Payroll Software/Loans
I have a question for all you payroll software users.
Our clients are asking us to setup loans on there payrolls and take interest % at a rate which they have agreed with the employee.
At present our payroll software has not got the option to deduct the interest which the client wants. Have other users ever come across this We have now requested the change and an upgrade is being done for us, but i was wondering if anyone else has done this in the past?
Thanks
_________________ Regards
Stewart Waddell
Dataplan
www.dataplan.co.uk
Fully Managed Payroll Services
Setting-up a rate of interest relating to a loan should not be difficult. It is all the subsequent steps that raise 'interesting' questions - in particular:
Calculating the Deduction:
Is the '% rate' meant to be applied as a flat-rate (i.e. on the initial amount of loan until it is fully re-paid); or as an APR (i.e. on a reducing balance)? If the latter (which is more complex), on what day is payment deemed to be made (as that will be the date on which the balance changes - and initial/final deductions may apply to less than a whole week/month).
Processing the Deduction:
This looks straightforward, but there may be a couple of issues. Firstly, does the user wish to track 'interest deductions' under a single pay-code or under a series of them (i.e. one per loan-type)? Secondly, what should happen if the employee has insufficient earnings to take the full deduction due for the loan (i.e. does calculation of the interest have to take into account the actual amount of loan re-paid in that period - and is any 'undeducted' amount meant to be recovered in the next pay period)?
[Even worse, what should happen if the employee has sufficient earnings for the loan deduction, but insufficient earnings to also take the interest deduction?]
Reporting the Deduction:
Only relevant if you are also providing your client with P11D facilities - but, if you are, you will also need to hold the '% rate' that the IR deems to be the commercial rate for that tax year so that the difference can be reported as a benefit in kind.
Bearing all the above in mind, it is perhaps not surprising that I have not come across this as a standard facility in any payroll software. However, our software allows client-specific calculations to be defined and to then be 'plugged-in' to the standard system - in order to to accommodate special routines (e.g. calculation of VAT) without changing the code of the standard system .
We haven't yet had any requests for 'interest on loans'; so good luck in unchartered waters!
Posted: Wed Sep 06, 2006 12:20 pm Post subject: EARNIE Payroll System
The EARNIE Payroll System has the ability to calculate interest on outstand loan balances on a monthly basis, the interest rate can be set per employee, per loan. This was added a couple of years ago after requests from users.
There is also a quick calculator which will work out a fixed weekly / monthly deductions for a load, given an amount, interest rate and period.
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We have now requested the change and an upgrade is being done for us, but i was wondering if anyone else has done this in the past?
