SYMPTOM:

Your Company issues Loans to the employees. When you generate your Payroll, often you need to make deductions following a rule of priority. For instance, let's consider the following scenario:

Let's assume that your Company issues Loans to buy car / house. An employee has been issued two Loans - one for buying Car and the other for building House. Let us further assume that, the earnings of the employee - for a particular Period - falls below a minimum (say, because of sickness, and subsequent No-pay Leaves). We may consider the following as the typical requirement.

If all the deductions can't be made from the employee's gross earnings, then, first make Deductions against Car Loan (as much as possible) and then, deduct as much as possible against House building Loan (from the remaining Gross Income), so as to avoid a non-negative salary. The unrealised amount will get carried forward to the next Period.

RESOLUTION:

You should not define any 'deduction' type Heads of Pay (HOP) for any of the Loan Schemes. The System, automatically, inserts a function named LOANDEDUCT() as the formula of 'TOTDEDUCT' (it is the HOP, which stores the sum of all deductions). This function returns the total Installment amount, considering all the schemes on which Loans have been issued to an employee.

In fact, when the entire amount for deduction has already been considered through the use of the 'LOANDEDUCT()' function, if you further define the deduction type HOP capturing the installment amount for a specific Loan / Advance scheme (using the INSTAMT() function), the installments of that scheme are, naturally, considered twice for the purpose of deduction - once through 'LOANDEDUCT()', and second time through the 'INSTAMT()' function.

Select the Masters / Pay Structures option from the menu, and select the desired Pay Structure. Choose Modify. Mark the check box labelled Set Priority. The adjoining button marked with an ellipsis (...) will become enabled. Choose that button.

You will observe that all the Loan Schemes are listed, though you may not have defined ('deduction' type) HOPs to trap the installment amounts for each of them.

From the drop down list of HOPs, you should typically choose  'TOTALLOW' (or, any other HOP that returns the Gross Income of an employee). Let the value against the Minimum Amount field be '0.00' to restrict non-negative salary (never select any HOP, which already contains a 'deduction' type HOP in its formula).

Set Paid Type as Partial Amount, since partial deductions will be made, if full amount cannot be deducted. Mark the check boxes under the column titled Carry Forward against each of the Loan schemes (because you don't want to write off, i.e., simply ignore the defaulted amount).

Save the definition of this HOP (i.e., 'TOTDEDUCT'). In case, you have already generated the salary for the Period concerned, then you, still, need to do Payroll Generation afresh.  

In case, you make reviews for loan instalments, using the menu option Payroll / Loans & Advances, it will directly alter the value of installment amount, which is being returned by the function 'LOANDEDUCT()'.

If reviewed appropriately prior to Payroll Generation, then Payroll Generation module will not record any amount as being 'carried forward' (instead, that will be recorded by the 'Loans & Advances' module alone in order that it can, automatically, recalculate the effect).

However, you will need to make reviews for all the schemes under which the employee has been issued a Loan amount. You will, also, need to know employee's Gross Earnings for the current month (i.e., Period) in order to review the installment, appropriately.

Having considered the preliminary issues, we can discuss a little more advanced issue which is about setting priority rules within rules.

Each installment amount, through which the loan / advance amount is being recovered, is composed of two distinct components, viz., (A) Installment Principal and (B) Installment Interest. What if an employee can not pay both (A) or (B) but is in a position to pay one of them? You may feel the need to set a priority for deduction of the Installment Principal over the corresponding Installment Interest.

Here is how you may implement it:

Let us assume that we want to set priority for recovery of the  loan amount over the interest that accrues on it. Thus, we need to set higher priority for the Installment Principal against the relevant loan scheme.

Let 'Car Loan' be our object of study. So Choose Masters / Loans & Advances and select it. While defining the scheme, please find an option (towards the bottom of the window - in the form of a checkbox) titled Consider Principal & Interest separately in prioritywise deduction. Save the definition. Now choose Masters/Pay Structures, select a Pay Structure - modify the HOP titled 'TOTDEDUCT' and choose the Set Priority option. You will observe that, the window (Set Prioritywise Deduction HOP) will provide you independent options - against (Car Loan: Principal) and (Car Loan: Interest). Specify the priority of all the items for deduction in terms of ordinal numbers (type 1,2,3... against appropriate rows in the column labelled Order, and press the Refresh button). Save your definition.