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Protected Earnings Deductions

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Using Protected Earnings Deductions

A Protected Earnings deduction ensures that an employee's net pay is protected for earnings below a net threshold you specify.  This means the specified net amount must be left over once the Protected Earnings deduction is taken. Using a net threshold ensures you don’t deduct all of the employees' pay if they have a deduction applied to their profile. 

For example, if your employee has a Protected earnings threshold of $100, for a deduction of $50. The deduction will be applied once the net pay is between $100 - $150, to ensure that there is always a minimum net pay of $100. 

A few important points about Protected Earnings Deductions are:

  • You can nominate the protected earnings threshold, this can be any amount. 
  • You can select if it applies to all or just a single deduction.
  • You can specify the deduction type whether it is One-Off, Installments, or Recurring. 
  • You can specify the start and end dates. 
  • Protected earnings deductions take priority over all other deductions.
  • Deductions can be taken from gross or net pay, provided the net pay is greater than the protected earnings threshold.  
  • Protected earnings deductions are applied to the employee's profile. 

In this article we will cover:

  • Use cases for Protected Earning deductions
  • Setting up a deduction type in your platform
  • Applying a Protected Earnings deduction in the Employee Profile

  If you are looking for information on how to set up deduction types or manage all of your deductions from the Deductions page, then please refer to our guide on Deductions here! 

Use cases

In your platform, a Protected Earnings deduction can be applied to any employee for any deduction type. Some use cases for using this type of deduction include:

    • Child Support
    • Overpayments
    • Employees with multiple deductions - applying a Protected Earnings deduction ensures that you don't have to deduct all of the employee's pay

We will look at how Protected Earnings deductions can be used for each of these use cases below. 

Child Support

The primary use for a Protected Earnings deduction is for child support payments. The Protected Earnings Amount (PEA) is the part of an employee pay exempt from child support deductions.

This means that you don’t deduct all of the employee's pay for child support payments.

The CSA (Child Support Agency) sends child support garnishee requests in two different formats:

  1. Section 72A Notice - This can come in the form of periodic or lump sum amounts but is most commonly a request to deduct a cent in the dollar amount. The notice will remain in place until the employee has paid back the total amount of the money owed (as outlined in the notice) or to such a point that the CSA notifies you to cease. There is no protected earnings threshold for section 72a notices.
  2. Notice to Commence Child Support Deductions - This notice will contain a schedule of deductions which will inform you of the amount to be deducted from the employee. The notice will explain the legal obligations and the protected earnings threshold requirements.

The Protected Earnings deduction allows you to apply a child support garnishee request as per above in the Employee Profile. 

  For further information about the Protected Earnings Amount, read here.


Overpayments

You may need to apply a Protected Earnings deduction to an employee who is required to make repayments due to an overpayment. This will ensure your employee is not left short on wages due to repaying the overpayment. 

A Protected Earnings deduction can be set up to be taken from every payslip from a nominated start date and will be ongoing until the total amount is repayed. 

SCENARIO

We'll use the following example to look at how a Protected Earnings deduction will be applied to a payslip. 

Thea is required to make a repayment of $1000 (due to an overpayment). You'll set up their Protected Earnings deduction so that:

  • Instalments are set for $150 per payslip.
  • The Protected earnings threshold is set at $200.

Thea's net earnings this pay are $300 before the deduction. How will the deduction be applied to the payslip?

  • $200 is protected and will be paid to Thea.
  • That leaves only $100, which is then deducted (this is less than the $150 instalment, as that is all that remains outside of the protected earnings threshold).

This means Thea will have $900 of her overpayment remaining to pay on future pay periods. 

 

Employees with multiple deductions

You may want to apply a Protected Earnings deduction to an employee that has multiple deductions applied to their profile. 

This is so the Protected Earnings threshold relates to ALL deductions on the Employee Profile.

Therefore, the Protected Earnings deduction will be taken first as a priority and if there are any net wages left over the other deductions will be taken up to the value of the specified 'Protected Earnings net threshold'.

  Please note: The other deductions must be taken in full – they cannot be partially taken.

Set up a deduction type in your platform

When managing deductions, the first step is to create the deduction type. Setting up a deduction type involves establishing the rules for how the deduction will be applied to a payslip and reported via STP.

You need to determine if the deduction applies to the gross or net pay and whether it is reportable. If it is reportable, you also need to specify how it should be reported.

Once a deduction type is set up, it can be applied to your employee's profiles, so it can automatically apply to their payslips. 

All deduction types can be located in your platform from the main menu > Payroll Settings > Deductions. 

  For the full guide on how to set up a new Deduction Type in your platform please refer to our helpful Deductions article.

If the relevant Deduction Type has already been set up in your platform, i.e. Child Support, then please read on. 

Applying a Protected Earnings deduction in the Employee's profile

Once you have created your Deduction Type in your platform you will then need to apply the deduction to the relevant Employee Profile. Protected Earnings deductions cannot be added from the main Deductions page. 

  Please note: The Protected Earnings deduction will apply to each payslip indefinitely or until the specified end date. The deduction will not reduce the employee's net earnings below the Protected Earnings Threshold Amount specified and will take priority over all other deductions. 

There may be times that an employee has no pay for a pay period and, therefore, cannot meet their child support payments. In this case, your foundU platform will create an STP update event and this information will be communicated to the ATO when you submit STP for that pay period.

Add a Protected Earnings Deduction on an Employee Profile

How to add a Protected Earnings deduction:

  1. Navigate to the employee's profile. This can be done from People > Approved People or via the global search bar. 
  2. Select on the Financial tab.
  3. Select the Deductions tab > Add Deduction and select Protected earnings deduction.
  4. Complete the deduction details:
    • Deduction method - select one of the following:
      • One-off - Total amount paid from a singular payslip.
      • Instalments - A total amount paid over multiple payslips.
      • Recurring - No total amount repeats over a timeframe.

         Please note        : Depending on the deduction type you choose, some of the below fields may not appear. 

    • Deduction type - Select from your configured deductions and salary sacrifices. 

    • Protected earnings threshold - Minimum pay to remain after the deduction is applied.
    • Select if the threshold applies to:
      • All active deductions - Ensures protected earnings will not be reduced by other active deductions. This will take priority over other active deductions. 
      • Single deduction - Protected earnings threshold will not be exempt from any other active deductions. 

    • Account name - Name of the account the account the deduction is to be sent.

    • BSB - Account BSB for the deduction recipient. 

    • Account Number - The number of the external account the deduction is to be sent.

    • Pay period/ Starting from - Specify the payslip or period the deduction commences. 

    • Recur until - The period ending the deduction will end on.

      • If no date is specified the deduction will recur indefinitely. 

    • Total Amount - The total amount to be deducted.

    • Instalments - The instalment amount is to be deducted per payslip.

    • Deduction per payslip - The recurring amount to be deducted per payslip. 

    • Reference - A reference number or some detail for the deduction (e.g. reference number for child support, date of overpayment, etc). 

    • External reference - Used as a reference for external systems. It is not visible to the employee. 

    • Comments - Notes and details are visible to the admin only.

  5. Select Save.

    • Once saved, any draft payslips at or after the period start date will automatically be reprocessed to apply the deduction.



End and duplicate deduction on an Employee Profile 

In some cases, you may need to end a deduction; these can include:

    • Child Support obligation has been suspended.
    • The number of deductions for the employee has decreased.

The most common case will be when a deduction requires an update, as after a deduction has been added to an employee, only the reference, comment, and recur until fields can be edited. 

As such, if a deduction needs to be updated in amount or type, the current deduction will need to be ended, and a new deduction will need to be applied.  

To assist with this, you can duplicate your ended Protected Earnings Deduction. This will copy the details of your deduction while creating a new one to which you can apply your updates.

This will be the case for recurring deductions as One-off and Installment deductions, which will automatically end when the total value is reached.

  Protected Earnings deductions can be ended and duplicated from the Employee Profile. If you only need to end a deduction, this can be done from the main Deductions menu; please refer to our Deductions article for further information. 

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