Previous Published in Purely Payroll – October 2014
When we express contentment with a process, we say it runs like “clockwork”. But, for all of us in payroll, clockwork can be highly complicated and has a compliance schema all of its own.
For those of you in a salary payroll world, you may not want to read farther. Typically, your concept of time is related to PTO (Paid Time Off) like sick, holiday, maternity, etc. These updates do cause changes in payroll, normally regarding meal tickets, status on payroll, and perhaps some statutory reimbursements, but all in all a relatively straightforward day in the payroll office.
For those of you in the hourly world, time tracking is where the complexity lies. Time is tracked in a variety of ways, including but not limited to clocks, eye scans, hand readers, card swipes, excel sheets, system entry, and manual time cards. Calculation of gross wages or often-called evaluated time is based on multiple layers of rules. These may include company policy, union policy, statutory requirements, and local collective agreements, which need interpretation. Interestingly enough the complexity in time is arriving at the rate of pay to calculate to gross versus the subsequent gross to net calculations to determine the net.
Sounds like a bit of numbers mumble jumble, so let’s look at some examples:
Engineering and consulting companies often use company policy to determine straight time, overtime, double time, etc. Time sheets or system entry versus time clocks typically collects time. The employee has a base rate and depending on hours worked during a particular time period (day, week, or month) multipliers are applied to determine the overtime rates usually of 1.5x or 2x the base rate. Other time components are often captured, including day rates, for travel, training, etc. Company policy is generally global in scope because the employees are mobile and often move from one location to another, but stay on the same pay rate plan.
Manufacturing companies will have union agreements, which are similar to company policy, but may differ from union to union by locations even inside of the same country. Union agreements will dictate rates of pay including overtime, double time, shift premiums, holiday premiums, evening hours, etc. Specific clock hours are needed to determine when employees are working and if they qualify for different rates of pay. There are many time keeping systems that integrate these details directly into payroll for calculation of not only gross pay, but net pay as well.
Finally, there are local statutory requirements or local collective agreements in each country that determines the work rates and the calculation of gross pay/evaluated time. Often these rules are also determined by type of work the employee performs or in what industry the employee works. The collective agreements or local statutory requirements will dictate work rates based on many factors including time of day worked, hours in a day, week, or month worked, type of employee, etc. In some countries, overtime also compounds, so if an employee works a certain number of overtime hours in a certain period, he would be eligible to have all of his overtime for a specific period paid at a higher rate. Therefore, sometime systems are required to “look back” over a given period to ensure employees are paid correctly. In these cases, there are usually local time systems integrated into payroll that keep track of the local statutory requirements and updates to ensure local companies are complaint. There are some global time keeping systems that are branching out into multi-country statutorily compliant time collection, but as of yet only cover a limited amount of countries.
Calculating wage rates and evaluated time can be tricky, but in order to be compliant, it is an absolute necessity that a company clearly understands the underlying rules in determining the appropriate rates for each hour worked. Understanding the clock will make hourly payrolls run like clockwork.