Pay Australia > Ability to change calculation method for adjustment pay batches (v12.17)

Description

When adjusting prior, closed pay periods, FT360 automatically applies one of the following tax calculation methods at the Tax pay batch stage to calculate the tax that must be withheld for the adjustment period:

• Method Bi (standard) – this method is used if the adjustment period is in the current financial year and this involves summing all the earnings paid for the adjustment period, calculating the total tax to be withheld from that amount and then subtracting any tax already withheld for the adjustment period.

• Method Bii – this method is used if the adjustment period is in a prior financial year and this involves a complex calculation that takes into consideration normal earnings in the current financial year to determine how much tax to withhold from the adjustment pay. This applies ‘tax smoothing’ so that a payee is not over-taxed in the current period if they receive a lump sum payment that applies to a prior period.

In the past the method applied by FastTrack360 has been based on whether the adjustment is in the current or prior financial year, however there are some instances where the method might not fit the circumstances of the adjustment. For example, if a payee is paid an adjustment pay for a period in the prior financial year when they have not earnt anything in the current financial year, the Method Bii calculation method was used automatically. However, because a payee will have little or no normal earnings at the start of a new financial year, the resulting withholding amount would be very small or zero thereby resulting in the payee being under taxed.

There are also scenarios where the Method Bii tax calculation is more relevant to specific types of payments, irrespective of whether the payment applies to an adjustment period in the current or a prior financial year. An example of this would be for payments that are bonuses and commissions, usually paid as a lump sum that relates to multiple prior periods. These payments are required to be taxed using the Method Bii tax calculation method. This is used so a payee does not get over-taxed in the period in which they receive their lump sum bonus or commission payment.

To support these requirements, in this release we have added the ability to determine which method is used so you will have control over the calculation method applied when creating Adjustment Pay Batches.

The changes include:

• A new field has been added to the Payroll Australia > Pay Process > Pay Batch - Create Batch screen (shown below) to allow you to choose the tax calculation method at the point of creating an adjustment pay batch. The options include:

  • Standard - this will be the default where the adjustment period that is selected has a pay period end date that falls within the current financial year, however can be changed to the ‘Bii’ option if required.

  • Bii - this will be the default if the adjustment period selected has a period end date that falls into a prior financial year. This can be changed to the ‘Standard’ option if required.

• The Tax pay batch stage has been enhanced for adjustment batches to apply the tax calculation method that has been selected when creating the pay batch.

• The method used in an adjustment pay batch is stored against the batch so that this can be reported on and can be factored into the method bii calculation for other adjustment pay batches.

Open

In the example above the user is in the process of creating an adjustment pay batch, so the Tax Method options are displayed for selection.

Pay Enquiry Screen Changes

To provide transparency on the method that has been applied to the batch, in the Payroll > Pay Process > Pay Enquiry screen a new column labelled Tax Method has been added to the Manage Layout for the Results list. Where applied the following values display:

• Standard - displayed if the listed pay batch was an adjustment pay batch and the standard/method Bi calculation method was used to calculate the tax in the batch

• Method Bii - displayed if the listed pay batch was an adjustment pay batch and the method Bii calculation method was used to calculate the tax in the batch

• N/A - displayed if the listed pay batch is not an adjustment pay batch.

Benefits

This change provides payroll administrators with greater flexibility on the tax calculation method applied in adjustment pay batches.

Configuration

No additional configuration is required to support this change. The new Tax Method options will display and default as described above where a user is creating an adjustment pay batch.