Maximizing Garnishment Minimums

Why does it seem like there are a million different ways for different agencies to calculate garnishments?  As soon as I think I have a handle on one method, another method pops up.  The garnishments feature in GP seems to work well when an employee has a single garnishment, but I have found that multiple garnishments often times requires the Greenshades Garnishments module.

But, let's focus on what Dynamics GP can do (which can be quite a bit, depending on your requirements) out of the box.  Here are some requirements I encountered recently:

1. The first $150 of allowable earnings by the employee is not subject to the garnishment
2. If the employee earns between $150 and $200, the amount above $150 is garnished
3. If the employee earns more than $200, the earnings are garnished at 25%

Looking a bit closer, we could summarize this by saying that it is a 25% garnishment with a minimum net pay to the employee of $150 (what they must be left with).  For example, if they made $180, the garnishment would calculate as $45 (25% of $180).  But since there is a minimum net pay of $150, it would only withhold $30 (the difference between $180 and $150).  I have found it is critical to the configuration of garnishments to distill the requirements down to the simplest parameters possible.

So, how do we then set this up in Dynamics GP?  First, let's take the definition of "allowable earnings" or what might be called the wage base for the garnishment. In this case, allowable earnings is calculated as gross wages less taxes.  So, we can configure an earnings code to match this wage base (Microsoft Dynamics GP>>Tools>>Setup>>Payroll>>Earnings Setup).  This will control how the garnishment is calculated, beyond the standard options of Gross Wages or Net Wages. 

Next, we set up the deduction for the garnishment (Microsoft Dynamics GP>>Tools>>Setup>>Payroll>>Deduction).  We select a deduction type of Garnishment, and then select the appropriate Garnishment Category.  For the method, we can select "Percent of Earnings" and select the earnings code created above.  So, how does this differ from the "Percent of Gross Wages" or "Percent of Net Wages" method?  Let's take the following example:

Gross Wages = $1000
Taxes = $200
Deductions = $300
Net Wages = $500

Following our example, the garnishment would calculate based on the earning setup which was defined as gross wages less taxes.  So, therefore, the difference in the methods would be...

25% of Gross Wages ( 25% * $1000 = $250)
25% of Net Wages (25% * $500 = $125)
25% of Earnings (25% * $800 = $200)

Save the deduction you have created.  And then we have to establish the minimum wages the employee must be left with ($150 per the scenario we have described).  Now, for many people familiar with GP payroll, the impulse would be to put $150 in the minimum net pay field (Cards>>Payroll>>Employee>>Additional Info).  But, unfortunately, this field is minimum net pay AFTER deductions.  In this example, the $150 is the earnings that must be left (which does not include deductions).  So this employee has to be left with $150 before deductions.

To establish this sort of minimum, we can use the Garnishment Maximum Setup window (Microsoft Dynamics GP>>Tools>>Setup>>Garnishment Maximum Setup).  I select FED as the State/Fed code.  The key here is to select the same method (Percent of Earnings) and Earnings Code, and to stipulate a Max Withholding Percent greater than the percentage you plan to use.  Leave the Max Exempt Amount at zero.  Of course, if you have valid maximums, you can definitely stipulate them here.  But the field we are interested in is the Minimum Wage Rule Amount.  In that field, we put the $150 that the employee must be left with (prior to deductions).

When you assign the garnishment deduction to the employee (Cards>>Payroll>>Deduction), you can then select the Garnishment Maximum for Federal.  This will ensure that the $150 is left and not garnished according to the requirements discussed earlier.

Feel free to share any garnishment quandaries you have found yourself in and how you solved them creatively and I will update the post :)  Happy Monday everyone, have a great week!