Setup Considerations: Earnings and Deductions

You can use this topic to help you make decisions when planning your configuration and use of earnings and deductions. It explains:

Why to set them up.
How they fit into the rest of Workday.
Downstream impacts and cross-product interactions.
Security requirements and business process configurations.
Questions and limitations to consider before implementation.

Refer to detailed task instructions for full configuration details.

Earnings and deductions, together referred to as pay components, enable you to calculate what to pay or deduct from wages when you process payroll. You can configure earnings and deductions to specify which workers are eligible for them, and for different elements of payroll processing. Examples:

Proration of earnings.
Gross up of earnings.
Scheduling of pay component resolution.
Retro recalculations.
FLSA period resolution.
Tax resolution for multiple jurisdictions.
Applicable limits.
Effective date resolution.
Benefit plan application.
Pay component exclusion from forward accrual.
Allocation reporting periods for Record of Employment reporting.
Which run categories and pay groups can use the pay component.
Which pay component groups (PCGs) the pay component adds to.

Earnings and deductions add flexibility to your payroll processing by enabling you to configure complex payroll calculations according to your business needs. You can configure Workday Payroll to easily retrieve values from other parts of Workday, reducing the need for manual entries and the associated risk of error.

To reduce compliance risk and manual entries, you can set up earnings and deductions to use data from these areas to process payroll:

Compensation.
Benefits.
Payroll input.
Time off.
Workday Time Tracking.

Allocate earnings and employee-paid deductions across organizations types and locations. Examples:

Cost centers.
Grants.
Projects.

Set up related calculations within earnings and deductions to specify:

PCGs.
Default calculations.
Override calculations.
Limit details.
Payslip configuration and layout.
Whether to apply percentage splits.
Whether to allow pay input.
Reporting parameters.

Set up employee self-service (ESS) voluntary deductions, such as charity donations.

Question	Considerations
What eligibility criteria can you use for processing earnings and deductions?	You can use precise eligibility criteria to streamline your payroll processing. You can base eligibility on the: Run category. Pay group. Worker. You can use Workday-delivered or custom worker eligibility criteria.
How do you control the frequency of earnings and deductions?	You can control when a pay component resolves by using eligibility criteria. Example: On the first pay period of the month. When you enter payroll input. You can use an override to determine your preferred frequency.
How do you configure earnings and deductions for workers with multiple jobs?	When you have workers with multiple jobs, configure earnings and deductions as position-based rather than worker-based. You can't change a worker-based pay component to position-based. Instead, add a new pay component with a position worktag.
How do you want to prorate earnings or deductions when a midperiod change creates subperiods?	You can set up earnings and deductions to prorate based on days worked, calendar days, or annual days. Alternatively, you can choose to have no proration. When you prorate a pay component, Workday processes it proportionately as a prorated gross-to-net calculation for each subperiod.
Do you want to recalculate earnings or deductions during retroactive payroll calculations?	You can determine whether Workday recalculates earnings and deductions during a retroactive payroll calculation. When you run retro calculations, Workday reprocesses only earnings and deductions associated with supported retroactive changes in completed pay periods. Example: A worker receives a pay increase effective at the beginning of the previous pay period. You run retro to recalculate payroll for the worker for the completed pay period and pick up the change in pay. Workday calculates and pays the difference in the next payroll run.
How do you apply a limit?	You can configure pay components to take account of deduction limits. Example: A 401(k) pretax deduction includes a wage limit on the pay component related calculation (PCRC) for base amounts and the total annual contribution.
How do you apply a limit?	You can configure pay components to take account of deduction limits. Example: The RRSP deduction includes an annual contribution limit based on the calendar year.
Do you need to group together multiple earnings and deductions for other calculations?	You can assign the earning or deduction to PCGs. Each selected group sums the values of the earnings or deductions it contains during payroll processing. Example: Workday uses the PCGs to apply taxation and determine which earnings are subject to Income Withholding Orders or health care taxes.
Do you need to withhold taxes for earnings?	You can add PCGs to an earning to determine how the withholding is calculated. Example: When you use the Federal Taxable (Do Not Withhold Taxes) [USA] PCG, Workday adds the earning to federal taxable wages but doesn't withhold taxes in payroll calculations.

To aid processing performance, create the minimum number of earnings and deductions.

To maximize payroll processing performance, configure earnings and deductions using specific eligibility criteria to ensure that Workday calculates only applicable run categories, pay groups, and workers.

When you configure earnings for multiple countries, ensure that you don’t use an FLSA-specific earning for a country not in the U.S. You should use FLSA-specific earnings only for the payroll for the U.S. Including non-U.S. countries for FLSA earnings may cause errors when you process your payroll.

When you change an earning or deduction after Workday processes it in a payroll calculation, Workday doesn't trigger retro or smart calculation.

You can't change a worker-based pay component to position-based. Instead, add a new pay component with a position worktag.

You can select tenant-wide proration configuration on the

Edit Tenant Setup - Payroll

task to enable pay component proration when workers go on leave or return from leave in the middle of a pay period.

No impact.

Workday offers a Touchpoints Kit with resources to help you understand configuration relationships in your tenant. Learn more about the Workday Touchpoints Kit on Workday Community.