The purpose of this article is to provide the Payroll Processor with information on how to set up Deductions in Canadian Payroll.
Deductions allow you to set amounts that can be automatically subtracted from an employee’s pay, such as income tax, or health insurance.
During the Payroll Wizard Setup deductions were created, however, there are times when a new deduction needs to be set up.
In this example, a Miscellaneous Deduction will be created.
Deductions for each employee can be viewed from the Payroll Worksheet page by choosing the Deductions icon from the Actions Tab.
Step 1. Deduction Setup
Search for Payroll Deductions in the search bar,
Or, from the Actions Tab on the Payroll Worksheet click on Deduction Setup.
Or, from the Role Tailored Client page, by going from Payroll > Configure Payroll > Payroll Deduction, Reimbursement, and Other Earning Type Configuration.
There are certain deduction types that are mandatory and are only allowed to have one configuration type, such as CPP and EI. If you remove these deduction types, they will automatically re-create.
To have a Deduction Type appear as a column in the Payroll Worksheet, set “Show in Worksheet” as “Visible”. Up to 10 Deduction Types can be shown on the Payroll Worksheet at once.
Step 2: New Deduction Setup
IMPORTANT: Prior to adding any new deduction, ensure that the applicable General Ledger accounts have been set up for the Expense and Liability.
In this example, an employee purchased an item from the company and instructed the Payroll Processor to deduct the amount from their next pay. The amount is $25.00. We will be creating the new deduction “Miscellaneous”.
Click on “New” and a blank line will appear.
Enter the information required in each field as per the guidelines in the Payroll User Guide.
Close out of this screen when completed.
Refer to the Deductions Set Up in the Payroll User Guide for tables that apply to deductions.
Step 3: Employee Deduction
While in the Payroll Worksheet, Highlight the line for the employee who is getting the deduction and click on “Deductions” in the Actions Tab.
When you click on “Deductions” another window appears.
Search for the deduction from the lookup options and enter the amount. Click Close when finished.
The deduction immediately appears in the “Payroll Deductions” section of the Payroll Factbox, on the right side of the Payroll Worksheet.
Step 4: Custom Calculations
Employee Calc No. and Employer Calc No. are actions available to create a custom calculation for either the employee or the employer.
Determine first if the calculation is an action to the employer or the employee. You first need to create your new deduction with the type of “Custom”.
In the above example, we have a deduction for Health Benefits for the Employee. In the Employee Calc No. we have created the calculation, and when you click on the “All Calculation” Icon, you can see how the calculation works by clicking on New/Edit or View.
Custom calculations can be used for Custom Earning, Deduction and Reimbursement types. To create a custom calculation, navigate to Payroll Deduction, Reimbursement, and Other Earning Type Configuration. Choose the All Calculations action in the Actions tab.
- Enter a code for the calculation under No.
- Enter a more detailed description under Description.
- Select Edit.
- Keep Calculation Logging set to “Do Not Log” unless otherwise instructed by a support.
- Use the type and indentation to build a formula.
- Ex. (4 + 5 ) * 3
- Types of Sum, Difference, Multiply, Average, Divide, Absolute Value, Min, Max, and Round do not require an Input Variable or a Value. Instead, they apply the operation to items below that are indented by 1 from the operation type.
- The Type of Constant required an amount under the Value column.
- The Type of Variable requires a variable under the Input column.
- to create an Input Variable, click on the Input Variable icon, and another window will appear.
- A list of predetermined variables will appear.
- If none meet your requirements, simply add a new one.
If the amount is the same for each employee, it could be input here, but since the amount is different in this example for each employee, it will be set from the Employee Card.
All the custom calculation that applies to the employee reside in the Employee Variables page on the Employee Card. These can be changed at any time. For example when an employee changes the amount of their RRSP deduction, etc.
On the Payroll Worksheet, you can see all the deductions that have been created for the employee. Note that these all appear having an entry source of “Automatic Calculation”.
Note: Be aware of any Automatic Deduction that would put an employee in a negative position, if the wages earned are not sufficient to cover the Automatic Deduction.
Step 5: Applies To
The most deduction applies to all employees and therefore the “Applies To” is defaulted to “Everybody”.
However, there are more actions available in the drop-down menu:
- Included Profiles Only
- Specific Employee
- Employment Contract
- Union Code
- Employee Dimension 1 Code
- Employee Dimension 2 Code
A: Included Profiles Only
In this example, a Car Allowance is to be paid to only specific employees for the same set amount.
A Custom Calculation is created, with the Employee Custom Calc Amount indicating the dollar amount, and the “Applies To” is set to “Included in Profiles only”
On the Employee Card, Payroll Section in the Deduction Control, we have added the Specific Profile of “Car Allowance”.
When you create a new Payroll Worksheet, the payment automatically appears in the “Other” section.
Any employee who has the “Car Allowance” in their profile will be paid this set amount.
B: Specific Employees
In this example, we have an employee with a Garnishment. We will create a deduction, and it will be assigned tot he specific employee. In this example, the Garnishment is for a flat amount of $50.00.
The first step is to create a new deduction “Garnishment”, with the type of “Custom” and the category of “Deduction. Add the applicable expense and liability accounts as per your General Ledger requirements.
For the Employee Custom Calc Amount, put in the amount of the garnishment. ($50.00). An in the “Applies To” using the drop-down menu, choose “Specific Employee”. In the Applies to Reference enter the employee for which this applies. In our example, this is employee John Roberts.
When you return to the Payroll Worksheet and review the deductions for the specific employee, you will see that this deduction has been automatically processed.
Note: Always be alert to the fact that when Hourly Employees have automatic deduction calculation and there are not sufficient wages for that pay period, a negative pay situation can occur.
C: Dimension Code 1 and 2
In this example, only a certain deduction is for specific departments. For example, only Sales employees are entitled to Employer RRSP Contributions.
We have created a ales RRSP Employer Contribution, that is applied to the Employee Dimension 1 Code and the Applies to Reference is “Sales”.
On the Employee Card, the Sales RRSP ER rate will have to be defined using the Employee Variables.
When the “Calculate Gross” function is completed on the Payroll Worksheet, the RRSP is calculated and shows in the “Other” section in the Fact Box.
The only employees to have this deduction are those with the Dimension 1 Code set to “Sales”
Dimension 2 Code.
In this example, all employees in Ontario get an extra 1% vacation accrual. The Province is set on the Dimension 2 Code.
The Custom calculation has been created with the new Input Variable of “Ontario Additional Vacation”.
The Calculation Input of “Ontario Additional Vacation” has been set at 1%.
In this example, employee MH is designated in Dimension 2 Code as Ontario, and therefore when the function of “Calculate Gross Pay”, is completed the additional 1% Vacation Accrual is created and shows in the Deduction section of the Fact Box. This action only occurs for any employee who has a Dimension 2 Code of Ontario.
Step 6: Employment Insurance Eligibility
Federal and provincial tax eligibility are tied to the EI setting for the deduction/benefit:
- Setting EI to “Not Applicable” means that it is also not taxable.
- Using “Non EI Insurable” is taxable but will not include EI or QPIP.