As a first step of configuring the multi-state tax threshold functionality, you need to create earning groupings with eligible earnings in the Earning Groupings tab of Payroll Setup > Groupings. In the grouping, you need to add the earning codes that you want to be subject to multi-state threshold taxation. Dayforce uses the eligible earnings in these earning groupings to determine whether a threshold is met.
States might require only certain types of earnings such as regular or overtime to count toward a threshold, as opposed to earnings like vacation or sick time.
When you add earnings to a grouping, the application can use the accumulated earning amounts to calculate if employees have reached a threshold. After you define an earning grouping, you need to assign it to various state thresholds.
As a best practice, you should define a specific normal earning that mobile workers can use for travel earnings. You might also need to include a memo earning to use when creating threshold balance adjustments. See Update the Threshold Balance for Past Amounts.
Best Practice: Exclude Auto Pay Earnings
When you add earnings to a grouping, the best practice is to exclude earnings that are used in payroll policies using the Auto Pay rule. Auto pay earning records contain the full period of hours and a business date equal to the pay date, as opposed to individual business days of the pay period. So, if the earning used in the Auto Pay Rule of the payroll policy is qualified to be counted, it will always increment the number of days by one day per pay period, even though there were multiple days worked.
For auto pay employees, the best practice is to designate one or more earning codes that employees can use with the multi-state tax threshold feature, and to configure the pay policy so that these earnings reduce auto pay.
Hours Based Settings
The Hours Based setting of an earning grouping defines whether the earning grouping measures a dollar amount or the number of hours worked. You need to define this setting depending on the type of state threshold that you will assign the grouping to.
For example, if you plan to assign the earning grouping to a state threshold that measures days worked, select the Hours Based checkbox. Whereas, if the state threshold measures earnings, leave the Hours Based checkbox cleared.
If employees work in states with different types of thresholds, you can create separate earning groupings for measuring hours and dollar amounts.
Create Earning Groupings
To create an earning grouping for multi-state threshold taxation:
- Go to Payroll Setup > Groupings.
- Click the Earning Groupings tab.
- Click Add, and enter a name, description, and reference code.
- Select the Hours Based checkbox to measure an hourly amount, or clear it to measure a dollar amount.
- In the Eligible Earnings section, use the arrows to add earnings to the Current list.
- Click Save.
Add or Remove Earnings
If you remove an earning code from an earning grouping after an employee has already started accumulating a threshold balance, the threshold balance that was accumulated for that earning in committed pay runs isn’t affected. However, if the removed earning code had hours or earnings that counted toward the threshold in an open pay run, these amounts will no longer count toward the threshold. If you want these amounts to count toward the threshold, you need to manually edit each entry to use an earning code that is assigned to the earning grouping of the threshold.
If you add an earning code to an earning grouping of a threshold, amounts that were recorded against the earning code in pay runs that were already committed will not count toward the threshold. However, the earnings and hours that were recorded against the earning code in open pay runs will count toward the threshold.