Employee with a Guaranteed Amount has a Negative Subsidy on the Payroll Exception Report

For example, the report may show a series of entries like the following:

John Smith (10001)               Amount Subsidy earnings:  $0.20 on 3/30/xx
John Smith (10001)               Amount Subsidy earnings: -$1.07 on 4/01/xx
John Smith (10001)               Amount Subsidy earnings:  $0.18 on 4/02/xx

Solution

Guaranteed Amounts are often thought of as ‘guaranteed minimum check amounts’ and are used when your agency wants to guarantee that a worker will always receive a check for no less than a certain amount. The idea is that a worker may earn very little in any given pay period and your agency may want to tack a lump sum onto the employee’s check to bring the earnings up to a certain minimum level.

For example, assume employee John Smith has a guaranteed amount of $5.00 for each semimonthly pay period. During a particular pay period, John makes only $4.20 in actual earnings. The end result is that Client Payroll Manager will add $0.80 to his earnings in order to provide John with the $5.00 he is guaranteed to make.

While the end result is a lump sum of $0.80 added to John’s earnings, the amount of the subsidy is not actually calculated as single lump sum. The method by which the end result is achieved can actually lead to negative subsidy amounts on individual days.

For the sake of convenience, we’ll use a pay period in which there are ten work days. Client Payroll Calculator assumes that the guaranteed amount of $5.00 should be evenly earned over those ten days, so it determines the per-day earnings needed to reach the minimum. In this example, it would presume a need for $0.50 per day ($5.00 divided by 10 days). We could think of this as a daily pay guarantee or even a minimum daily salary.

Once it determines the daily pay guarantee, the system reviews the earnings for each day. For example, the earnings per day could be:

Day 1: $0.30
Day 2: $0.80
Day 3: $0.10
Day 4: $0.60
Day 5: $0.20
Day 6: $0.00
Day 7: $0.50
Day 8: $0.60
Day 9: $0.40
Day 10: $0.70

Whenever it finds a day below the daily pay guarantee, the system grants as much as needed to reach the value. In other words, if the earnings on a day are $0.30, it will grant $0.20 of subsidy pay for that day so that the pay for the day comes to $0.50. Coincidentally, this is why the Payroll Exception report shows amount subsidies on a per-day breakdown.

However, notice what happens if it ignores days where earnings are above $0.50:

Day 1: $0.30 + $0.20 = $0.50
Day 2: $0.80 + $0.00 = $0.80
Day 3: $0.10 + $0.40 = $0.50
Day 4: $0.60 + $0.00 = $0.60
Day 5: $0.20 + $0.30 = $0.50
Day 6: $0.00 + $0.50 = $0.50
Day 7: $0.50 + $0.00 = $0.50
Day 8: $0.60 + $0.00 = $0.60
Day 9: $0.40 + $0.10 = $0.50
Day 10: $0.70 + $0.00 = $0.70

Add the total for each day together and you find that the earnings are $5.70, which is more that the $5.00 minimum set forth. Ignoring ‘overpaid’ days can lead to situations such as this, where an employee is actually paid more than the minimum value being sought. As a result, the system has to reduce the pay on days where the daily pay guarantee is exceeded. This means those 10 days above would actually look like the following:

Day 1: $0.30 + $0.20 = $0.50
Day 2: $0.80 – $0.30 = $0.50
Day 3: $0.10 + $0.40 = $0.50
Day 4: $0.60 – $0.10 = $0.50
Day 5: $0.20 + $0.30 = $0.50
Day 6: $0.00 + $0.50 = $0.50
Day 7: $0.50 + $0.00 = $0.50
Day 8: $0.60 – $0.10 = $0.50
Day 9: $0.40 + $0.10 = $0.50
Day 10: $0.70 – $0.20 = $0.50

Now the totals add up to $5.00. The net effect is exactly what we wanted – John will get $5.00 even though he didn’t actually earn $5.00. However, the method for creating this result created negative subsidy pay on days 2, 4, 8 and 10. On the Payroll Exception report, John will appear to have negative subsidy pay on those days even though the total effect is that he was paid $0.80 more than he really earned.  

Additional Comments

The following test can be used to cross-verify the amount subsidy on the Payroll Exception report:

  1. Review the Payroll Exception report for the pay period in question for the employee.
    • Add all amount subsidy values for the employee together.
  2. Review the Payroll Edit report for the pay period in question for the employee.
    • The employee receiving the Amount Subsidy should have a separate line listing for the amount subsidy. The value shown here should be the same as the total you calculated from the Payroll Exception report.

Subsidy Information

Keep in mind that this pertains to amount subsidies only. Other subsidy values may appear on the Exception Reports, such as a wage subsidy, and these operate under somewhat different rules and methods.

 

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