Deduction Header Maintenance

Deduction headers are used to group common information about deductions that can be deducted from the gross or net earnings of payees. Deduction headers must be created for each type of deduction that can apply to a payee before deductions can be configured on the payee record of individual payees.

The deduction header determines the following about a deduction:

• the deduction type (for more information, see below)

• the order in which the deduction is applied

• the details of the bank account to which the deduction is paid (for payment by electronic funds transfer only)

• whether the deduction is itemised on payslips

• default rate of deduction

• AU Payroll - whether the deduction is to be itemised in Single Touch Payroll (STP) reporting

• AU and UK Payroll - child supported protected earnings.

Deduction Types

The deduction type on a deduction header identifies the purpose of the deduction. The following deduction types are available:

Deduction Settings

Each deduction header must have one or more sets of deduction settings. Each set of deduction settings has its own validity period and therefore different deduction settings can apply to a deduction header at different times.

The following deduction settings are available:

Closed Deduction Applied to Adjustments

This option allows any expired deduction on a payee record, which is linked to the deduction header, to be included in an adjustment pay batch if the expired deduction was valid during the period that is being adjusted.

For example, where an adjustment to a payee’s earnings for a prior period affects the amount that should have been deducted from the payee’s earnings for that period, such as where the deduction amount was based on a percentage of gross or net earnings, this option allows the deduction amount to be adjusted accordingly even if the deduction is no longer applicable.

GST / VAT

This option allows Goods and Services Tax, or an equivalent value-added tax, to be applied to deductions linked to the deduction header if a deduction is provided as a service to company contractors.

NZ Payroll Payroll Giving Tax Credit

If this option is enabled, the system will identify that any deductions linked to the deduction header are eligible for a tax credit.

For example, your organisation may offer payees the option to donate money to a charitable organisation via direct deductions from their earnings under the payroll giving scheme. If a payee makes such donations they will be eligible for tax credits, which are calculated at the Tax Stage of a pay batch. Enabling this flag indicates that tax credits will be calculated and applied to any deductions that are linked to the deduction header and therefore, where a payee has such deductions in a pay batch, the system can calculate the tax credits appropriately based on the deduction amounts.

Deductible Service Fee

This option flags a deduction to be itemised on a deductible service fee invoice. For more information about deductible service fees, see Configuring Document Formats. 

Gross Earnings Pay Code Group

The gross earnings pay code group defines the subset of gross earnings based on which the deduction will be calculated when the deduction header is linked to a payee deduction that deducts a percentage of gross earnings from a payee’s earnings.

For example, some statutory deductions that require a specific percentage of a payee’s gross earnings to be deducted from each pay, where the deduction percentage is based on ordinary time earnings only. Where this is the case, a gross earnings pay code group, which defines the subset of pay items that constitute normal time earnings, can be selected so that the deduction is only calculated on ordinary time earnings and not overtime earnings or allowances.

The following applies to a gross earnings pay code group:

• it applies when the deduction is based on a percentage of gross earnings

• it is ignored if the deduction is based on a fixed deduction amount per period or if applied as a deduction from net earnings.

If a gross earnings pay code group is not selected, any payee gross deductions that are linked to the deduction header and are based on percentage of gross earnings are calculated based on all gross earnings excluding reimbursements. 

AU Payroll - RESC

This option is available only if the deduction type of the deduction header is set to Payee Super. If this option is enabled the RESC flag will be enabled by default on all payee deductions that are linked to the deduction header to indicate that the deductions represent Reportable Employer Superannuation Contributions that are in excess of the legislated Superannuation Guarantee (SG) contribution amount. Such deductions will be classed as RESC superannuation contributions for the purposes of remitting superannuation contributions to superannuation funds and on payment summaries.

This option should be enabled if the payee deductions that will be linked to the deduction header will be salary sacrifice superannuation deductions rather than deductions that contribute towards the SG amount. However, the RESC flag can be overridden on individual payee deductions that are linked to the deduction header. 

AU Payroll - Reduce Superable Salary

If this option is enabled, any amounts deducted as a result of payee deductions linked to the deduction header will reduce the earnings amount based on which the superannuation guarantee (SG) amount will be calculated.

For example, where a payee has a salary sacrifice arrangement their employer can legally contribute SG superannuation contributions based on the payee’s reduced earnings after gross deductions rather than the entire gross earnings amount. In such cases, the salary sacrifice deductions can be linked to a deduction header that is configured to reduce the payee’s superable salary.

The Treasury Laws Amendment (2019 Tax Integrity and Other Measures No. 1) Bill 2019 has been passed to close the loophole that allowed employers to reduce their SG liability in the event that a payee makes salary sacrifice contributions to their superannuation. The bill takes effect from 1 July 2020. Therefore, it is recommended that this option is not used from that date onward. 

AU Payroll and NZ Payroll - Child Support Protected Earnings

Child support protected earnings options are available only, and are mandatory, for child support deductions (i.e. the deduction type of the deduction header is Child Support).

The protected earnings settings define the protected rate type and protected rate value that applies to payee deductions that are linked to the deduction header.

The protected rate type determines whether a percentage or a fixed amount of payees’ net earnings must remain after a child support deduction is deducted from earnings in a pay batch. The protected rate value determines the percentage or fixed amount of net earnings that is to be protected. A child support deduction will not be deducted from a payee’s earnings in a pay period if doing so would result in their earnings falling below the protected rate.

Default Rate Value

If a specific type of deduction applies to many payees who all require the deduction to be deducted at the same rate, the rate type and rate value of the deduction can be defined in the deduction settings on the deduction header rather than being set on each payee deduction separately.

The default rate type determines if the deduction is based on a fixed amount or a percentage of payees’ earnings for a pay period. The default rate value determines the fixed amount or percentage of earnings that are to be deducted per pay period.

Defining a default deduction rate on a deduction header is optional. If a default deduction rate is defined then that rate will apply to all payee deductions that are linked to that deduction header and it is not possible to override the default rate at the payee deduction level. If a default deduction rate is not defined on the deduction header then a deduction rate must be defined on each payee deduction that is linked to that deduction header. 

Gross Earnings Pay Code Group

The gross earnings pay code group defines the subset of gross earnings based on which the deduction will be calculated when the deduction header is linked to a payee deduction that deducts a percentage of gross earnings from a payee’s earnings.

For example, some statutory deductions that require a specific percentage of a payee’s gross earnings to be deducted from each pay, where the deduction percentage is based on ordinary time earnings only. Where this is the case, a gross earnings pay code group, which defines the subset of pay items that constitute normal time earnings, can be selected so that the deduction is only calculated on ordinary time earnings and not overtime earnings or allowances.

The following applies to a gross earnings pay code group:

• it applies when the deduction is based on a percentage of gross earnings

• it is ignored if the deduction is based on a fixed deduction amount per period or if applied as a deduction from net earnings.

If a gross earnings pay code group is not selected, any payee gross deductions that are linked to the deduction header and are based on percentage of gross earnings are calculated based on all gross earnings excluding reimbursements.