Understanding Wage Basis Rules

Use this playbook to understand how you can set up wage basis rules for payroll.

Wage basis rules determine the earnings that are subject to a deduction or tax. For deductions, wage basis rules determine the elements that reduce the amount subject to tax.

Each wage basis rule is associated with a primary or secondary element classification.

• Deduction element classifications identify which types of earnings are subject to the deduction and whether they reduce the subject wages. When you view wage basis rules through the Component Group Rules task, a check mark indicates the deduction doesn't reduce.
• For earnings elements, the classifications identify which types of earnings reduce the amount subject to calculation. For Earnings, a check mark indicates that the earning is subject to that tax.

Use the Component Group Rules task in the Payroll area to view the predefined rules or create rules. The rules are based on the deduction types. The wage basis rules are date effective.

Involuntary deductions have their own wage basis rules. Wage basis rules define how earnings contribute to the subject wages for the different involuntary deduction types.

• Earnings contribute to the disposable income for the different involuntary deduction types.
• Deductions reduce the disposable income for the different involuntary deduction types.

The predefined wage basis rules for a legislation help determine the taxation of earnings at the federal and provincial or state levels.

References for Wage Basis Rules

When you define a wage basis rule, you can associate it with up to six references that define the context for the rule. Each reference has a number that determines the sequence in which it's evaluated for processing relative to other references. For example, if a wage basis rule for a regional tax deduction has references for both county and city, then the county reference should have a higher number than the city so that it gets evaluated first.

Note: You can't edit predefined rules or references.

The wage basis rules and related references for statutory and involuntary deductions are predefined for each country.

View the Predefined Wage Basis Rules

Follow these steps to view the predefined federal and provincial wage basis rules.

1. Navigate to My Client Groups < Show More < Payroll and select the Component Group Rules task.
2. Select your US legislative data group (LDG), for example, a US LDG. Click Search.
3. Select Federal on the Component Group Rules page.
4. In the tree structure, expand Federal and Wage Basis Rules. Select No References.
5. View the wage basis rules for Imputed Earnings, Pretax Deductions, and Supplemental Earnings.
   • For Earnings, a check mark indicates the earning is subject to that tax. If no check mark is present, then the earning isn't subject to tax. The absence of an entire row is the same as no check mark.
   • For Pretax Deductions, a check mark indicates that the deduction is subject to taxation and it doesn't reduce the subject wages. If no check mark is present, then the deduction isn't subject to taxation and it reduces the subject wages. The absence of an entire row is the same as no check mark.

View the Regional Components

Follow these steps to view the regional components.

1. Select Regional on the Component Group Rules page.
2. In the tree structure, expand the Regional and Wage Basis Rules nodes. Select State.
3. View the wage basis rules for Imputed Earnings, Pretax Deductions, and Supplemental Earnings as they relate to each state-level tax.