the EXC PIRAMID earning. The two earnings make up the gross pay. The PIRAMIDADO earnings element is assigned to the PIRAMID PERC/DED section of the NOMINA process list before the gross-to-net sub-process begins. This is where the EXC PIRAMID earnings element is calculated.

To summarize:

• PIRAMIDADO + EXC PIRAMID = Gross Pay

• PIRAMIDADO = Net Pay

• EXC PIRAMID = Additional amount needed to reach net pay

Determining Whether a Net-to-Gross Calculation is Required

When PIRAMIDADO earnings are resolved, these earnings add to the gross-up accumulator PIRAMIDADOS, which contains the resolved value of the PIRAMIDADO earnings element after taxes and other deductions. In the PIRAMIDADO SEC section, a conditional formula determines that grossing-up is required if the gross-up accumulator has a value.

Actual Net Pay and Target Net Pay

To determine when the gross-up process is complete, the system compares the current net pay amount (the net pay element defined in the process list) against the target net amount. The target net is the sum of the net pay element before processing the PIRAMIDADO SEC section and the PIRAMIDADOS accumulator (NET + PIRAMIDADOS).

In each iteration of the gross-up, the process produces a new net based on the new gross amount.

When the current and target net are the same, the process of calculating the gross pay is complete.

Upper and Lower Limits

Global Payroll for Mexico calculates upper and lower limits as part of the gross-up process. These limits are the values between which earnings PIRAMIDADO + EXC PIRAMID falls. In each iteration of the gross-up, the earning EXC PIRAMID takes a value between the Lower Limit − PIRAMIDADO and the Upper Limit − PIRAMIDADO.

For example:

Suppose that you want to pay a PIRAMIDADO amount of 1,000.00.

The first time that limits are calculated, the upper and lower limits are:

• Upper Limit: 1,000 × 1.6 = 1,600.00

• Lower Limit: 1,000

Therefore, in the first iteration, the EXC PIRAMID values are between 0 and 600.

In each iteration, the gross amount varies, depending on the PIRAMIDADO and EXC PIRAMID values.

PIRAMIDADO Earning Calculation

After the system determines that a gross-up is required, it starts the calculation by treating the PIRAMIDADOS accumulator as if it is the lower value that PIRAMIDADO + EXC PIRAMID can take, and the 160 percent PIRAMIDADOS accumulator as the upper value that earnings PIRAMIDADO + EXC PIRAMID can take.

The system processes the limits that are being changed to ensure that they enclose the target value for the EXC PIRAMID earnings element. It validates the upper amount, deducting taxes, to get a new net amount—the upper net—and verifies that the target net is between the lower net and upper net. The same validation is made if the lower limit is the one that is changing.

If the validation returns a value of false, the system is searching in the wrong range, and the lower and upper limit values must be redefined.

EXC PIRAMID takes its value during each iteration of the formula:

((Lower Limit) + (Upper Limit)) / 2 − PIRAMIDADOS

Because of the tax deduction, the actual net doesn't match the target net. Using the difference between actual and target net in a formula, the system calculates a new upper or lower limit, deducts the taxes from it, and arrives at a new actual net, which it compares to the target net. The iterations—or loops—continue, with the actual net coming closer to the target net with each loop, until the actual and target net are the same.

The Net-to-Gross Process Sequence

The net-to-gross process sequence is:

1. You enter the bonus amount by positive input as the earnings PIRAMIDADO.

2. The PIRAMIDADO earnings are resolved in the PIRAMID PERC/DED section and added to the accumulator PIRAMIDADOS.

3. The PIRAMIDADO SEC subprocess section in the NOMINA process list contains the conditional formula PI FM EJECUTAR.

   If the formula finds that the PIRAMIDADOS accumulator is not zero and, therefore, a gross-up must be done on this accumulator, it invokes the PIRAMIDADO SEC subprocess section.

4. The formula PI FM LIM INICIAL, the first element in the PIRAMIDADO SEC section, sets the variable PI VR NETO PIRAMID to the value of the current net plus the PIRAMIDADOS accumulator.

   This value remains constant during subsequent processing. The formula PI FM LIM INICIAL also sets the values of the upper and lower limits (upper and lower values for the earnings PIRAMIDADO + EXC PIRAMID).

5. The earnings element EXC PIRAMID is the second element of the PIRAMIDADO SEC section.

   With this element, the PIRAMIDADO SEC section initiates the gross-to-net subprocess governed by the conditional formula PI FM CONTINUAR.

6. The conditional formula PI FM CONTINUAR in the PIRAMIDADO SEC section compares the constant value of PI VR NETO PIRAMID (set in Step 4) with the value of the new net (which has the new calculated taxes subtracted from it).

7. If the formula PI FM CONTINUAR returns FALSE (0), meaning that there is no difference is a minimum difference of -1 or +1 between PI VR NETO PIRAMID and the new calculated net, the process stops. The formula returns TRUE (1) if it runs and determines new upper or lower limit values depending on positive or negative differences. The value of PI VR EXC PIRAMID is the amount by which the net is increased to produce the taxable gross.

   Note. You can vary +1 or -1 range depending on the precision required on your gross to net calculation.

8. The section element IMPUESTOS FED is the third element of the PIRAMIDADO SEC section.

   The tax deductions are calculated in the IMPUESTOS FED section to produce a new actual net.

9. The conditional formula PI FM EXC PIRAM in the IMPUESTOS FED section compares the constant value of PI VR NETO PIRAMID (set in Step 4) with the value of the upper and the lower limits.

   This determines whether the target net is still between the limits. If the target net is not between these limits, the formula recalculates the limits.

10. The tax deductions are calculated in the IMPUESTOS FED section to produce a new actual net.

11. The loop process of calculating a new gross, deducting taxes to produce a new net balance, and comparing the balance to the constant PI VR NETO PIRAMID continues until the actual net is closer to the target net (−1≤ x ≤ 1).

12. When the looping stops, the formula PI FM CONTINUAR checks to see that there is no difference between PI VR NETO PIRAMID and the new net.

    If there is no difference, the formula resolves to FALSE, indicating that the system has calculated the correct gross-up figure. The system goes through the loop a maximum of fifteen times. If it fails to calculate the gross amount correctly within that limit, you must remove the PIRAMIDADO earning amount, calculate the gross manually, and pay it using the earnings element of your choice.

Example: Calculating the PIRAMIDADO Earnings and Gross Pay

This example is based on a positive input entry of 500 to the PIRAMIDADO earnings. The value of the PIRAMIDADOS accumulator becomes 500.

The PIRAMIDADO SEC section is run because the PIRAMIDADOS accumulator is greater than zero.

Suppose that the net result before the PIRAMIDADO earning resolves to 5,000.00, so the new target net is 5,500.00 (net before PIRAMIDADO + 500.00 [PIRAMIDADO]).

New upper and lower limits must be set:

• Lower Limit: PIRAMIDADOS = 500 MXN

• Upper Limit: 160 percent PIRAMIDADOS = 500 × 1.6 = 800

These two earnings are used to calculate the new net:

• PIRAMIDADO, which is entered through positive input or earnings and deduction assignment.

• EXC PIRAMID, which is used to find the target net.

To ensure that you reach the target net, PIRAMIDADO should be between 500 and 800. Therefore, EXC PIRAMID has a value between 0 and 300.

Delivered Net-to-Gross Elements

This section discusses:

• Delivered gross-to-net earnings.

• Delivered net-to-gross process lists and sections.

Delivered Gross-to-Net Earnings

PeopleSoft delivers these gross-to-net earnings.

Delivered Net-to-Gross Process Lists and Sections

The NOMINA process list contains these net-to-gross sections.

Note. The PeopleSoft system delivers a query that you can run to view the names of all delivered elements that are designed for Mexico. Instructions for running the query are provided in the PeopleSoft Global Payroll 9.1 PeopleBook.

See Also

Understanding How to View Delivered Elements