Net-to-Gross Processing

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

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.

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.

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.

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.