1. Administering Payroll for Canada Involuntary Deductions
  2. Disposable Income Rules for Canada

Disposable Income Rules for Canada

Disposable income is the remaining amount after deducting mandatory deductions from gross pay. Disposable Income Calculation Rules determine how the disposable income is used in the involuntary deduction calculation.

The Disposable Income Calculation Rules are defined for the employee in the Canada Involuntary Deduction Data section on the Involuntary Deductions Calculation Card. You can select one of these rules:
  • Percentage of gross pay
  • Net pay (default)
  • Net pay less specific deductions

Percentage of Gross Pay

The Percentage of Gross Pay rule uses an employee’s gross pay as disposable income in the involuntary deduction calculation.

Net Pay

The Net Pay rule includes total earnings minus the following statutory deductions as disposable income in the involuntary deduction calculation:
  • Canada Pension Plan
  • Quebec Pension Plan
  • Employment Insurance
  • Quebec Parental Insurance Plan
  • Federal and Provincial Tax
  • Payroll Tax

Net Pay less Specific Deductions

The Net Pay less Specific Deductions rule includes total earnings minus the following statutory and specific pretax deductions (as specified in the by the wage basis rules) as disposable income in the involuntary deduction calculation:
  • Canada Pension Plan
  • Quebec Pension Plan
  • Employment Insurance
  • Quebec Parental Insurance Plan
  • Federal and Provincial Tax
  • Payroll Tax
  • Specific pretax deductions as specified by the wage basis rules
  • Voluntary deductions, where legislatively required for specific elements

Disposable Income Calculation Rules

The following rules regarding the Disposable Income Calculation Rule are predefined in the application.

  • If the Disposable Income Calculation Rule isn't defined, the default value is Percentage of Net Pay. This means that the employee's net pay is used in the protected pay calculations. Net pay represents gross pay less statutory deductions.

  • The Disposable Income Calculation Rule works in the same way for the Deduction Percentage as it does for the Protected Pay Percentage rule.

    • If the rule is Percentage of Gross, the percentage entered on Calculation Values is the percentage of gross pay

    • If the rule is Percentage of Net, the percentage entered on Calculation Values is the percentage of net pay

    • If rule is Percentage of Net Pay Less Specific Deductions, the percentage entered on Calculation Values is the percentage of net pay less specific deductions.