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Deductions/Earnings

This chapter contains the following topics:

Introduction to Deductions and Earnings

Entering Deductions/Earnings

Printing List of Deductions/Earnings

Introduction to Deductions and Earnings

The Deductions/Earnings selection enables you to enter the codes that affect an employee’s wages.

Wages, withholding taxes, loan repayments, garnish amounts, and union dues, are all handled elsewhere. Everything else that is added to or subtracted from an employee’s paycheck must first have its code defined here.

Deductions

These include insurance, 401(k) deductions, charitable donations, savings bonds, etc.

Earnings

These include entertainment allowances, travel subsidies, commissions, meals, tips, bonuses, etc.

Workers’ Compensation Class

Even though this is neither an earning nor a deduction, special codes for it must still be entered here.

Cafeteria Plan

There is a style of benefit plan under IRS Section 125 that is commonly referred to as Cafeteria Plan.

The interpretation of the IRS regulation is outside the scope of this documentation. This is because the taxability of benefits and company policy related to amounts of benefits may vary from employee to employee.

However, the Earning Code tab documented in this chapter includes a field regarding whether or not to add benefits to an employee’s wages.

Select

Deductions/Earnings from the Master information menu.

The following screen displays:

Deductions and Earnings List Box

The list box displays up to 6 existing deductions and earnings at a time. You may sort the deductions and earnings by the deductions and earnings code in ascending or descending order. Only columns with red labels may be sorted. To select a field or change the sort order, click on the column name or the arrow to the right of the column name or use the View options.

To locate a deduction or earning, start typing a deduction or earning code. You may also use the up/down arrows, Page up, Page down, Home and End keys to locate a deduction or earning. The <F1> and <SF1> keys function the same as the up/down arrow keys.

The deductions and earnings that display in the list box are available for changes or deletion. The fields for the selected deduction or earning display in the lower part of the screen. The tab that displays depends on the type selected.

When a deduction or earning is found, you may select the <Enter> key or Edit button to start editing.

Deductions and Earnings Buttons

You may select a button for adding, editing, or deleting a deduction or earning:

Character Mode

In character mode, the following screen displays:

Entering Deductions/Earnings

This screen lets you work with both new and existing entries.

Enter the following information:

Code

Each deduction/earning code must be unique. You cannot use the same code for both a deduction and an earning.

For example, you could assign codes as follows:

Options 

Enter the code of a new or existing entry. To locate an existing entry, you can use one of the options:

Description

Enter a description. This description prints on the payroll check stubs and payroll reports to identify the deduction or earning.

Type

Options 

Enter the code type as follows:

If meals and tips are used

Options 

The Control information Use meals & tips field determines whether this feature is used:

Meals and tips are given special tax handling according to appropriate regulations and are not added to or subtracted from employee net pay by the Payroll module.

Depending on the deduction/earning type, additional fields display on the screen. Each type of code is described in a separate section below.

Options 

You can change any field except the Code and Type fields. For an existing entry, you can also use one of the options:

Deduction Code

For a Deduction code type, only one additional field is required:

G/L acct #

This is the liability account for this deduction. Enter the cost center numbers and then the main and sub account numbers. The account number must be a valid G/L account.

The null cost center can be entered for either segment by pressing <Enter>. This displays as zeroes or blanks depending on how the cost center segment has been defined in Company information.

Options 

You can specify that the cost center will be picked up from the corresponding segment of the employee’s wage account. If you use two cost center segments, you can do this for both segments or only for the second one.

The completed screen displays as follows:

Earning Code

Next, enter the information for the earning code that displays on the following screen. Enter the Code and Description fields as they appear below, and select Earning for the Type field.

Enter the information as follows:

G/L acct #

Options 

This account number is for the expense account for this earning.

Exemptions from Taxes

The Exempt from fields are used to control the calculation of various types of taxes. A check mark answer indicates that this deduction is exempt from normal inclusion in the wage base on which the tax type (FWT, FICA, FUI, etc.) is calculated. In each case, the only allowable entry is checked or unchecked, and the default value is unchecked.

Exempt from

Fed w/h

This controls exemption from federal withholding tax calculations.

Emp Soc Sec

This controls exemption from the employee social security tax calculations.

Medicare

This controls exemption from the employee medicare tax calculations.

Empr Soc Sec

This controls exemption from the employer social security tax calculations.

Medicare

This controls exemption from the employer medicare tax calculations.

FUI

This controls exemption from the employer federal unemployment insurance (FUI) contribution calculations.

EIC

The fields for the EIC table can no longer be entered in the Federal tab table.

State w/h

This controls exemption from state withholding tax (SWT) calculations.

SUI

This controls exemption from employer state unemployment insurance (SUI) contribution calculations.

OST-1

This controls exemption from the employee OST-1 state tax calculations.

OST-2

This controls exemption from employee OST-2 state tax calculations.

empr OST

This controls exemption from employer OST state tax calculations.

W-comp

This controls exemption from workers’ compensation premium calculations. (This field is used only for states in which these premiums are calculated based on wages.)

Suppl ben

Some states require an employer to contribute a percentage of employee wages to supplemental benefits. (Refer to the Supplemental Benefit definition in the Understanding Payroll chapter.) Check the box if this earning is not to be included in the calculation of the employer’s supplemental benefits amount. (This field is used only for those states which require supplemental benefits.)

City w/h

This controls exemption from city withholding tax calculations.

Benefits incl in wages

This field designates how the earnings code will be applied in regards to non cash benefits and what will print on the W-2.

Select Included if the benefit is non cash wages and are to be printed in Box 14 of the W-2.

Select Dependent care included if the non cash dependent care benefits are to be added to the amount in box 10 on the employee W-2 form. If the dependent care amount is not over the limit you may also an additional amount to box 10 under Enter W-2 information. You may read about Entering W-2 Information in the Year-end Payroll chapter.

Select Not included if the benefits are cash wages.

The screen now displays as follows:

Further examples

In order to have data to be used in future examples in this documentation, enter the earnings codes type shown in the following screens.

Before tax deduction Code

Next, enter the information for a Before tax deduction code. Enter the Code and Description fields as they appear below, and select Before tax deduction for the type field.

The rest of the fields display:

Enter the information in fields as follows:

G/L acct #

Options 

This account number is for the liability account for this deduction.

Inclusions In Taxable Base

The following Include for fields are used to control calculation of taxes in the various categories (FWT, FICA, FUI, etc.).

“Before tax” deductions are normally exempt from inclusion in the taxable wage base. The answer to the Include for fields for “before tax” deductions indicates whether the “before tax” deduction is included in the taxable base.

Include for

Fed w/h
Emp Soc Sec
Empr Soc Sec
FUI
EIC
State w/h
SUI
OST-1
OST-2
Empr OST
W-comp
Suppl ben
City w/h

In each case, answer Y to include this deduction in the corresponding tax calculations. The meaning of each field has been described in the previous section.

401(k) Elective deferral Code

PBS enables an employer to deduct amounts from employee's pay for both Traditional/Regular 401(k) and Roth 401(k) plans. A regular 401(k) plan is a “before tax payroll deduction” while the Roth 401(k) plan option is an "after tax deduction". The former defers income tax until retirement when withdrawals from the plan are subject to income tax while the Roth plan withdrawals are not subject to income tax (including the capital gain portion.) Also see 401(k) Plans

Enter the information for the 401(k) elective deferral code. Enter the Code and Description fields as they appear below, and select 401(k) elective deferral for the Type field. If you want to deduct 401(k) amounts from an employee, you must assign this code to the employee and enter the other 401(k) related fields.

When providing a 401(k) option, you need to determine how deductions are handled on separate checks (commission or supplemental earning). See 401K on sep comm/suppl ck in the Control information chapter.

The yearly deductible amount is limited by the sum of the normal 401(k) maximum plus the catch-up maximum as specified in the Federal Tax Table. See the Max 401k deferral field in the Federal Tax Code section of Tax Tables chapter for more information.

Reporting of 401(k) amounts may be done using the 401(k) contributions report. See the 401(k) Contributions Report section in the Employee Reports chapter. The Regular and Roth fields may also be specified and reported using the quarterly and annual reports.

The rest of the fields display:

Enter the information as follows:

Roth opt

Specify whether or not to allow entry of Roth 401(k) deduction type and amount for employees. If unchecked, those fields cannot be entered. If checked, you may enter the Roth related fields for the employee.

This field does not determine that the employee is going to have a Roth option, only that the fields can be entered. Once entered on the employee record, the deductions are taken on a check run.

G/L acct #

Options 

This account number is for the liability account for the 401(k) deduction.

Include for

Fed w/h
Emp Soc Sec
Empr Soc Sec
FUI
EIC
State w/h
SUI
OST-1
OST-2
Empr OST
W-comp
Suppl ben
City w/h

These Include for questions are used to control calculation of taxes in the various categories (FWT, FICA, FUI, etc.). They only control the regular 401(k). The Roth 401(k) deduction is not effected by these settings because it is an after tax deduction.

In each case, check the box to include this traditional 401(k) amount in the calculation of this tax or leave it unchecked to not include the amount.

Employer matching contribution Code

An employer matching contribution is a non-elective contribution to a 401(k) plan by an employer on behalf of the employee.

It is called a matching contribution because an employer often contributes an amount related to the elective deferral. For example, an employer might contribute 50 cents for every dollar of elective deferral deducted from the employee’s pay.

Enter the Code and Description fields as they appear below, and select Employer matching for the Type field.

The rest of the fields display:

Enter the following information:

B/S liability acct #

Options 

This account number is for the balance sheet account for this employer matching contribution. This account is credited for the appropriate amount when a payroll check is printed and posted for an employee for whom you provide a matching contribution to the 401(k) plan.

Expense acct #

Options 

This account number is for the expense account for this employer matching contribution.

Supplemental earning Code

Next, enter the information for the supplemental earning code. Enter the Code and Description fields as they appear below, and select Supplemental earn for the Type field. The rest of the fields display:

Enter the information as follows:

G/L acct #

Options 

This account number is for the expense account for this supplemental earning.

Exempt from

Fed w/h
Emp Soc Sec
Empr Soc Sec
FUI
EIC
State w/h
SUI
OST-1
OST-2
Empr OST
W-comp
Suppl ben
City w/h

The Exempt from questions are used to control the calculation of various types of taxes. A check box answer indicates that this supplemental earning is exempt from normal inclusion in the wage base on which the tax type (FWT, FICA, FUI, etc.) is calculated.

In each case, check the box to include this 401(k) amount in the calculation of this tax.

Workers’ compensation Code

Next you will enter the information for the workers’ compensation code.

Enter the Code and Description fields as they appear below, and select W-comp class for the Type field. The rest of the fields display:

Enter the information as follows:

Rate basis

Select Percent of subject wages to calculate the premium amount as a percent of wages. Select Work units to calculate the premium amount as a fixed amount per work unit. Your answer here determines the requirements for the next fields.

Refer to the Use of Work Units appendix for more information

Premium rate

If the rate basis entered above is a percent of wages, enter a percent here. If the rate basis is a fixed amount per work unit, enter that amount. This rate is used for reporting purposes only, so you can estimate your workers’ compensation liability. No G/L distributions are automatically created for workers’ compensation, but your approximate liability for each pay period is calculated so you can manually make the necessary G/L entries.

YTD Earnings limit

If the rate basis is a Percent of subject wages and there is a YTD maximum amount on which the percent is allowed, enter that amount here. Press <Enter> to default to zero if there is no limit. This option is not applicable for a rate basis of type Work units.

Current earnings limit

If the rate basis is a Percent of subject wages and there is a current pay period maximum amount on which the percent is allowed, enter that amount here. Press <Enter> to default to zero if there is no limit. This option is not applicable for a rate basis of type Work units.

Rate for overtime hours

This option is applicable if the rate basis is a Percent of subject wages.

You can use the employee’s regular rate or his overtime rate to calculate workers’ compensation for overtime hours.

Press <Enter> to default employee’s regular rate, or select employee’s overtime rate.

Work unit descriptor

If the rate basis is a fixed amount per Work unit, enter a brief description of what the work unit is (e.g. DAYS). This work unit descriptor prints alongside the number of work units when workers’ compensation information displays or prints.

After these fields are entered, the following screen displays:

An example

In order to have data to be used in future examples in this manual, enter another code for workers’ compensation as shown below:

Special tax Code

This type is for a special tax such as SUI, workers’ compensation, etc., where part of these taxes come out of the employee’s pay. Enter the Code and Description fields as they appear below, and select Special tax for the Type field. The rest of the fields display:

G/L acct#

Options 

This account number is for the liability account for this special tax. It is used for accumulating distributions from the employee’s pay for this tax. If you use cost centers, refer to the previous note under a Deduction type.

Rate basis

Enter Percent of subject wages to calculate the amount as a percent of wages. Select Work units to calculate the amount as a fixed amount per work unit.

If you are using a fixed amount per work unit, refer to the Use of Work Units appendix.

Your answer here determines the requirements for the next fields.

Rate

If the rate basis entered above is a percent of wages, enter a percent here. If the rate basis is a fixed amount per work unit, enter that amount.

YTD earnings limit

If the rate basis is a Percent of wages type and there is a YTD maximum amount on which the percent is allowed, enter that amount here.

If the rate basis above is Work units, this field cannot be entered.

Press <Enter> to default to zero if there is no limit.

Current earnings limit or

Current deduction limit

If the rate basis is a Percent of wages type, this field displays as Current earnings limit. If there is a current pay period maximum amount on which the percent is allowed, enter that amount here.

Press <Enter> to default to zero if there is no limit.

If the rate basis is Work units, this field displays as Current deduction limit. This is the maximum dollar amount that the deduction can be in a pay period.

Work unit descriptor

If the rate basis is a fixed amount per Work unit, enter a brief description of what the work unit is (e.g. DAYS). This work unit descriptor prints beside the number of work units when special tax information displays or prints.

Type of earnings

If the rate basis is a fixed amount per Work unit, this field cannot be entered.

Options 

Otherwise, select the type of already calculated gross amount of wages that the percent of wages is taken on. Available choices are:

Meals Code

The code for meals is used to show only the value of meals received on the employee’s check stubs and in the employee’s earnings history. This is because any expenses related to meals are part of the overall expenses of operating the restaurant or cafeteria.

Enter the Code and Description fields as they appear below, and select Meals for the Type field. The rest of the fields display:

Note that the G/L account number field cannot be entered.

From the company’s viewpoint, there are no relevant journal entries at this point because the company is reporting additional income that the employee received and spent, but which is not a part of his paycheck. Taxes can be assessed on this income, but the tax amounts are withheld from other income on the paycheck.

(Reimbursement of an employee for a work-related meals expense should be handled using an earnings code. In this case, cash changes hands and the proper expense account is debited.)

Exempt from

Fed w/h

Emp Soc Sec

Empr Soc Sec

FUI

EIC

State w/h

SUI

OST-1

OST-2

Empr OST

W-comp

Suppl ben

City w/h

The Exempt check boxes are used to control the calculation of various types of taxes. A checked box indicates that this work-related income is exempt from normal inclusion in the wage base on which the tax type (FWT, FICA, FUI, etc.) is calculated.

In each case, check the box to include the cost of the meals as part of the employee’s income for purposes of calculating this tax.

Tips Code

The tips code is designed to handle reported tips only. For this reason, a G/L account number does not apply. The company is recording only on the employee’s check stub and in the employee’s earnings history the value of tips that the employee reported as received from customers. The money does not go through the company, so company accounts are not affected.

Enter the Code and Description fields as they appear below, and select Tips for the Type field. The rest of the fields display:

Note that the G/L account number field cannot be entered.

Normally, the employee pays taxes on reported tips. But when taxes are withheld, they must be deducted from other income for the pay period.

For companies where tips are pooled and disbursed on paychecks or where the tips are included in the cost of a banquet, using the tips code is not enough. In these or similar cases (where the cash is actually disbursed by the company), an earnings code must be used so that appropriate journal entries are generated.

Exempt from

Fed w/h

Emp Soc Sec

Empr Soc Sec

FUI

EIC

State w/h

SUI

OST-1

OST-2

Empr OST

W-comp

Suppl ben

City w/h

The Exempt ? questions in the following fields (#5 through 17) are used to control the calculation of various types of taxes. A Y answer indicates that tips are exempt from normal inclusion in the wage base on which the tax type (FWT, FICA, FUI, etc.) is calculated.

In each case, answer Y to include tips as part of the employee’s income for purposes of calculating this tax.

Printing List of Deductions/Earnings

Select

Reports, Employee/Employer from the Reports, General menu.

Graphical Mode

A screen displays to enter which deductions/earnings codes to print.

Character Mode

A screen displays to enter which deductions/earnings codes to print.

Starting code and

Ending code

Specify the range of deductions/earnings codes to print. The codes specified must already exist. Follow the screen instructions.

To print a single code, enter that code in the Starting code field and press <Enter> to skip the Ending code field.

OK or Cancel

Select OK and a screen showing the printer selections displays. Make the appropriate selection and the report prints.

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