DEDUCTIONS AND ARREARS#

Pay Components are any identifiable components of a pay, or any item that needs to be stored or totaled.

Deduction Pay Components may be positive or negative and may generate arrears when there are insufficient earnings for a positive deduction or when a negative deduction is to be collected.

Pay Component Deduction Rules#

A deduction pay component will be calculated as a “Positive Amount” or “Negative Amount” during the UPCALC process. Under normal circumstances, a deduction will be a positive amount. This amount will reduce the gross pay amount to arrive at the net pay.

When there are insufficient earnings in a pay to cover all positive deductions, then UPCALC will go through the insufficient earnings processing logic for each deduction pay component with the arrears rules set up in the Pay Component (IPPC) form for that specific deduction pay component.

If the deduction pay component is a negative amount, then UPCALC will go through special processing for the “Negative Deductions”.

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Positive Deductions#

Insufficient Earnings Rules#

When there are not enough earnings to cover a deduction, you will decide for each deduction pay component which Insufficient Earnings rule will be used by selecting a value from the X_DEDN_POSITIVE_RULE lexicon.

The choices from which you may select are as follows:

(Note: You may or may not want to collect the deduction back. If you would like to collect the deduction back, the Create Arrears toggle for the deduction portion not taken must be ON.)

All or none

When there are insufficient earnings to cover the deduction, UPCALC will not take any of the deduction. This choice is typically used for items such as savings, bonds, charitable donations, credit union, etc.

Some of these deductions may require arrears to be generated, some will not. If the ‘Create Arrears' option is chosen, the system generates arrears under the original pay component for the entire amount of the deduction. The arrears are stored on the Maintain Sundry (IPSN) form to be recovered from the employee on the next pay to be processed.

As much as possible

When there are insufficient earnings to cover the deduction, UPCALC will deduct as much as possible from the gross pay amount.

This is typically used for items such as loan repayments, parking, union dues, etc. This option is also often used for items like benefits or insurance, where it is preferable to obtain at least a partial contribution from the employee.

If the ‘Create Arrears' option is chosen, the system generates arrears under the original pay component for the amount NOT taken. The arrears are stored on the Maintain Sundry (IPSN) form to be recovered from the employee on the next processed pay.

Full with advance

When there are insufficient earnings, UPCALC will take as much as possible of the deduction from the available gross and then advance money to cover the remaining deduction amount. In this way, the deduction will be taken in full.

When UPCALC advances money, the deduction pay component is recorded with the full deduction amount. If the company wants to collect the advance money back, you should turn the ‘Create Arrears’ toggle on. When this option is chosen, the system generates arrears under the 'Recoverable Advance' pay component for the amount advanced to the employee. The arrears are stored on the Maintain Sundry (IPSN) form to be recovered from the employee on the next processed pay.

Create Arrears#

If the Create Arrears toggle is ON, arrears are created for any amount that could not be deducted. If arrears are to be created for the portion not taken, then depending on the Positive Deduction rule, the arrears will be created under either the original deduction pay component or the recoverable advance pay component.

If the toggle is OFF, arrears will not be created and any uncollected amount will NOT be recorded.

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Negative Deductions#

Negative Deduction Rule#

The pay component deduction rules on the IPPC form determine what the system should do when a deduction pay component is negative. You will decide from the Negative Deduction field which value from the X_DEDN_NEGATIVE_RULE lexicon suits that deduction pay component.

Normally, a deduction pay component is for a negative value because you are refunding an overpayment of a deduction to an employee (e.g. benefit refund). Occasionally, a company may define certain ‘advances’ as deduction pay components, in order to use the arrears feature to recover the advance at a later date (e.g. travel advance). This amount will be added to the gross pay or net pay according to the Negative Deduction rule.

A deduction may result in a negative amount in two ways:

1. You enter the deduction as a negative amount on the transaction form.
   • E.G. Your company gives a travel advance to an employee. You may set up a “Travel Advance” pay component as a deduction pay component and then enter a negative amount through the transaction form to give the advance. The negative deduction will be added to gross or net pay.
   • (The company may want to collect the “Travel Advance” back by setting the ‘Collect Back’ arrears toggle on for a negative deduction.)
2. The deduction is internally generated by UPCALC and results in a negative amount. A deduction may be calculated from usercalcs, benefit plans, taxes, etc. and the result is a negative amount. This negative amount may be correct or incorrect, however, UPCALC must know how to deal with this amount. If the Pay Component rules are not set up to handle the negative deduction, then UPCALC will take the default, add the negative deduction amount to gross pay and not set up arrears. All negative deductions will be processed first, prior to the positive deductions, so those negative deduction amounts are added into gross pay or net pay before taking other deductions.

Add To Gross (default)

This rule returns the amount of the deduction to the employee by adding it back to the employee's gross pay (for internal calculation purposes only) and enabling it to be used to cover other deductions.

This will not physically change the gross pay component total, but it will reduce the deductions total and make the ‘refund’ amount available to meet other deductions in this pay.

If arrears are to be created for the negative deduction, the arrears will be created under the original deduction pay component.

Add To Net

This rule returns the entire amount of the deduction to the employee, but does not enable it to cover any other deductions. This option tends to be used for items that are not normally part of the gross to net calculation, such as allowances or expense reimbursements.

The option to ‘add to net’ will physically increase the net pay component, and ensure that the employee receives at least the negative deduction or ‘advance’ amount in this pay.

If arrears are to be created for the negative deduction, the arrears will be created under the original deduction pay component.

Collect Back#

If the Collect Back toggle is ON, arrears are created for the entire amount of the deduction.

If the toggle is OFF, arrears will not be created.

The Collect Back toggle is only set to ON for the pay component usage of ‘5 - Advance Recovered’. If Collect Back is set ON for deductions this will result in an incorrect calculation during the next pay as arrears will be generated and the gross amount reduced.

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Arrears Processing#

If all or part of the deduction could not be taken and the PC set up indicates positive or negative arrears, then the set up must also indicate how to collect the arrears.

The Arrears Recovery rule tells the system how to recover multiple arrears for the same deduction pay component. The user would select a value from the X_DEDN_RECOVERY_RULE lexicon.

If the recovery rule does not exist, any arrears created will NOT be collected.

When an arrears is created and stored in IPSN, the pay point for the arrears is normally changed to ’70-After Govt Calcs’. This ensures that the amount that may have reduced/ increased taxable earnings in the current pay does not affect taxable earnings again in the pay in which it is recovered.

This pay point change is NOT done if the current pay has zero gross. As the amount could not have affected taxation, the arrears amount will be left at the pay point indicated on the pay component in order to be considered during the pay in which it is recovered.

Arrears Recovery Rule#

Only One per Pay

This rule recovers the arrears on a single transaction basis. This rule is used for larger amount deductions where it is unlikely that there will be sufficient earnings to cover more than the regular deduction plus a single arrears transaction.

For example, when an employee is three deductions in arrears for the same pay component, the pay calculation process attempts to recover only the oldest arrears transaction for that pay component. If there are insufficient earnings to collect the whole amount of the arrears transaction, the uncollected balance is generated as a new arrears transaction.

Recover All At Once

This rule recovers arrears on a multiple transaction basis. This rule is used for deductions that are small enough for there to be a strong possibility of recovering more than one deduction from the same pay check.

For example, when an employee is three deductions in arrears for the same pay component, the pay calculation process attempts to recover each of these three deductions on the next pay. If there are insufficient earnings to collect the whole amount of the arrears transaction, the uncollected balance is generated as a new arrears transaction.

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Deduction and Arrears Processing Notes#

• All arrears are stored in the Maintain Sundry (IPSN) form.

• The original pay number of the transaction is also stored in the arrears line for auditing purpose.

• The dates on an arrear will be the beginning of time to the end of time, so that any pays that are processed regardless of the pay period, can recover the arrears.

• If the original line has a distribution code, then the arrears will be generated with the original distribution code, otherwise the distribution code will be blank.

• During the "Net Pay" process in UPCALC, the gross pay will be reduced by all the deductions from the Total Deduction element. If the net pay is greater than zero, this pay is considered to have “sufficient earnings” to cover all its current deductions.

• When a pay has sufficient earnings to cover all its current deductions, the pay process will try to recover the arrears generated from prior pay(s) of the same UPCALC run or from the existing arrears that are recorded on the IPSN form.

• When recovering the arrears from a prior pay, each arrears deduction will be recovered according to the Arrears Recovery rule as specified in the pay component rules by the order the arrears are created i.e. the oldest arrears will be collected first.

• Exception messages will be issued in the Calculation Exception report for each arrears deduction collected.

• When arrears are generated under the original deduction pay component, if the deduction pay component is made up from one or more lines of transactions, the arrears will be generated according to the input transactions so that the original distribution can be used.

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Deduction and Arrears Processing Examples#

The $ symbol refers to a pay element.

Example 1, Insufficient Earnings To Cover All Deductions#

In period 2005-06, employee has $GROSS and $DEDUCTION as follows:

$GROSS	PC 100	=	$80
	PC 101	=	$20
Therefore, gross pay		=	$100
$DEDUCTION	PC 200	=	$50
	PC 201	=	$40
	PC 202	=	$30

The $DEDUCTION element will be processed in following steps:

The order of processing is based on the $DEDUCTION element not the order of the pay component number.

1. Deduction PC 200 = $50

	Gross	Adv	Ded	Arrears	Ttl Dedn	Net
PC 200	$100	$0	$50	$0	$50	$50

2. Deduction PC 201 = $40

	Gross	Adv	Ded	Arrears	Ttl Dedn	Net
PC 200	$100	$0	$50	$0	$50	$50
PC 201	$50	$0	$40	$0	$90	$10

3. Deduction PC 202 = $30

Process Insufficient Earning logic as defined in Pay Component Rules.

The following chart illustrates the different amounts to be calculated depending on the "Positive Deduction Rule" and the "Create Arrears" toggle:

00 All or None NO Arrears

	Gross	Adv	Ded	Arrears	Ttl Dedn	Net
PC 200	$100	$0	$50	$0	$50	$50
PC 201	$50	$0	$40	$0	$90	$10
PC 202	$10	$0	$0	$0	$90	$10

00 All or None with Arrears

	Gross	Adv	Ded	Arrears	Ttl Dedn	Net
PC 200	$100	$0	$50	$0	$50	$50
PC 201	$50	$0	$40	$0	$90	$10
PC 202	$10	$0	$0	$30	$90	$10

Msg.: "ARREARS GENERATED, PC 202, AMOUNT = 30.00"

01 As much as possible NO Arrears

	Gross	Adv	Ded	Arrears	Ttl Dedn	Net
PC 200	$100	$0	$50	$0	$50	$50
PC 201	$50	$0	$40	$0	$90	$10
PC 202	$10	$0	$10	$0	$100	$0

01 As much as possible with Arrears

	Gross	Adv	Ded	Arrears	Ttl Dedn	Net
PC 200	$100	$0	$50	$0	$50	$50
PC 201	$50	$0	$40	$0	$90	$10
PC 202	$10	$0	$10	$20	$100	$0

Msg.: "ARREARS GENERATED, PC 202, AMOUNT = 20.00"

02 Full with Advance NO Arrears

	Gross	Adv	Ded	Arrears	Ttl Dedn	Net
PC 200	$100	$0	$50	$0	$50	$50
PC 201	$50	$0	$40	$0	$90	$10
PC 202	$10	$20	$30	$0	$120	$0

02 Full with Advance with Arrears

	Gross	Adv	Ded	Arrears	Ttl Dedn	Net
PC 200	$100	$0	$50	$0	$50	$50
PC 201	$50	$0	$40	$0	$90	$10
PC 202	$10	$20	$30	$20	$120	$0

Msg.: "ARREARS GENERATED, PC 40, AMOUNT = 20.00"

Example 2: Second Pay Period Recovers Arrears From Example 1#

In period 2004-06, employee has $GROSS and $DEDUCTION as follows:

$GROSS	PC 100	=	$800
Therefore, gross pay		=	$800
$DEDUCTION	PC 200	=	$50
	PC 201	=	$40
	PC 202	=	$30

The $DEDUCTION element will be processed in following steps:

	Gross	Adv	Ded	Arrears	Ttl Dedn	Net
PC 200	$800	$0	$50	$0	$50	$750
PC 201	$750	$0	$40	$0	$90	$710
PC 202	$710	$0	$30	$0	$120	$680

After processing element $DEDUCTION, the gross pay is $680

When there are sufficient earnings to cover all deductions for this pay, this pay will try to recover the arrears from prior pay of the same UPCALC run or from the sundry file.

Arrears deductions to be recovered from prior pay are:

PC 202 = $20 (from Pay 2005-06)

	Gross	Adv	Ded	Arrears	Ttl Dedn	Net
PC 200	$800	$0	$50	$0	$50	$750
PC 201	$750	$0	$40	$0	$90	$710
PC 202	$710	$0	$30	$0	$120	$680
PC 202	$680	$0	$50	$0	$140	$660

Msg.: "ARREARS RECOVERED, PC 202, AMOUNT = 20.00"

Example 3: Second Pay Period Goes Into Arrears Again For Example 1#

In period 2004-06, employee has $GROSS and $DEDUCTION as follows:

$GROSS	PC 100	=	$100
Therefore, Gross Pay		=	$100
$DEDUCTION	PC 200	=	$50
	PC 201	=	$40
	PC 202	=	$30

The $DEDUCTION element will be processed one at a time until there are insufficient earnings:

	Gross	Adv	Ded	Arrears	Ttl Dedn	Net
PC 200	$100	$0	$50	$0	$50	$50
PC 201	$50	$0	$40	$0	$90	$10

When there are insufficient earnings, the remaining deduction pay components from $DEDUCTION will be processed one at a time by the Insufficient Earning logic:

Assume PC 202 Deduction rule = 01 and Create Arrears = yes

	Gross	Adv	Ded	Arrears	Ttl Dedn	Net
PC 200	$100	$0	$50	$0	$50	$50
PC 201	$50	$0	$40	$0	$90	$10
PC 202	$10	$0	$30	$20	$100	$0

Msg.: " ARREARS GENERATED, PC 202, AMOUNT = 20.00"

After processing element $DEDUCTION, the net pay is $0

When there are insufficient earnings to cover all deductions for this pay, the arrears from prior pay will not be recovered.

After 2004-06

Net Pay = $0

$Total Deductions = $100

Msg.: "NET PAY = ZERO"

Arrears are:

PC 202 = $20 (new arrears from 2003 -05)

PC 202 = $20 (previous arrears from 2003-04)

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Notes #

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