Defining Deduction Elements

Net Pay Validation

The net pay validation feature prevents a deduction from reducing net pay below zero or a minimum amount that you define. To use the system's arrears management and payback features, you must enable net pay validation. If you do not use net pay validation, the system always takes the entire amount of a deduction, even if the payee's net pay drops below zero. In addition, none of the arrears processing options are available.

When using net pay validation, you can specify the order for taking deductions when there's not enough net pay to cover all deductions. The choices are:

• Processing sequence

• Priority order

Processing sequence refers to the order in which deductions are encountered in a section during processing, as determined by the deduction's assigned sequence number in the section. When the system calculates the deduction, it immediately verifies whether the payee's net pay is sufficient to cover it. If net pay is insufficient, the system deducts a partial amount or no amount, according to what is defined on the Deduction - Arrears page.

Priority order refers to a relative priority number that you can assign to a deduction on the Deduction - Arrears page. When net pay validation occurs by priority order, the system first calculates all deductions according to their processing sequence with no net pay validation. It then checks the net pay accumulator. If net pay is greater than zero (or a defined minimum), processing is complete. Otherwise, the system adjusts the deduction with the lowest priority and then checks to see if net pay is still insufficient. It repeats this process for the deduction with the next lowest priority until net pay is above zero or the defined minimum. Because net pay validation by priority requires iterative processing, it is available for subprocess sections only.

The following examples illustrate the difference between using processing sequence and priority order for net pay validation.

Example: Net Pay Validation in Processing Sequence

This table shows the processing results when net pay validation (NPV) is based on processing sequence. Assume that each deduction is defined to allow a partial deduction when net pay drops below zero.

In this case, net pay is sufficient to cover all deductions except Garnishment2. For Garnishment2, only a partial deduction can be taken (3,000 - 2,032 = 968).

Example: Net Pay Validation in Priority Order

This table shows the processing results after the first pass when net pay validation (NPV) is based on priority order. Net pay validation does not occur during the first pass of the subprocess.

Because net pay is negative, another pass is required. During the second pass, net pay validation is applied to parking, because it has the lowest priority (the highest priority number). First the system backs out the prior value of parking. The deduction's recalculation rule (as defined by the Always Recalculate check box on the Deduction Name page) is always honored, so during the second pass the system does not recalculate parking, it only applies net pay validation.

Net is still negative after the second pass. Parking can't be reduced any further so it's excluded from the priority list. In the next loop, the deduction with the lowest priority is union dues. All recalculation logic is followed except that parking is skipped and union dues are subject to net pay validation processing. After union dues, the system evaluates the pension deduction. The process repeats until available net is zero or greater.

Setup Steps for Net Pay Validation by Priority Order

Configuring the system to validate net pay based on a deduction's priority requires some additional setup that is not necessary when net pay validation is based on processing sequence.

Following are the high-level setup steps for using priority order for net pay validation:

1. Define a formula for net pay validation.

   After the system calculates all deductions according to processing sequence, it resolves this formula for each deduction starting with the deduction with lowest priority (the highest priority number). The formula returns a value that tells the system whether to calculate the element, perform net pay validation, do both, or skip the element. Guidelines for creating the formula are provided in the topic on Defining Processing Elements.

2. Assign the net pay validation formula to the country.

   Select the formula in the Net Pay Validation Formula field on the Countries page.

3. Specify the priority order for the deduction on the Deduction - Arrears page.

4. Include deductions in a subprocess section.

   The subprocess section must be enabled for net pay validation by priority.

See Setting Up Sections, Countries Page.

Arrears Components and Accumulators

When you create a deduction element, the system automatically generates three component elements for arrears processing and an arrears balance accumulator, regardless of whether or not you've chosen to use net pay validation. The system automatically updates these components only if you're using net pay validation:

• Amount Not Taken

  This component stores the amount of the deduction that exceeds the defined limit based on the net pay accumulator for the current pay period.

  Note: The net pay accumulator is defined on the Definition page on the Process Lists component (GP_PROCESS).

• Payback Amount

  This component stores the portion of the arrears balance that is being paid off during the current pay period. It does not include the Amount Not Taken for the current pay period.

• Add to Arrears

  If you select the Deduction Arrears Allowed check box on the Deduction - Arrears page, the Add to Arrears equals the Amount Not Taken.

• Arrears Balance

  This accumulator keeps track of the arrears for a payee. The Add to Arrears component adds to this balance accumulator; the Payback Amount component subtracts from it.

Arrears Processing Methods

When net pay does not cover the entire amount of a deduction, you can have the system deduct a partial amount or nothing. The options that you select in the Deduction Processing Method group box on the Deduction - Arrears page determine this behavior. The two examples that follow illustrate the outcomes of the different processing methods.

Arrears Processing: Example 1 (Partial Amount Allowed = No)

If partial deductions are not allowed, the system takes a deduction for the current pay period only if net pay covers the entire deduction. If the full deduction can't be taken, the system adds the entire deduction amount to the arrears balance. This table lists the net pay, deduction, and arrears for the example that follows:

The processing sequence is:

1. Add the deduction amount of 120 to Amount Not Taken.

2. Add the deduction amount of 120 to Add to Arrears (if the Deduction Arrears Allowed check box is selected).

3. Move zero to the deduction amount.

4. Move the Beginning Arrears balance of 50 to Payback Amount.

5. Move the Beginning Arrears balance of 50 to the deduction amount (add the Payback Amount to the deduction amount).

This table lists the end values:

The resolved value of the deduction element = Deduction Amount + Payback Amount.

Arrears Processing: Example 2

January Available Net Pay (prior to deductions) = 50

Deductions:

• D1 = 25, Partial Amount Allowed.

• D2 = 50, Entire Amount Only.

• D3 = 50, Partial Amount Allowed.

This table lists the values calculated during arrears processing for deductions D1, D2, and D3:

Final Net Pay in January = 0

February Available Net Pay (prior to deductions) = 110

This table lists the values calculated during arrears processing for deductions D1, D2, and D3 for February:

* 50 + 35 = 85 (current deduction plus amount of arrears balance that can be paid back)

Final Net Pay in February = 0

Arrears and Segmentation

When a period is segmented and a deduction goes into arrears in the first segment, the system attempts the payback on any subsequent segment.

Net Pay Validation and Retroactive Processing

The retroactive adjustment will be added to the deduction amount prior to Net Pay Validation. If there is not enough net to cover the adjustment, any remaining amount will be added to Amount Not Taken.

Example: Arrears and Forwarding Retroactive Processing

The following example illustrates how elements that are based on other elements should be set up and how they function during retroactive processing. Although the example used here deals specifically with the recalculation of arrears in a previous period, it can apply to any situation in which there is interdependency between recalculated elements.

This example assumes the use of the forwarding retroactive method. In forwarding retro, not every element is automatically forwarded—you must manually select the elements that you want forwarded. You follow certain setup rules when you have deductions that are based on other elements. The example below illustrates a typical setup.

For this example, assume the following:

• There are two pay periods: January and February.

• In February, a retroactive payment is made for January.

• The following elements are involved:

  • E1 = Flat Amount (Numeric) = 100.

  • D2 = Flat Amount (Numeric) = 95.

  • D1 = Base × Percent (where Base = Earning (E1) and Percent = Numeric (10%), therefore, D1 = E1 × 10%.

• Additional element definitions:

  • E1. Retro Recalculate Option = Yes.

  • D2. Retro Recalculate Option = No.

  • D1. Retro Recalculate Option = No.

• The retroactive adjustment to E1 in January is 100. The payee should have been paid a total of 200. There is a 100 delta that will be forwarded to February.

This table shows the original and recalculated amounts for E1, D1, D2, D1_ANT, D1_PBK, D1_ATAR, and D1_ARR over a period of two months (February is the current period, so there is no recalculated value column for February):

Here is an explanation of the example:

• D1 in January = 5.

  Since D1 = 10% of E1, D1 would normally = 10 in January, but since Net Pay cannot go below zero and E1 = 100 and D2 = 95, the maximum amount that D1 can equal in January is 5. The outstanding amount of 5 is brought over to D1_ANT (Amount Not Taken), D1_ATAR (Amount to Add to Arrears), and D1_ARR (Arrears accumulator).

• E1 for February is 300.

  This is calculated as 200 (E1 February original amount) + 100 (forwarded delta amount from January) = 300

• D1 in February is 35.

  This is calculated as: 30 (10% of E1 in February) + 5 Payback Amount (January value of D1_ARR is carried over to February) = 35.

• The total amount that should be deducted for D1 is 40, which represents the sum of the two months: D1 = 5 (January) + 35 (February) = 40.

  You can also validate that this retroactive calculation is correct in the following way: Since D1 = 10% of E1, add the total of the original amounts for E1 for both months: 100 (January) + 300 (February) = 400. Therefore, D1 = 40 (10% of 400).

Payback Processing and Eligibility

Payback processing does not look at a payee's eligibility for a deduction. If a payee has an arrears balance, the system attempts to collect it, as long as the deduction is still in the process list and net pay is sufficient. For example, if a payee who has an arrears balance changes eligibility groups, and the deduction element does not belong to the new eligibility group, the system still processes the payback.

Example: Arrears and Payback Processing

In this example, assume the following:

• Net Pay = 100.

• Deduction = 120.

• Beginning Arrears Balance = 50.

• Perform Net Pay Validation is selected, Partial Amount Allowed is not selected, Deduction Arrears Allowed is selected, and the Payback Option is set to No Limit.

The deduction and Add to Arrears would be:

• Amount Not Taken = 120.

• Add to Arrears = 120.

• Deduction = 0.

The payback processing would be:

• Beginning arrears balance to consider for payback purposes = 50.

• Net Pay = 100.

• Payback is set to 50.

• The payback is added to the deduction (0 + 50 = 50).

The arrears accumulator would be calculated as follows:

• Beginning balance = 50.

• Add to Arrears = 120.

• Payback Amount = 50.

• Formula: Beginning Balance + Add to Arrears − Payback Amount.

  50 + 120 − 50 = 120.

Net Pay Validation Method

Your selections in this group box instruct the system on how much, if any, of the deduction should be processed and whether to track the amount not taken as an arrears balance.

Third Party Transfer

Indicate how much of the deduction to send to the deduction recipients. (You define recipient information on the Deductions - Recipients page.)

Example: Comparing Third Party Transfer Methods

The end result of Amount Taken and Amount Calculated is the same, once the arrears amount is paid back. Assume the following:

D1 = Amount Taken; value = 100

D2 = Amount Calculated; value = 100

In period 1, 50 is taken for D1 and zero for D2 because of insufficient net pay. For D1, 50 is sent (the amount taken). For D2 100 is sent (resolved amount plus amount not taken).

In period 2, net pay is sufficient to cover the current and payback amounts for both deductions. D1 resolves to 150 (100 current plus 50 payback). D2 resolves to 200 (100 current plus 100 payback). For D1, 150 is sent (current plus payback); for D2, 100 is sent (current only). After period 2, 200 is sent for each deduction.

Arrears Payback Option

Arrears Payback Controlled By

Specify when paybacks are paid.