Create Deduction and Liability Codes

Use the PR Deductions/Liabilities form to create deduction (both standard and pre-tax) and liability codes.

This topic discusses how to create deduction and liability codes.

The system uses a specific hierarchy for processing and displaying codes, so it is recommended that you develop a numbering scheme, or code sequence, to enable easier maintenance.

When processing deduction/liability codes, the system first processes pre-tax deductions assigned at the craft level, and then pre-tax deductions assigned to the employee. The system then processes standard deduction/liability codes by their associated category (the Calculation Category field) and in the following order: Federal, State/Provincial, Local, Craft, Insurance, Employee, and Any.

Note: When processing State/Provincial codes, the system applies pre-tax deduction amounts proportionately to each state/province that the employee worked in.

When processing a particular category, the system processes codes in numerical order. For example, if an employee has two federal deductions (Federal Code #3 and Federal Code #25, for example), the one with the lower number is processed first (#3).

Additionally, codes print in numeric order on checks and reports, and the system sorts them numerically when displaying F4 lookups.

Due to this hierarchy, the following suggestions are recommended when creating deduction and liability codes:

  • Group deductions and liabilities separately. For example, assign deductions to code numbers 1-499 and liabilities to numbers 500-999. This makes it convenient to view codes in the system and on reports. If you are using pre-tax deductions, you should keep them separate from other deductions in their own grouping. However, pre-tax deductions are always processed first, so their numbering system is not as crucial as other deductions.

  • Group code categories together (e.g., all Federal-type codes together, all Local-type codes together, etc.). This makes it convenient to look up codes in the system and on reports.

  • Assign numbers to codes associated with a specific category in processing order. That is, if the system should process one Federal code before another, it should have a lower deduction/liability code number.

  • Consider leaving blank code numbers between individual codes or category groups; this enables you to add additional codes in the future, as necessary.

Note: for Canadian users: When processing CPP deduction codes, the system checks the age of an employee before calculating CPP. If the employee is over 18 years old or less than 70 years old, the system will calculate CPP. Otherwise, the system does not calculate CPP. The system uses the pay period ending date to determine the last pay day in the month for when employees turn 70. For more information, see Setting Up a CPP Deduction Code.
Note: for Quebec users: The system also processes Quebec Pension Plan (QPP) and Quebec Parental Insurance Plan (QPIP) deductions for employees who meet pay-period employment requirements as defined by Quebec. See Setting Up a QPP Deduction for more information.
Note: for Australian users: The PAYG Tax deduction should be set up as deduction code 1. For more information, see Setting Up a PAYG Deduction Code.

The following instructions detail how to create deduction and liability codes.

Note: For standard (not pre-tax) deduction and liabilities with a calculation category of Craft, it is not necessary to create multiple codes. For example, if you have three crafts that have a vacation deduction calculated at an hourly rate, use the same deduction code for all three. However, if the method of calculation is different, or a different GL credit account is required, different codes are necessary. For more information on calculation categories, see Setting the Calculation Category.
  1. Enter a code number in the Dedn/Liab Code field and enter a description of the code in the Description field.
  2. Set the code type in the Type section of the form by selecting the appropriate radio button: Deduction or Liability.
    Note: When creating a liability code, you must also assign a liability type in the Liability Type field. The liability type determines which GL account the system debits when expensing this liability to either a PR or JC department (in the PR Departments and JC Departments forms, respectively). You may want to group similar liabilities together using the same type (e.g., taxes, insurance, union benefits, etc.). You can use the HQ Liability Types form to set up liability types.
    Note: You can also designate taxable liability codes in the basis code list of deduction codes. See the field information for Basis code on other dedn/liab codes for more information.
  3. Set the calculation category for the code using the Calculation Category and Federal Type fields.
  4. Set the method of calculation for the code.
  5. Assign rates/amounts for the code in the Rate/Amount #1 and Rate/Amount #2 fields.
  6. Set any applicable limits for the code by using the fields in the Limit section of the form.
  7. There are a number of additional checkboxes on this form to establish settings for this code. Check them as appropriate; for more information, refer to the F1 help for each box.
  8. If this is a pre-tax deduction, check the Pre-Tax Deduction box.
    Note: When you check the Pre-Tax Deduction box, and you have set the Calculation Category drop-down to E-Employee, the system enables the Pre-Tax Group field. Enter a group in this field if you have multiple pre-tax deductions that require a combined limit. See Setting Up Pre-Tax Deduction Groups for more information.
    Note: Once you check the Pre-Tax Deduction box, the system enables the Catch up Deduction box. Check this box if the deduction code will be used as a catch up code. United States users might use this for employees who are 50 and older who want to make catch-up contributions to a 401(k) or Roth plan. For more information, see Setting Up Pre-Tax Deductions.
  9. Set codes to automatically process AP transactions for the deduction/liability amount, as necessary.
  10. For U.S. users, set W-2 information for specific deduction codes.
  11. For Australian users, select the Australian Taxation Office category for this deduction/liability code from the ATO Category drop-down (Addl Info tab), if necessary. For more information on the options available from this drop-down, see ATO Category.
    Note: If you select either Superannuation or Superannuation-Extra, the system enables the Fund field. For more information on Superannuation, see Setting Up Liability Codes for Superannuation.
  12. If you are creating a deduction code, you can set it as subject to arrears. For more information, see Setting Deductions as Subject to Arrears.
  13. Determine the calculation basis for the deduction/liability code, as necessary.
  14. Save the code as normal.

    You can now assign the deduction and liability codes to the appropriate level tax, craft/class or employee level.