Set up and process a net payment

Net payments are designed to form part of an employee's pay alongside other normal gross payments, not including statutory payments, to make up a final salary.

The total value of any individual net payments must be less than the main salary/basic pay total.

Net payments can be affected by other deductions. If an employee has a student loan or a deduct after tax pension scheme in use, check the net increase your net payment adds.

NOTE: Your software can't calculate salary sacrifice deductions on a net payment. If you have a salary sacrifice deduction or pension in place for an employee, you mustn't use a net payment in their pay.

How do net payments calculate?

When you use a net payment, Sage 50 Payroll completes a two-step calculation using the non net payments first. The calculation for liability on the net payment then uses values from the initial calculation as a basis.

Firstly, the program calculates any tax, national insurance and other liabilities as normal based on the employee's regular gross payments (for example, salary). This creates a 'reference net pay'.

Then, the program completes a backwards calculation to add on the extra net payment. Your software works out how much additional gross pay the employee needs to be paid so that after tax or national insurance, the net pay increases by the specified amount of the net payment. These extra liabilities are shown in the 'Cost of net payments' section (see below).

Due to the two-step calculation, net payments can't to be used on their own. They're designed to be used as an addition to existing, basic gross pay.

This means net payments shouldn't be used on their own or to make the bulk of the employee's wages. If gross pay is low or zero, the program calculates based on thus, often resulting a tax rebate in the first part of the calculation. This means that during the second part of the calculation, Payroll adds on the net amount on top of that rebate which results in a figure that you wouldn't expect.

Cost of Net Payment

When you pay an employee a net payment, the Cost of Net Payment line automatically appears in Enter Payments and on the employee's payslip. This shows the expense to the employer of paying the employee the amount entered against the net pay element.

Tax - Displays the tax that you pay on the net pay element. If this box is zero, it can be because the employee's tax code or the current level of earnings mean no tax is due. Or the net pay element isn't currently in use
NI - Displays the NI that you pay on the net pay element. If this box is zero, it may be due to the employee's NI category, the current level of earnings, the employee's age if they are under 16. Or because the net pay element is only set up to be net of tax
Total - Displays the total tax and NI liability from the net pay element

Set up a net payment

Go to Company, Tasks then Pay Elements.

Select the Net Payments tab, then New, then ▼ complete each section

Reference	The next available reference number appears here automatically. You can't change this number.
Status	From the drop-down list choose Factor, Fixed, Global or Variable. Factor Factor payments take their rates from existing payments. You can choose whether they calculate as a sum or percentage of the existing rate and Sage 50 Payroll automatically calculates the value. For example, you may have a bonus payment that is 10% of the salary, or overtime that is 1.5 times the basic hourly rate. Setting up factor payments also means that if the base payment rate changes then the Factor pay element automatically updates. You can change the hours and multiplier within the employee's record but in Enter Payments you can only change the hours. Fixed You can change the hours and rates in the employee's record, but in Enter Payments you can only change the hours. Global If you choose Global, you can only make changes to this payment within Pay Elements Settings. Variable If you choose Variable, you can change the hours and rates within the employee's record and within Enter Payments.
Description	Enter a description for your payment type, for example Bonus.
Base Payments	If required, from the drop-down list, choose an existing net payment on which to base the rate of the factored payment. This box is only available when you choose Factor as the status.
Hours / No	You can set a default number of hours here or leave it as zero.
Rate	This is only available if the status is Fixed, Global or Variable. You can set a default rate here or leave it as zero.
Multiplier	This is only available if the status is Factor. You can enter the default multiplier here or leave it as zero. From the drop-down list in the adjacent box, choose one of the following: percent of base payment rate times base payment rate For example, if the factored payment is time and a half, enter 1.5 and choose times base payment rate.

From Payment Adjusted For, select the required option as follows:

Employee's Tax

If the amount you want the employee to receive is after payroll calculates tax, select this option.

In this case, you, the employer, pay the cost of the tax. This will add to the gross pay and appears in Enter Payments and on the employee's payslip as a cost of net payments.

Employee's Tax and NI

If the amount you want the employee to receive is after payroll calculates tax and NI, select this option.

In this case, you, the employer, pay the cost of the tax and the NI. This will add to the gross pay and will appear in Enter Payments and on the employee's payslip as a cost of net payments.

Select or clear the remaining checkboxes. ▼ Find out more about each checkbox

PAYE	This check box will automatically select and isn't available.
National Insurance	In the Payment Adjusted For area, if you selected Employee's Tax and NI, this check box will automatically select and isn't available. In the Payment Adjusted For area, if you selected Employee's Tax, you can clear or select this check box as appropriate. In this case, if you don't want this payment to be subject to NI, clear this check box and neither you or the employee will pay NI on this payment. If you're unsure if the payment is subject to NI, refer to HM Revenue & Customs' (HMRC). Go to gov.uk for CWG2 Employer Further Guide to PAYE and NICs.
Pension (Main)	If you don't want to take the main pension contribution from this payment, clear this check box.
Pension (AVC)	If you don't want to take additional voluntary contribution (AVC) deductions from this payment, clear this check box.
Community Charge	If you don't want this payment to be subject to Community Charge attachment of earnings orders (CCAEO), clear this check box.
Council Tax	If you don't want this payment to be subject to Council Tax attachment of earnings orders (CTAEO), clear this check box.
Other Attachments	If you don't want this payment to be subject to other attachment of earnings orders (AEO), clear this check box.
Include for Holiday Accrual	If you want to include this payment when calculating holiday fund accrual, select this check box. You can use this with the holiday funds feature in Sage 50 Payroll. A guide to holiday funds
Auto Advance	Select this check box to use the default payment automatically when advancing pay.
Include for Weekly Averages	If you don't want to include this payment when calculating 12 or 13 week averages, clear this check box.
Include in Timesheet Entry	If you use Timesheet Entry to pay a group of employees and you don't want to include this payment, clear this check box. Timesheet entry

To save the new net payment and return to the Pay Element Settings window, select OK.
Select Close.

Assign a net payment to an employee

To assign a net payment to several employees at the same time, you can use the Global Changes option. Global changes: Payments

Go to Employee, select the required employee, then Employee Record.
Select Employment then Pay Elements.
To add a payment, on the next available line, click the finder button then, from the drop-down list, choose the required payment and select OK.

If required, ▼ amend the settings of the payment

Hours/No.	If the payment status is Factor, Fixed or Variable, you can amend this value. You can also change this value in Enter Payments.
Multiplier	If the payment status is Factor, you can amend this value. You can't change this value in Enter Payments.
Amt/Perc	If the payment status is Factor, depending on the set up of the factored payment, the relevant option of Amt (Amount) or Perc (Percentage) appears here. You can't change this option.
Rate	If the payment status is Fixed or Variable, you can amend this value. If the status is Fixed, you can't change this value in Enter Payments.
Base Payment	This appears automatically when you apply a factored payment to the employee's record.
In Use	To display this payment in Enter Payments, choose Yes, or to prevent this payment from appearing in Enter Payments, choose No. For example, if you pay a bonus to your employee at Christmas, choose Yes for the relevant pay period. Then choose No for the following pay period.

Select Save then Close.