How does Payroll Calculate Deductions?
The deduction calculation type, in conjunction with the deduction priority, determines the way in which Payroll calculates the deduction.
This list describes each of the calculation types that can be assigned to a deduction:
| Percent of Employee Deduction | Calculates the deduction amount as a percentage of a specific employee deduction amount. Use this calculation type for company match deductions for defined contribution plans. |
| Amount Per Hour | Calculates deduction amounts based on the number of hours worked. This calculation type is often used for union dues. |
| Percent | Calculates the deduction based on a percentage of gross wages or pay class wages. Use this calculation type for defined contribution deductions. |
| Tax | Calculates deduction amounts based on the tax engine tax tables. Use this calculation type for all employee-paid and company-paid taxes and statutory deductions including social insurance, federal, state or province, county, city, unemployment, disability, and so on. |
| Percent of Disposable Income (U.S.) or Net Wages (Canada) | Calculates the deduction amount as a percent of disposable income or net wages. Use this calculation type for garnishments. What Kinds of Employee Wages does Payroll use for Garnishments? |
| Flat Amount | Calculates the deduction as a flat amount without regard to hours or earnings for the pay period. This calculation type is typically used for health insurance, miscellaneous, and one-time deductions. |
| Amount Per Day | Calculates a flat amount per work day based on time record dates. |
| Percent of Base Per Hour | Calculates the deduction as a percentage of the base hourly pay as defined on the employee record. For hourly employees, base hourly pay is determined in the Rate of Pay field on the employee record. For salaried employees, the gross salary is divided by the number of annual hours, then multiplied by the number of hours on the time record; the deduction percentage is then calculated from that amount. |
| Adjusted Flat Amount | Calculates the proration of deduction amount that have recently joined or about to Leave a company. The Proration is calculated based on the Actual days/hours worked by the Employee who have not completed Payment cycle This type requires amount to be defined. |
| Recovery | This calculation type indicates that the deduction code will be used for excess or deficit-created arrears that are due to rounding of net check. This creates a one-time deduction (PR39.1) to recover the amount that is due to rounding of Net wage. |
| Flat Amount Plus Percentage of Gross Pay | Calculates the deduction based on a flat amount plus a percentage of gross pay. Use this calculation type for garnishments. |
| Percent of Disposable Income (U.S.) or Net Wages (Canada) with a Minimum Flat Amount | Calculates the deduction amount by comparing a minimum flat amount to a percentage of disposable income. The greater of the two amounts is deducted. Use this calculation type for garnishments. What Kinds of Employee Wages does Payroll use for Garnishments? |
| Percent of Available Wages (Canada) | Calculates the deduction as a percent of the wages available for garnishments. What Kinds of Employee Wages does Payroll use for Garnishments? |
| Custom Calculation | Calculates the deduction according to a user-defined calculation. |
Example
Based on the deductions established by Two Rivers Company, these deductions were defined.
Calculation types can vary. The ones listed in this example are suggestions.
| Deduction Code | Calculation Type | Additional Information |
|---|---|---|
| MEDE (Medicare Employee-paid) | Tax | Tax Category = 5 |
| MEDC (Medicare Company-paid) | Tax | Tax Category = 6 |
| SS-E (Social Insurance Employee-paid) | Tax | Tax Category = 3 |
| SS-C (Social Insurance Company-paid) | Tax | Tax Category = 4 |
| FIT (Federal income Tax) | Tax | Tax Category = 1 |
| FUTA (Federal unemployment tax) | Tax | Tax Category = 10 |
| NJIT (New Jersey State Income Tax) | Tax | Tax Category = 1 |
| LOAN (Employee loan) | Flat Amount | Rate determined by user |
| LEVY (Garnishment levy) | Percent of Disposable Income or Net Wages | Garnishment Deduction |
| CSUP (Child support) | Flat Amount plus a % of gross pay | Garnishment Deduction |
| 401EP (401(k) contribution, employee-paid) | Percentage Rate | Rate determined by employee |
| 401CE (401(k) contribution, company-paid) | Percent of Employee Deduction | Match Deduction = 401E |
| CPPE (Canada Pension Plan, employee-paid) | Tax | Tax Category = 1 |
| CPPR (Canada Pension Plan, employer-paid) | Tax | Tax Category = 3 |
| EIEE (Canada Employment Insurance - employee paid) | Tax | Tax Category = 2 |
| EIEE (Canada Employment Insurance - employer paid) | Tax | Tax Category = 4 |