About Kieran Peppiatt

Director of Operations at PayrollHero

Radical Candour: How it can transform your work environment

One of the best books I read in 2018 was recommended to me by a friend and coach. It was called Radical Candor: How to be a great boss without losing your humanity. It’s a framework for managing a team effectively. As the title suggests the author Kim Scott proposes that there is a path to being a great boss without having to be an a**hole.

There has been a trend over the last couple of decades that has linked effective management to being ruthless and lacking compassion. One could argue that Steve Jobs was a good example of such a leader, an opinion that I can understand but personally disagree with. Donald Trump or Alan Sugar on the Apprentice both come across as bosses who are susceptible to monstrous outbursts. Regardless of whether this is a true portrayal of their management styles that is what our expectation of a leader is. In our pop culture being an a**hole is synonymous with being an effective leader.

This is why Radical Candour immediately resonated with me. It finally provided a framework as to why this style of management is effective and at the same time provided a logical path to how you can be nice and a great leader at the same time. As one of my idols Gary Vaynerchuk likes to say frequently the fact that “nice guys finish last is just not true”.

Image from @kimballscott twitter

The argument put forward is that it takes two traits to be an effective boss. You must challenge directly and care personally. She uses a great example in the book of someone to illustrate the diagram above.

Imagine you walk into a crowded room with your trousers undone. If someone cares and is willing to challenge you directly they might take you aside and say “Hey, I just thought you’d want to know your fly is open.” You can then discreetly solve the problem. This is Radical Candour.

Imagine you walk into the same room and someone who doesn’t care but is willing to challenge you directly says something instead. They shout across the room “Hey your trousers are undone.”

Everyone hears and looks at you. You’d probably be a bit embarrassed but you are now able to solve the problem. The person could have handled the situation in a more compassionate way, but at least the matter is resolved. This is the a**hole boss right here. They might be an a**hole about how things get done but they get done. This is called Obnoxious Aggression.

Now imagine that you walk into the same crowded room and someone does care but they don’t want to challenge you directly. They “don’t want to upset your feelings.” Your fly stays open and everyone notices. Everywhere you go for the rest of the day people notice. The problem never gets resolved and when you do finally realize you think “why didn’t they tell me.” This is Ruinous Empathy. They are trying to protect your feelings but it’s actually to your detriment.

Last of all we have the people who don’t care and don’t challenge directly. They are the ones that tap a friend on the shoulder and say “hahaha look at that person they left their fly open.” That’s called manipulative insincerity.

Hopefully this analogy makes sense as it made a ton of sense to me. It really shows why challenging directly, even without caring, is way more effective than caring without challenging. Yet none of us, I hope, want to be obnoxiously aggressive.

So how do we achieve radical candour? It’s really simple, you have to care about your employees. If you read that sentence, want to manage people and think that’s not within the realms of possibility for you; please seriously reconsider your chosen career path. 😃

If you read that sentence and think “well no sh*t Kieran” or “yes that’s something I can do” then awesome! You are a considerable part of the way to being a good manager.

Communication and understanding is critical

The challenge directly aspect comes down to how you provide feedback and understand the needs of your employees. Ultimately that means having structures in place to allow you to communicate with your staff on a frequent basis. This should be a two way street. You want to provide feedback about performance in a timely fashion whilst the feedback is relevant and you want to stay up to date with what’s important in your employee’s lives.

Imagine your employee drops the ball on a certain task. If you wait until their quarterly review they could keep making the same mistake and create more issues.  You may have lost 3 months where they could have been getting better at that task and not just compounding the issue.

Why is it important to know what’s going on in an employees lives? Context. Imagine if an employee’s performance is slipping. You know that they have a sick relative, maybe you’ll give them some time off to deal with that and understand the reason why they are not meeting your expectations or goals. Alternatively, an employee finds out they are expecting a child. Their career goals might shift fundamentally in the short/medium term and you will want to adjust with them to support.

Key takeaways

Whilst I strongly recommend reading the book to get a good grasp on of the framework. Here are some immediate actions you can take in your business today that I took away from the book.

  1. Create weekly feedback structures for your employees.
    It’s important for employees to have a regular feedback loop with their direct superior. One to Ones are a great avenue for you to course correct and provide feedback. The lack the formality of a quarterly or annual review. If you don’t have these in place at your company start today. They don’t need to be complicated.

    I don’t use the exact structure they advise in the book. We have a spreadsheet where the employee or myself can write down agenda items. We then meet for 20-30 minutes once a week and we discuss the most important items on the list.

  2. Limit the number of direct reports any manager has.
    If your managers are responsible for a team of 100 employees how can you expect them to care on a personal level with each employee and still carry out the operational aspects of their role? You need to create capacity for your managers to manage.
  3. Create a growth management plans for all of your employees.
    Knowing what your employees want to do in life allows you to help them fulfill on their dreams. You can align the goals of the company with their own and create mutually beneficial situations that encourage win/wins.
  4. Be specific.
    Whether you are providing praise or criticism you need to focus on exactly what you want the employee to know. Think about a time when your boss has said to you “good job.” It doesn’t land on you as praise. You’re often left thinking “for what?” When you point out what you are praising it allows the employee to keep refining that good work.

    Being specific encourages growth instead of sounding like a vague platitude.At the same time for criticism it allows the employee to focus on the problem and work to improve it. If you just tell someone “that sucks” it generally leaves them feeling demotivated and disengaged. You want to encourage the people who work for you and being specific can help do that.

  5. Promotions are not the only reward for good performance.
    A lot of companies cultures have evolved to encourage the best performers to take management positions as the only way for them to increase their compensation packages. The best players rarely make the best coaches.

    We should have opportunities in place that encourage people who want to lead to do so. At the same time, we should allow people who are amazing at what they do and love doing it to keep doing it. Career progression doesn’t just mean getting a promotion.

  6. Don’t make it personal
    Regardless of whether you are giving praise or criticism don’t make it about the employee. “You are terrible” is a vastly different statement than “Your work is terrible.” Whilst I would never encourage either statement the former attacks the person whilst the latter acknowledges you are only referring to a certain piece of work they have done.

It’s amazing how taking on the points made in this book can transform your work environment. It creates a culture of collaboration and transparency. It allows a top down approach to removing politics from your organization. Your employees will never have to second guess what’s going on in their managers head. It is one immediate access to creating lasting positive changes to your company culture.

If you do read the book or try to implement any of the points above I’d love to hear about it in the comments below!

 

Who is Lucy?

Meet Lucy

Our 24/7 HR A.I. Assistant

 

Lucy is a 24/7 HR A.I. Assistant for companies of all sizes. She handles the low level but critical HR tasks for all companies in any industry so that HR teams can focus on the more important aspects of their role; improving their employees lives and company culture.

She interacts with employees via chat, so employees can contact her anywhere and at any time without having to learn how to navigate new software interfaces.

What can Lucy 

Lucy can currently do the following for all PayrollHero customers, completely free of charge

  • Clocking reminders
  • Clock in/out (optional)
  • GPS Clock in/out (optional)
  • Employee’s direct payslips
  • Requests leaves
    (requires the existing Leave Management Add On)
  • Check leave balances
    (requires the existing Leave Management Add On)
  • Adding Employee
  • Manager Notification: I’m Running Late
  • Manager Notification: I will be absent
  • Clock Out Receipts
  • Employees can check schedules
  • Employee Happy Birthday Messages

How does Lucy work?

Clocking in

Check upcoming schedules

Wish your employees Happy Birthday

Advanced Lucy Features

Lucy can get even smarter with some of these amazing advanced features. For $2.00 a month you can get her advanced features, with an introductory 3 months free. For our existing customers we guarantee to reduce your attendance resolution by 50% or the add on is free.

Employee Pulse

Ever wondered what your employees really think about your company? Whether they had a good day at work? Do they understand your values?

Lucy can ask these questions to your employee on a daily, monthly or weekly basis. You can access that data and make data orientated HR decisions.

Lucy Attendance

Collecting time data for generating payroll is a vital part of the payroll process. It doesn’t matter if you use time sheets, biometrics or any other method you need to get that data into payroll. With our existing thresholds PayrollHero resolves your attendance automatically and can capture your complicated attendance rules.

However, what happens if your employee forgets to clock in? Normally supervisors have to waste their time finding out whether the employee has actually worked, what time they came in and then update the time data.

With Lucy this is a thing of the past. She will follow up directly with your employee, find out what happened and automatically update their attendance in the system. If manager’s approval is needed she will request this, and all the manger needs to do is click 👍 or 👎.

Photo Mismatch (Coming Soon)

Security is important to a lot of companies, but you also don’t want to stop the right person from starting their shift either. With outdated biometrics sometimes that’s a problem. With Lucy your employees can clock in and out with no delays, and you can be confident the right person is clocking in.

Location Mismatch (Coming Soon)

Want your employees to have freedom to clock in on their own devices? Don’t want to have to worry about where they are clocking in? Don’t worry Lucy has you covered. With Lucy’s location mismatch features she’ll follow up directly with the employee’s line manager is she detects a clocking that isn’t at the right location.

 

Introducing Lucy GPS Clockings

Brought to you by popular demand. Lucy now allows your employee’s to clock in whilst collecting their location geolocation.

How it works

  1. The employee asks Lucy to clock in
  2. Lucy will ask the employee to provide their location
  3. Once your employee clicks “open” they’ll see this page all they have to do is click “Clock in with Location”
    And that’s it! Your employees will receive confirmation of their clocking with a maybe of where they clocked in

 

To find out how your company can use Lucy contact support@payrollhero.com

Instant access sign up is now live

When building PayrollHero we knew the complexity of Philippines’ payroll intimately. Our co-founders Mike and Steve were running a BPO in the Philippines at the time and were experiencing the pains of running payroll first hand.

They asked their network of business owners who operated businesses in the Philippines how they dealt with payroll. It turned out that they experienced the same problems!

Mike and Steve knew there had to be a better solution. So, having a background in building successful software companies, they decided to build an internal tool to solve the problems they were experiencing.

A few months later, the same people they’d reached out to before started asking how they had solved their payroll problems. Our founders showed the new tool to their friends and the reactions were overwhelming positive. Thus PayrollHero was born.

So we built PayrollHero from the ground up to deal with the complexities of DOLE, and it’s unique rules. We understand that different businesses have different approaches to generating payroll, and our software has a level of customizability that is rivalled by no other to deal with this.

“Not every business needs complex payroll software … our new plan provides a very simple solution at a very affordable price.”

But, we also realize that not every business needs complex payroll software. So we have spent a considerable amount of time creating a simplified version of our application.

The new plan is ideally suited for

  • If you require your employees to clock in/out for work
  • The attendance of your employees directly effects their payroll
  • You follow DOLE for managerial and rank and file employees
  • Currently waste time transcoding biometric data or manual time cards for payroll processing
  • You would like a centralized database for tracking employee’s personal information

Simple payroll with an enterprise level engine

Although we have made it simpler to use as setup, you can still harness all of the powerful features that we have built for the system. Including our brand new and improved 13th month feature, overtime & official business requests plus loads of other great features. Our new plan provides a very simple solution at a very affordable price.”

Our leave management add on integrates seamlessly, and our HR A.I. assistant comes free for all of your employees.

If you’re interested you can learn more about our product here.

Try it now and get 90 days free!

To celebrate our new plan we are giving all new customers 90 days to try it and pay nothing. All you need to do is sign up using the code BP90102017 to receive your extended trial.

So, what are you waiting for? Why not sign up today?

Philippines: Minimum Wage Increase

The Philippine government have recently announced a change to the daily minimum wage rates in the National Capital Region. The minimum wage rate for non-agriculture employers will be ₱512.00. This is an increase of ₱21. No change was made to the cost of living adjustment.

Minimum wage increase for the National Capital Region effective October 5th, 2017

For more information about this update you can check out the wage order at the department of labor and employment website. – http://www.nwpc.dole.gov.ph/pages/ncr/cmwr.html

Updated: Leave Management

We’re all about automation here at PayrollHero, so we’ve added some new features that will help you automate your leave policies. These will be available immediately for all existing and new Leave Management customers.

Require Advance Notice for Leave Requests

Companies need to plan their workforce and resources carefully. This can some times be a careful balancing act, especially if your employees are requesting time off.

To combat this some companies have policies that stipulate the amount of notice required for a leave request. This helps to ensure they have the right coverage when they need it most.

To that end, we’ve added a new feature to our leave management that allows you to set the notice required. This can be set on a per leave basis. Maybe your policy isn’t as clear cut as “you must provide 10 days notice.” That’s fine, with our system you can add tiers to your notice period.

Delay the start of leave accruals

It’s not uncommon to reward leaves to employees after they have served a certain period of time at your company. This maybe their probationary period, or perhaps the territory you operate in has laws that stipulate what this should be. Our Leave Management System now allows you to choose when you would like your leave balances to begin accruing for your employees.

Prorate the first month of leaves accrued

You may award employees a certain amount of leaves for each month of service they have provided to your company. In fact this is an extremely common practice globally. However, employees don’t always start on the first day of the month.

Now our leave accrual system will automatically calculate the correct amount of leaves to award in the first month. This is based on the standard leave accrual amount divided by the number of days in the month multiplied by the number of days worked. We round this to the nearest 0.25.

Allow leaves to expire

Another common practice is to expire leaves that were not consumed by the employee.To help with this we’ve added a new feature that allows you to add an expiration date to your leave types. This can also be configured individually on each leave type.

If you have any questions or you’d like to learn more just click the chat button at the bottom right of the page or contact us at support@payrollhero.com

Introducing Overtime and Official Business Requests

Today we’re launching two new features to our customers. Now your employees will be able to make overtime and official business requests, all powered by our new A.I. assistant Lucy.

Click image to enlarge

Lucy and our new features are available to all our existing customers completely free of charge. 

To get these features sign up for Lucy and have your employees start talking to her. If you are not using Lucy already you can join our open beta by contacting support@payrolllhero.com or filling in the questionnaire below.

 

Understanding Thirteenth Month

Thirteenth Month is a mandatory benefit that all employers in the Philippines need to provide to their rank and file employees who have been employed at their company for longer than one month. I put rank and file in bold as it’s fairly common practice to pay it to all employees, but that’s not mandated by the government. However, it has become traditional for employers to pay the benefit to all employees.

The Labor Code in the Philippines stipulates two distinct employee types. Managerial or Rank and File. The DOLE handbook says:

The Labor Code, as amended, distinguishes a rank-and-file employee from a managerial employee. A managerial employee is one who is vested with powers or prerogatives to lay down and execute management policies and/or to hire, transfer, suspend, layoff, recall, discharge, assign, or discipline employees, or to effectively recommend such managerial actions. All employees not falling within this definition are considered rank-and-file employees.

The above distinction shall be used as guide for the purpose of determining who are rank-and-file employees entitled to the thirteenth month pay.

It’s a pretty easy definition to digest. Anyone who makes managerial decisions or has the managerial powers described would be considered a managerial employee. Anyone who doesn’t is rank and file.

There’s three components to thirteenth month you should be aware of.

  1. How much to pay
  2. When to pay it out.
  3. Over what period to calculate

In this article I’ll explain a bit about all three, and some ways you could consider approaching your thirteenth month calculations.

How much you should pay
The name does hint at what you should be paying. Your thirteenth month pay is roughly equivalent to your normal monthly take home. However, it’s not exactly the same. It’s also important to be careful if just paying out one month is your current formula. There is one scenario where this would mean you’re not compliant with the rules of 13th month, I’ll go into this below.

It’s also important to remember that the DOLE formula is the minimum amount you can pay. If you have a formula that pays your employees more than this, great! Looking after your employees is awesome, and having better benefits differentiates your company from others. This should ultimately help you attract the best talent.

The DOLE Formula

DOLE states that thirteenth month pay shall not be less than 1/12 of the total basic salary earned by an employee in a calendar year. Which is as simple as it sounds as long as you know what constitutes basic salary.

Basic salary is not base pay. Base pay is the monthly, hourly or salary rate that you detail in an employee’s employment terms. If you are not familiar with these terms, please read about the four components of payroll. It’s important to know what base pay is. Although they are not the same, it will be a key component of your calculation.

Let’s say you have a monthly paid employee who is contracted to earn 20,000 pesos a month. They work for your company for the entire year. That means their base pay for the year was 240,000 pesos. Even if your employee was absent during the course of the year, their base pay is still 240,000 pesos.

However, basic salary does adjust based on what you actually paid the employee. If the employee was absent one month, and you only paid them 15,000 that month their basic salary would be 235,000. You also would not include the following:

  • Benefits
  • Vacation Leave and Sick Leave paid out (these are a benefit)
  • Allowances (including COLA)
  • All Multipliers including overtime, night differential, holiday pay etc.

There is a caveat for this though. If you do include these as part of your basic salary through any agreements or company policies you should be including these in your 13th month calculations.

The Steps

  1. Figure out the basic salary for each month.
    Base pay for the month – any absences or base pay deductions = basic salary
  2. Repeat for each month
  3. Add all of the basic salaries for each month together
  4. Divide the total amount by 12

The Gross Pay Formula

As mentioned above, as long as you pay your employees the DOLE minimum you will be covered from a compliance angle. However, there are better formulas you can use for both your payroll process and your employees. The gross pay formula is probably the easiest and fairest.

Gross pay is your base pay + any additional multiplier pay – absences and any other base pay deductions. Why this is so easy is because you already calculate this every payroll. Why this is good for your employees, is that although you are deducting their absences you’d also be giving them a portion of any multiplier pay as well.

The Steps

  1. Add all of the gross pays for the year together
  2. Divide the total amount

The Base Pay Formula

If you read my post about understanding benefits and allowances you will know that I believe simplicity in your payroll processes and policies is crucial to an streamlined payroll process. So the base pay formula is my personal favourite.

As you are not deducting any absences or base pay deductions you’ll be paying better than the DOLE minimum. It’s simple because there is only one step to this calculation.

The Steps

  1. Divide the contract value of the employee’s base pay by 12.

Employee’s Most Recent Salary

I mentioned this briefly before, but some companies do just pay an additional one month’s salary to their employees. This is usually completely fine, and generally won’t cause you any problems.

If the employee earned the same amount of money each month during the year this is exactly the same as the Base Pay Formula mentioned above. If your employee received a promotion, and you pay them their most recent month’s salary you’ll be paying them more than a 1/12 of their year’s base pay.

The only time you need to be careful is if you were to give an employee a demotion or reduce their salary. Let’s say you’re employee earned 20,000 a year but in November you reduced their salary to 15,000. You then paid them 15,000 as their thirteenth month.

If that employee earned 20,000 for 11 months their base pay is at least 220,000 pesos for the year. If you divide that by 12 it would equal 18,333.33. Which means you will have underpaid your employee for their 13th month and not be compliant with what’s mandated by DOLE.

Other than that this is a perfectly acceptable way to calculate your 13th month.

The Steps

  1. Pay your employee an additional month’s pay

 

Manually calculating or using excel
If you are not using an automated payroll system like PayrollHero and use, or intend to use, one of the calculations above that require you to calculate or the track a monthly amount. I would advise doing this calculation each month. It will save you a ton of time in the long run.

If you use excel, you will probably want a separate spreadsheet or sheet to track these amounts in. It doesn’t need to be complicated, just a simple tracker like the one below

If you intend to use multiple spreadsheets, check out the =importrange formula. You could have the 13th month amounts on your main payroll calculator spreadsheet for each month, and use this formula to make them appear in your 13th month tracker.

When to pay 13th Month
When to pay dictates the period you should be calculating for. This is why we need to clarify this point first. The DOLE handbook is explicitly clear about when you need to pay it out.

“The thirteenth-month pay shall be paid not later than December 24 of every year. “

Example, if your pay period is the 1st – 15th, 16th – 31st and you pay out 15 days after the pay period ends. You would need to pay this out no later than the 16 – 30 November payroll.

Why? Because the payout date for 1 – 15 of December would be the 30th of December, which is 6 days past the deadline.

So be careful, it’s not the pay period that matters here but when your employee receives the money that’s important.

You are also allowed to pay out the 13th month twice a year. Instead of paying the value of 12 months in December you could pay the value of 6 months twice.

What period should be used for calculating?
This is probably the part that causes most companies problems. You’re supposed to pay 13th month for the previous year, and the DOLE handbook does use the term calendar year when describing the 13th month.

But how can you pay 13th month accurately for the calendar year if the year isn’t even finished? Remember we have to pay it out on the 24th of December, which in a best case scenario is at least one payroll before the end of the year. You can’t, it’s not possible.

But, most companies do pay 13th month based on the calendar year of the current year. So what this means is they guess the last part of the year. You should not guess when it comes to payroll.

So what do we do instead? We need to pay for the calendar year and it has to be out before the 24th of December. Don’t worry, the important part here is that the DOLE handbook actually says a calendar year.

So let’s say your pay period is 1st – 15th and 16th to 31st. You pay out your payroll on 7 days after the pay period ends. In this scenario you could pay out your 13th month on the 1st to 15th of December payroll as it would be received by your employees on the 22nd of December.

If this was the case, the calendar year you should be using is 16 December of the previous year to 15 December of the current year. This means you will never be guessing with your 13th month pay out.

Maybe your dates are different than the ones I mentioned above. To figure out the period you should use just apply the following:

The day after the end of the pay period you payout of the previous year to the last day of the pay period you pay out of the current year.

Separated and Resigned Employees
It is quite shocking how many employers aren’t aware that they are liable for the 13th month an employee has accrued during their employment. Regardless of whether an employee still work for you at the end of the year or not, you still need to pay their accrued 13th month.

The important word their is accrued. You should pay them 1/12 of their basic salary for that period. If you use the base pay or gross pay formulas mentioned above, these will still work with no change required.

How to payout 13th month
The last thing I have to say on 13th month is about how you pay it out. So many companies pay it out separately to the their usual payroll cycle. This is totally acceptable but an unnecessary complication.

The only thing DOLE says about paying it out is the deadline on which it is received. I’d thoroughly recommend paying it out as part of your usual payroll cycle. Doing otherwise will usually lead to more resources being spent on payroll than necessary, and more bank charges for transferring the payment. If you think about the amount of time and effort that goes into one pay cycle, by removing the off-cycle element of 13th month you will free up your team to focus on more important items.

In Closing
Thirteenth month doesn’t need to be complicated. Use a simple formula, use a reporting period that is based on facts, and pay it out on time as part of your normal payroll. If you do this, you’ll remove a lot of the headaches and stress from your payroll process, and save a ton of work around the year end.

The Four Components of Payroll

As part of the HR and Payroll 101 series I wanted to take a closer look at the individual parts of the payroll process. Generally, there are 4 components to any payroll process, and this is usually country agnostic.

If you have ever been involved in payroll generation this number probably seems quite low. You could pick up any employee’s payslip and list maybe 10 items from their payroll alone, and your not wrong. However, this is part of the problem.

Most payroll admins structure their payroll process around the tax status of the items being credited or debited, or based on the individual line items themselves. These approaches can work, but they won’t be the most efficient. They will lead to unnecessary repetition, and increased resource requirements to administer. By knowing the four components, and how your payroll items fit into each, you will be able to apply your knowledge to streamline your overall payroll process.

Gross Compensation

Gross compensation is probably the easiest to understand. It’s any item that makes up your employee’s basic compensation package.

The first item is base pay, which is just one aspect of the overall gross compensation. However, this is usually the bulk of any employees payroll. There’s generally 3 main types of gross pay:

  • Salary: Employees get paid the same fixed amount each payroll regardless of their attendance
  • Monthly: This is similar to salary. Monthly paid employees also get an amount each month but it’s not fixed. It will fluctuate based on their attendance. For example, they may receive less gross pay if they come in to work late and more if they worked overtime.
  • Hourly: Employees are paid for the exact hours they work. So if you were being paid $1 an hour and worked 100 hours you would receive $100 as your gross pay.

Other notable mentions for base pay would be daily rates and piece meal. The former being employees who get paid per day and the latter per item they complete.

Overtime is usually paid at a premium to employees. The standard practice is to pay overtime at a certain percentage of the base pay rate. E.g. 125%. So if you were paid $10 an hour and then worked overtime you would get $10 multiplied by 125% which equals $12.50.

For other multipliers, these work in the same manner as overtime but are applied in different scenarios. For example, it’s not uncommon in most countries to provide additional pay to employees if they come into work on a public holiday. 

In the Philippines the rate is 200%. So the same $10 base rate would be $20 on a regular holiday.  This is also why we call them multipliers, because you multiply the scenario percentage by the base rate.

One thing to note, some companies don’t multiply but actually do addition. In the UK where there is no government mandated rate for working overnight. It’s not uncommon for employers to pay an extra £1 or £2 for work done late at night. These would also fall into this category.

The last one, and this depends on your companies process would be leave pay. If you don’t pay these out as separate line items they will be part of the base pay and so therefore part of the gross compensation. This is far more common with monthly and salary paid employees than any other type.

Recurring Items

“The important thing to remember is these items will be credited or debited from an employee on a strict schedule. Either for an ongoing period of time or in perpetuity”

From this point on, the component descriptions I provide are not exhaustive lists. You potentially have other payroll items that you provide that will fall into one of the four components.

Recurring items are those other payments that you credit or debit to employees every payroll. This might be for a preset period of time or in perpetuity.

It’s important to clarify that the amounts of these recurring items may vary from payment to payment.

A great example of this would be the Cost of Living Allowance in the Philippines. It’s a government mandated allowance saying that all minimum wage employees should receive 15 pesos for each day worked. So the amount paid out will always fluctuate based on the amount of days worked in the pay period, but it’s always paid each pay period.

Usually all allowances are recurring items, the frequency may change (either per payroll, per quarter, per month etc.) but they are consistently deducted on the same schedule.

Loan payments are another great example and illustrate how the payment doesn’t need to be deducted forever. Usually, if you give an employee a loan, they pay it back over X pay periods until the original amount is repaid.

Subsidized benefits are a huge catch all. Companies will give their employees certain benefits where the company covers most of the cost. However, the employee needs to contribute some amount. These are consistently deducted every payroll and continue until the employee either leaves or decides they don’t want to avail of the benefit any longer.

As mentioned, this isn’t an exhaustive list. The important thing to remember is these items will be credited or debited from an employee on a strict schedule. Either for an ongoing period of time or in perpetuity.

Ad hoc Items

“These items are infrequent, and the amount always vary. They are not deducted or credited to an employee each payroll.”

Ad hoc items are those infrequent payments that you have to make on payroll. Adhoc is a latin phrase that means “for this.”   When you are doing something on ad hoc basis you are doing it for that specific case and no other.

Adjustments are a great example of an ad hoc item. Every time you do an adjustment you are making it to fix a specific error or issue. You are making the payment for this specific scenario.

Expenses would also come under this category, every expense payout is done for a particular expense or expense report. These are always handled on a case by case basis.

Sure you may have employees that submit an expense report with some frequency. You might have an employees who do a lot of driving for work and are allowed to claim their miles back on expenses. They may even submit an expense claim form every month.

However, if that same employee ended up working at head office for the entire pay period and didn’t drive any where they wouldn’t receive a mileage expense. Whereas if they received a car allowance, which is a recurring item, they would still receive the amount.

For breakages and spillages, in the food and beverage industry it’s not uncommon to charge the server if they break a plate, glass, etc. Again, these types of payments are always made for the specific incident.

Finally, Vacation Leave and Sick Pay would live here if you don’t include them in the gross pay. This might seem counterintuitive to you, but again think about the format we have established. Employees take leaves on an ad hoc basis, and when you pay their leave pay it’s done for a specific leave request.

Again, this list is not exhaustive and it’s important to note you might and probably do make these types of payments EVERY payroll. However, they usually won’t be to the same employees, and for the same amounts. Don’t get me wrong sometimes an employee might break the same glass or claim the same amount of miles so their amounts are the same, but this is because of circumstance and not because they are recurring items.

Just remember, these items are infrequent, and the amount always vary. They are not deducted or credited to an employee each payroll.

Government Deductions

Finally we have government deductions, and you know what they say; “there’s only two things in life that are certain; death and taxes.” Unless your employees are based in countries that don’t tax lower wage earners this is definitely true.

The other government deductions will vary based on your location. In the Philippines this would be Pag-IBIG, SSS, Philhealth. Singapore have charitable deductions and CPF. The UK has national insurance and Canada EI and CPP etc.

Most, if not all, governments have their own mandated deductions that employers have the responsibility to deduct. It’s vitally important to ensure you make these deductions on time and in line with your local laws.

So that’s the four components. Gross Compensation, Recurring Items, Ad Hoc Items, and Government Deductions. If you are designing your own payroll process, or trying to improve your current one categorize your payroll items into these four areas. Once done, you will be able to create processes for each component that will allow you to streamline your process.

For any questions, please ask in the comments below. Thanks!

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