What is an offset or wash deduction, and when do I need to use these deductions on an adjustment?
When creating an adjustment where gross pay less other deductions leaves a positive balance, such as recording a third-party payment to an employee, you can use an offset, or wash deduction to net an adjustment to zero. Since the employer does not make this payment to the employee, the wash deduction reduces the net to zero and takes the place of what is normally the employee's net pay.
A wash or offset deduction code is created with these parameters:
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Employee paid
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A flat amount calculation type
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A dollar amount of .01 with no deduction cycles checked
You must add the wash deduction code to the employee record. When you use the wash deduction code on the adjustment, the net of the adjustment becomes the dollar amount of the deduction on the adjustment. Leaving deduction cycles blank ensures the deduction is applied only when the deduction is manually entered on the adjustment.
Example
John Jones receives the following taxable payment of third-party sick pay from Atlas Insurance. John's gross pay is 1,000. The tax deductions withheld total 326.60. The remaining net balance is 673.50. You must use a wash deduction with an amount of 673.50 when adding the adjustment to Payroll, since John already received his payment from Atlas Insurance. If the wash deduction is not performed, the adjustment can not be added.
Company paid deductions do not affect the gross-to-net equation.