The easiest way to handle advances and advance recoveries is to create a deduction payroll category with the type “declining balance”.
When you process payroll and want to issue an advance to an employee you would enter a negative amount into this category. Clarity will process it as a “refund” deduction and add it to the employee's net pay. Once posted to history, this would put the category into a negative balance.
The next time you process payroll the system will automatically attempt to recover the entirety of the amount of the payroll category from the employee, unless you have enabled the “maximum per pay” flag. In which case it will attempt to recover up to that maximum from the employee until the balance returns to a zero dollar balance.
Creating the Declining Balance Deduction Payroll Category
- In Clarity, navigate to Setup > Payroll Settings > Payroll Categories.
- Click the "+" button to create a new payroll category.
- Select 'Add Deduction' to create a new deduction payroll category.
- Enter the appropriate "Number", "Name", and "Abbreviation" to identify the payroll category.
- For "Type", select 'Declining Balance'.
- Under Flags, select the appropriate flags.
- None of the taxes should be selected in the Deduct Before... section.
- Click the checkmark icon at the top-right corner of the window to save your new payroll category.
Note: Remember to assign this payroll category to your employees under Employees > Master Paycard > Deductions!
Using the Declining Balance Deduction Payroll Category in Payroll
- In Clarity, when you're editing the paycards, enter a negative value into your new payroll category.
How to Enter an Opening/Starting Balance
If you have manually issued a check outside of payroll, or were doing a different tracking process before and wished to streamline it to this new method, you will need to add an opening or starting balance for this payroll category. You would add the amount of the outstanding loan into the declining balance field for the category on the employee’s master pay card as seen below.
Why do I need to add the amount?
When modifying the loan balance from results outside of the software you must add the new loan to the existing loan. This is because the system will try to balance the YTD contributions to THIS new value instead of zero as we discussed earlier. Therefore, if an employee had a loan from Christmas of $300 that they hadn’t paid back before the 2012 year-end it would appear as the amount in the declining balance field for 2013. If then you manually wrote a cheque for another $200 loan to the employee then you would increase the declining balance to $500. You do this regardless of how much the employees already repaid of the loan! Why? Because once again, the software is now going to try to balance the year-to-date deductions to the declining balance value. Therefore, if you the employee has already paid $275 of the $300 loan for this year and you then want go in and say “I have issued another loan of $200” and set the declining balance to $225 (the new loan + the remaining of the previous loan) the system would actually try to start RETURNING money, because at this time it would show that the employee has paid $50 MORE then what their loan was for.
