Reducing Balance Deductions

You can set up reducing balance deductions in employees' pays for cases like staff loans, where a fixed amount to repay is set, and regular deductions are made each pay run until the full amount has been repaid.

Setting up Reducing Balance Deductions

Like all deductions, a reducing balance deduction is set up as a pay item on the Pay Items (MP.PP.22.10) form. For a reducing balance deduction, the pay item's Type should be "DEDUCTION"—this enables the Deductions section on the Additional Info tab.

To mark a pay item as a reducing balance deduction, tick the Reducing Balance Calculation option on the Additional Info tab. When a pay item is marked as a reducing balance deduction, the Change Limit and Change Threshold options in the Actions dropdown are disabled—the pay item's amount to repay is effectively a limit, so being able to set another limit manually could cause conflicts.

Note: If a limit and/or threshold had already been set for the pay item before the Reducing Balance Calculation option was ticked, these will be deleted once the pay item is saved.

Configure the rest of the pay item's settings as necessary, then save it.

Note: For a staff loan, the Deduction Category should be set to "Net Pay Disbursement"—this indicates an internal payment that generates GL transactions but no payment batches.

Adding a Reducing Balance Deduction to an Employee's Standard Pay

Reducing balance deductions are added to employees' pays in the same way as any pay item. On the Standard Pay tab of the Pay Details (MP.PP.23.10) form, click the Add Row button and select the reducing balance deduction pay item to add it to the pay, then enter the required details:

In the Amount column of the main table, enter the amount to be deducted from the employee's pay each pay run.
In the Amount to Recover field of the table footer, enter the total amount to be recovered.

The footer also includes a Reducing Balance field, which indicates that the pay item is a reducing balance deduction, and a Recovered to Date field, which displays the total amount of repayments made as at the currently selected Business Date.

Figure 1. Editing a reducing balance deduction in the Standard Pay

Running Pays

Once a reducing balance deduction has been added to an employee's Standard Pay, it will appear in their Current Pay alongside all of their other pay items. A reducing balance deduction cannot be added to a Current Pay manually unless it already exists in at least one of the employee's Standard Pays (remember that employees can have multiple Standard Pays set up for multiple pay groups).

When the reducing balance deduction's pay item is selected on the Employee's Current Pay (MP.PP.31.30) form, the footer section shows the Reducing Balance, Amount to Recover and Recovered to Date fields that also appear in the Standard Pay.

Note: In the Current Pay, the Recovered to Date field includes the amount that will be repaid in the that pay run.

When the pay is completed, the reducing balance deduction will appear in the Deductions section of the employee's payslip. The remaining balance is displayed next to the deduction's name.

Figure 2. Reducing balance deduction on a payslip

When the Balance is Repaid

Once a reducing balance deduction has been added to an employee's Standard Pay, the deduction amount will be taken from each pay run until the amount to recover has been repaid. If the final payment is less than the usual deduction amount, a partial payment will be made.

For example, if the amount to recover is $500 and the deduction amount each pay run is $40, then after twelve pay runs, $480 will have been paid, so the remaining balance will be $20. For the thirteenth pay run, only $20 will be deducted.

Once the full amount has been repaid, the deduction amount will be $0 in all subsequent pays, which means that the deduction will not appear on payslips. The deduction pay item remains in the employee's Standard Pay—it must be removed manually once the balance has been repaid.

Reusing a reducing balance deduction pay item

If an employee takes out a staff loan, then some time later takes out another one, the same deduction pay item can be used for both. A New Amount button now is available in the footer of the Standard Pay tab on the Pay Details (MPPP2310) form when a reducing balance deduction pay item is selected. Clicking this button sets the Amount to Recover field, the Recovered to Date field, and the amount on the pay item to zero. You can then enter a new amount to recover.

Note: If the full amount has not been recovered, a warning will be displayed - you may want to add the unrecovered amount to the new amount to recover.

The New Amount button cannot be used if the pay item is currently included in an open pay. Once the reducing balance has been reset in this way, the changes will appear in new pay runs opened after the change was made.