Net-to-Gross Processing
Net-to-gross processing—or "gross ups"—are required when you want to pay a payee a specific net amount. Starting from the net amount the system works out what gross amount to process so that after all tax deductions have been made the required net amount remains.
In the following sections we describe the main features of the net-to-gross functionality then take you step-by-step through the process and an example calculation.
Note: In these topics we refer to annualized tax (used in gross up calculations) as a "tax deduction."
This feature has two earnings elements. The first is called BONUS NET and is used to pay the net amount. We have delivered this element because a fixed bonus amount is a typical pay component that must be grossed up.
Enter a bonus amount using positive input. The system calculates the amount by which it needs to gross up the net to have the required net after deducting taxes. It then assigns that amount to a second earning, BONUS GRS UP. The two earnings between them make up the gross pay. The BONUS GRS UP earning amount is equal to the amount of the tax deductions. The BONUS NET earning is assigned to the EARN - OTHER section and the BONUS GRS UP earning is assigned to the EARN - GROSS UP (via formulas) section in the NZL PAYROLL process list. To summarize:
BONUS NET + BONUS GRS UP = Gross Pay.
BONUS NET = Net Pay.
BONUS GRS UP = Tax Deductions.
When the BONUS NET earning is resolved, it adds to a gross up accumulator. In another section, further down the process list, a conditional formula determines that grossing up is required if the gross up accumulator has a value.
The grossing up process creates an actual net pay amount. This is stored in another accumulator. The system compares the target net pay amount with the balance in that accumulator, and when they are the same, the process of calculating the gross pay is complete.
Once the system has determined that grossing up is required, it starts the calculation by treating the target net as if it were the gross pay. It processes that gross amount, deducting taxes, and gets a new net amount—the actual net. 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 gross amount, deducts the taxes from it, and arrives at a new actual net which it again compares to the target net. The iterations—or loops—continue, with the actual net getting closer to the target net with each loop, until the actual and target net are the same.
The loop formula is:
((1-net/gross) x difference) + current BONUS GRS UP + difference = new BONUS GRS UP