Understanding Contract Pay Processing

Payment Terms

Employers in higher education often process payroll and benefits over a period of time that differs from the employee's contract period. When you define contract pay, you provide start and end dates for the contract work and for the contract payments. These dates define the contract term and the payment term.

PeopleSoft Payroll for North America levels contract pay over the payment term you specify.

For example, consider a contract for 36,000 USD with a contract term of nine months and a monthly payment frequency:

• If the payment term is the same as the contract term, you pay 4,000 USD per month for nine months.

• If the payment term is twelve months, you pay 3,000 USD per month for twelve months.

There are two exceptions to payment leveling that you can set up for your employees:

• You can pay the entire value of the contract in a lump sum that is paid on a day you specify.

• You can make a balloon payment by specifying a last payment date.

  The system levels payments across the entire payment term, but on the last payment date, it makes a lump sum payment for the remaining value of the contract.

Calculation Processes

There are two processes that you run each pay period:

• Run the Contract Projected Payment (CNTPAY01) SQR process to generate contract pay data that can be loaded to paysheets.

  This process uses your contract pay settings to calculate contract earnings for all remaining pay periods in the payment term. The calculated values are considered projections until they are paid.

  Note: Always run the Contract Projected Payment process before creating paysheets to ensure that the system loads the most current contract pay calculations to paysheets.

• Run the Contract Discrepancy Report (CNTPAY05) for a specific pay period to find any discrepancies between the projected payment for the pay period and the actual payment.

  If there are discrepancies and the pay run is not confirmed, you can make adjustments on the paysheet. If there are discrepancies and the pay run is confirmed, you can make manual adjustments to the contract pay schedule for future pay periods.

Contract projections can change when there are certain changes to the employee's job data or contract pay settings. When any of these changes occur, the system marks the existing payment schedule for recalculation. (You can also manually mark a payment schedule for recalculation.) The next time you run the Contract Projected Payment process, the system creates a new payment schedule based on the actual payments to date and the future projected payments.

Changes that can trigger recalculation include changing the contract term (for example, if the employee starts work after the original contract term begins or stops work before the original contract term ends), a mid-contract leave of absence, or a change to the employee's contract compensation amount. (Unpaid sick leave affects the amount of the current check, but does not cause the system to recalculate future payments.)

When you make changes to the contract amount on the Job Data - Compensation page, you also choose how to prorate the changes across the payment term and, if the change is an increase, whether to make a retroactive payment for the portion of the increase that is allocated to periods that have already been worked.

See Contract Change Prorate Options Page.

Prepay for Benefit Deductions

Employees who are paid only during their contract term can prepay their deductions for benefits that extend past the term of their contract. For example, if benefits coverage is 12 months and an employee has a six-month contract and is paid only during the contract term, the employee can choose to prepay the remaining six months benefits deductions during the contract (and pay) period. This prepayment option is only available to employees who are paid over the contract term.

See Administering Contract Prepay.

Back to Back Contracts

If an employee has back-to-back contracts, and the change over occurs in the middle of a pay period, the system includes pay from both contracts on a single paycheck.

When a single paycheck includes pay from back-to-back contracts, only the newer contract is considered by the prepay process.

Contract Pay Taxation

To calculate taxes for contract pay, the system annualizes the contract earnings according to the option you select:

1. Annualize Over 12 Months: the earnings are annualized over 12 months, regardless of the length of the payment term.

2. Annualize Over Payment Periods: the earnings are annualized over the number of pay periods in the payment term.

3. User Specified: the system uses an annualization factor that you enter.