If the repayment amount for the AOE or DEA deduction seems incorrect, it may be because the net earnings used in the calculation do not align with the expected formula.
For both AOE and DEA, the net earnings for an employee are calculated using the following formula:
Net Earnings = Gross Pay – Applicable Deductions
Applicable deductions include:
PAYE (Income Tax)
Employee NI/PRSI
Pension contributions
📌Note: Other deductions such as student loans, are not included in this calculation.
The deduction is then calculated using this formula:
(Lower band × lower rate%) + (Reminder (net earnings – lower band) × balance) = Deduction amount
Example
This example is based on a monthly employee.
Earnings: 2000.00
Deductions:
Pension: 100.00
PAYE: 150.00
Employee NI: 100.00
Total Deductions: 350.00
Net pay earnings used for AOE: 2000.00 – 350.00 = 1650.00
📌Note: The lower band, lower rate, and balance information can be found on the pay code used for AOE.
Lower Band: £1480
Lower Rate: 17%
Balance Rate: 50%
Deduction calculation:
Step 1: 1480 × 0.17 = 251.60
Step 2: (1650 – 1480) × 0.50 = 85.00
Total AOE Deduction: 251.60 + 85.00 = 336.60