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Garnishment of Net Income

In some cases, a garnishment order may require that a percentage of the net income must be garnished. Net income is gross income less statutory deductions like EI, CPP, and Income Tax.

The easiest way to setup a deduction code for this kind of garnishment is to

Statutory Deductions Accumulator

The statutory deductions accumulator will add up the total amount of EI, CPP, and Income Tax for each employee every pay period. Because accumulator amount can be accessed in formulas using their corresponding variable we can use this accumulator to easily calculate the net pay in the garnishment formula later.

Create a new accumulator for the statutory deductions:

  1. Open Canadian Payroll > Installation and Maintenance > Payroll Parameters

  2. Create a new accumulator from the Accumulators tab by entering a meaningful name and choosing the Amount type.

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The new accumulator will need to be added to each Deduction Code for the statutory deductions (EI, CPP, and Income Tax).

  1. Open Canadian Payroll > Employer Payroll Tables > Deduction/Benefit Codes and open the statutory deduction code to add to the accumulator.

  2. From the Accumulators tab enable the accumulator within the Add Deductions listing. Doing this will add any deduction amount to the accumulator total during payroll processing.

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Tip:

You can view the accumulator total during payroll processing by enabling the Show Accumulators option from the Process Pay Run window.

Next up we’ll create a formula driven deduction code using the accumulator we just created to calculate a garnishment of net deduction.

Garnishment of Net Deduction Code

The garnishment code will follow the setup of the basic garnishment deduction code.

The code will run for each pay period of any employee that it has been added, automatically garnishing a percent of the net wages. The code will continue doing this each pay period until some total garnishment amount has been reach or the code is removed from the employee.

We will be making use of the two user-defined variables (V34 and V35) on the deduction code to allow the garnishment to be customized for each employee. These variables are used to specify the total garnishment amount and the garnishment percent.

Formula Variables

The following formula variables are used in the formula for the net garnishment deduction.

G0The gross income amount for the current pay period.
A8The accumulator amount for the statutory deductions we created earlier.
Note:

The accumulator number (A8) might be different in your setup.

V34This is the first user-defined variable on this deduction code. We will use this variable to change the percent of net to garnish on a per-use basis. This allows the same deduction code to be reused for different garnishees.
V35This is the second user-defined variable on the deduction code. We will use this variable to set the total garnishment amount. This total will be used to stop garnishment deductions once the total garnishment amount is reached.
D2This is the life-to-date (LTD) deduction amount of this deduction code for the employee.

Formula

The formula for the net garnishment is below and has been separated into 5 lines to make each step clear.

The variable for the statutory deductions accumulator (A8) may need to be updated below to match with the accumulator created previously.

F1 = G0 - A8
F2 = V34 / 100
F3 = F1 * F2
F4 = V35 - D2
…
Deduction D0 = @IF(  F4 =< 0, 0, @MIN(F4, F3) )
  • The first line of the formula calculates the net income by subtracting the statutory deductions from gross income.

  • The second line here converts the garnishment percent into a decimal amount to be used in the next line.

  • The third line calculates the garnishment amount from net.

  • The fourth line calculates the remaining garnishment amount (how much of the total garnishment amount is unpaid). This is done by subtracting the YTD deduction amount for this garnishment from the total garnishment amount.

  • The final line prevents the garnishment from being over-deducted.

    • If the garnishment has been paid up to the total garnishment amount then we set the deduction amount to 0.

    • Otherwise, the lowest of either the remaining garnishment amount or the garnishment amount from net is deducted.

    • Doing this extra step prevents the garnishment from being over-deducted in the case that the remaining garnishment is less than the garnishment amount from net.

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Setup a Garnishment on an Employee

The garnishment of net deduction code will have to be added to the employee garnished. When the deduction code is added to an employee you will be able to change the two user-defined variables to customize the garnishment for that employee.

Add the garnishment of net deduction code to the Deduction/Benefit Codes of the employee’s Employee Profile.

  1. From the Deduction/Benefits > Deduction/Benefit Codes tab press Insert.

  2. Select the garnishment of net for the Deduction Code.

  3. Enter the Percent of Net.

  4. Enter the Garnish Amount.

  5. Press OK to save and add the garnishment of net deduction code to the employee.

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Result of Garnishment

When the employee’s payroll is processed the garnishment is automatically calculated and deducted from their net income.

Example 1. Payroll Register report of Garnished employee

The employee Richard Zest in this example has been garnished at 15% of their net income.

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Figure 1. Payroll Register report

Checking the Payroll Register report we can see that the garnishment of net (GARNET) deduction amount of $232.63 was correctly calculated as follows:

2000 - ( 92.34 + 33.20 + 323.57 ) = 1550.89
1550.89 * 15% = 232.63
J
Jack is the author of this solution article.

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