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!

New: Per Shift Overtime

per-shift-overtimeWe have rolled out a new feature that will come in very handy for our BPO (Business Process Outsourcing) clients – per shift overtime.

Our overtime system will automatically calculate the amount of hours OT an employee has rendered based on your company overtime rules. Your employees can just clock in and out via one of your clocking devices and when it comes time to generate payroll overtime, ND etc. are all calculated automatically.

However, many of our BPO clients operate 24 hours a day, 7 days a week. They have multiple agents serving clients that are in multiple timezones. We decided that their unique setup required a unique overtime rule.

Today, we rolled out support for per shift overtime as part of our larger automated overtime calculation tool.

This means for employees that work a shift that runs past midnight and start their next shift that same day can be paid for any overtime occurred based on the shift hours, not the total hours within the calendar day.

For example:

Here is how you can see the difference between per shift overtime and per day overtime, both of which are possible in PayrollHero’s Philippine payroll platform.

per shift overtime for bpo

If you are interested in this feature, reach out to our client success team to learn more.

PayrollHero’s purpose built BPO payroll platform is perfect for your operation. We have quite a few specific tools just for the BPO industry. Here are a few more examples of how PayrollHero can help BPOs;

  • Employees who follow another countries holidays instead of Philippine holidays
  • Employees who have shifts overnight and how night time differential effects it
  • Employees who have shifts overnight and one of the days is a holiday

If you are not a PayrollHero client and want to learn more… you can see our offerings here:

Philippines | Singapore | Canada | USA | International

New: Request A Call With Support

As we continue to grow we are expanding our support offering to serve you better.

Here are the self service options we have available:

Need to interact with our client success team directly:

  • Email support at payrollhero.com
  • Live Chat (just click the chat button on the bottom right of your PayrollHero account)
  • Facebook Message
    PayrollHero Live Chat
  • Request A Call

Request a Call from PayrollHero

As for support hours, our team is available Monday – Friday 08:00 – 17:00 Manila/Singapore time. If you contact us outside of those hours we will get right back to you first thing the next day.

If you are not a PayrollHero client and want to learn more… you can see our offerings here:

Philippines | Singapore | Canada | USA | International

 

Is Your HR Team Prepared for 2017?

If you are planning on making changes to your HR and payroll tools then now is the time. Many companies still use Excel, paper and pen, or outdated software to complete their payroll each and every period.

Starting the calendar year fresh on a new platform that helps to automate your monthly reports, year end compliance and provides easy to use analytics is the way to go.

Here is how PayrollHero can help your business for 2017;

Singapore Companies ??

Philippine Companies ??

PayrollHero’s powered time, attendance, scheduling, HRIS, leave management and payroll platform is essential for todays growing business. Contact us to learn more.

2017

Singapore Payroll Management

Successful payroll management in Singapore requires proper systems and procedures to ensure accuracy and timeliness. Employees expect to be paid accurately and on time each and every pay period.

The main component to accurate payroll is accurate time and attendance. If the data going in for payroll computation is not accurate then the payroll calculations will not be accurate.

Singapore Payroll Management

What constitutes a complete payroll management system

  1. Accurate time and attendance collection
  2. Up to date HRIS (Human Resources Information System)
  3. Accurate payroll software with up to date tax code data
  4. Online, accurate vacation leave management
  5. Detailed payslips
  6. Bank files and Government reports

What constitutes salary

According to the Employment Act of Singapore salary refers to remuneration, including allowances, paid for work done under a contract of service.

It does not include:

  • The value of accommodation, utilities or other amenities.
  • Pension or provident fund contribution paid by the employer.
  • Travelling allowance.
  • Payments for expenses incurred during work.
  • Gratuity payable on discharge or retirement.
  • Retrenchment benefits.

Remember, Singapore does not have a minimum wage. Your salary is subject to negotiation and agreement between your employer and you or your trade union.

Want to learn more about how PayrollHero can help your Singapore business with their time, attendance, scheduling, HRIS, business intelligence, leave management and payroll? Contact us!

PayrollHero Bug Bounty Program

CaptureAt PayrollHero we are so confident with the payroll calculations of our platform that we have instituted a bug bounty program for any bugs found within payroll calculation feature set.

If you believe that you have found a payroll bug on PayrollHero, we encourage you to let us know straight away. We will investigate all legitimate reports and do our best to quickly fix the problem. Before reporting though, please review this page.

Bug Bounty Program Information

We recognize and reward clients who find payroll calculation bugs within PayrollHero. We are so confident in our numbers that we have put this program together.

If you find a payroll calculation bug within PayrollHero you can submit it to our team for review. If qualified you will receive US$100 and your company will receive a US$100 credit to their account.

  • The bug bounty program applies to the payroll calculation engines within the PayrollHero platform
  • Any bug must be submitted to PayrollHero via our online bug reporting form
  • You must be a live client on PayrollHero

If you have any questions about the program please feel free to contact us. We will continue to update this page with more details as needed.

Top 3 Toughest Aspects of Payroll in Singapore

Assuming Payroll

Often times, companies generate payroll and pay out an entire month’s wages to an employee before the month has ended. We call this assuming payroll. This is how it works: If payroll is generated an the 25th and paid out on the 27th, the manager pays the full month’s wages, up till the 31st, assuming that the employee will make it to work on the last few days. If he doesn’t, the manager Optimizing Work Productivity with Happinessneeds to deduct his wage in the next month

Assuming payroll is an inefficient and inaccurate way of paying employees. We’ve come across many business owners who do it in Singapore. Most of the time, it’s because they have been doing it for years and have never thought about changing the rule. We help our clients transition from assuming payroll to regular payroll which saves clients money and time. Here is a blog post on exactly how to transition from assuming to regular payroll.

Irregular Clock-in Timings

When an employee clocks in at 8.57am instead of 9.00am, the biometric device records it to the exact minute. Your HR manager needs to manually correct the irregularity because coming in 3 minutes early does not mean that the employee will get paid for those extra three minutes.

The PayrollHero app has a threshold feature that solves this problem. An HR manager can set a threshold: if an employee clocks in between 8.55am and 9.05am, their clock-in time resets to 9.00am, automatically correcting the irregularity that your HR manager would have had to deal with otherwise.

Disparate Systems for Time, Attendance, Scheduling and Payroll

payrollhero-benefits-featuresBusiness owners have multiple systems that deal with different HR problems; a biometric device to measure clock ins, a separate Excel sheet that imports data from the biometric device and generates payroll, another Excel sheet that needs to be updated every week with schedules for each employee and a whole other system that employees use to apply for leave. With so many systems to deal with, no wonder an HR manager barely has any time to engage with employees or find innovative ways to overcome Singapore’s labor crunch.

An end-to-end solution that removes any need for multiple devices is exactly what an HR manager needs. PayrollHero allows employees to click selfies on their phone or an iPad in the work site when they clock in. This data is stored in the Cloud and used when payroll is generate by the system. The same app is used when applying for leave or checking schedules for the week. An HR manager can use the app on his laptop, phone or any device with internet connection anywhere in the world and have full control over what is going on at his work site.

While these problems are seen as some of HR managers’ biggest in Singapore, they are faced by managers in the Philippines and pretty much any other place too. Some of the other problems HR managers need to deal with are changing tax laws, a labor crunch and laws against foreign workers in the country.

We hope that this post serves as a solution to some of your biggest HR problems. Do let us know your biggest HR problem and how you are currently dealing with it.

 

What Payroll Period Suits Your Business Best?

employees-getting-paid

Payroll periods are generally categorized into 4 types:

  1. Monthly: Payroll is generated and usually paid out on a monthly basis. It occurs 12 times a year
  2. Semi-monthly: Payroll is generated twice a month and paid out either on the 1st and 15th of the month, or 15th and 30th of the month. It occurs 24 times a month.
  3. Bi-weekly: Generated and paid out every two weeks, bi-weekly payroll sounds a lot like semi-monthly but runs 26 times a year. We’ll go through the differences further into the post.
  4. Weekly: Payroll is generated and paid out once a week, leading to 52 cycles a year.

Type of Business

Why are there so many different payroll periods? Depending on the type of business, employees and employers find it easier to keep tabs on over time, social security contributions and erratic work schedules if the payroll period is shorter than the usual one month period.

Generally, as a business owner or a payroll head at your business, you generate reports monthly so it seems practical to generate payroll on a monthly basis. However, this may not be suitable to employees, especially in the construction, F&B or retail business where work is valued on an hourly basis.

Type of Employees

Frequency of payroll depends on the type of employees in your business. Usually, full time employees are open to monthly salaries because they have a stable income.

However, part time workers with erratic schedules prefer a shorter pay period so they can manage their finances better. Since hourly workers are most prevalent in industries like F&B, retail and BPOs, markets that we work with very closely, we know that employees favour biweekly or even weekly pay in order to stabilize their finances.

For example, if an employee works 50 hours one week and 10 the next, she might want to be paid weekly in order to cushion the next week’s dip in work.

Costs of Generating Payroll

As a business owner, you also need to track how much it costs to pay all your employees, Many payroll vendors charge on the frequency of payroll generation, in which case, monthly payroll makes sense. But, if the costs are not too high, it may be prudent to generate payroll more often.

It is easier to calculate over time over a shorter pay period. You are less likely to make mistakes. Another cost that is important to look into is the opportunity cost of calculating social security deductions more frequently.

Usually, contributions are calculated monthly, so it is definitely a hassle breaking it down to a semi-monthly, bi-weekly or weekly basis. The most error-prone would be bi-weekly, with 26 weeks to account for where payroll may be generated twice or even thrice a month.

Finally, the frequency of payroll generation depends on a set of factors: the share of employees working part time versus full time, the costs of generating payroll and the kind of business that you own.

Weighing the costs and benefits and communicating with employees on what suits them best are the first steps to take before settling on a pay period. Do let us know what kind of pay period has worked best for your business!

More Than Just a Payroll Solution

payrollhero-benefits-features

If you’re reading this, you’re probably aware that we are a time, attendance, and payroll solution that meets your company’s needs. That’s true.

But let’s move away from that for a while and let’s look deeper into what PayrollHero truly is.

You see, PayrollHero is a cool app that lets you clock in to work with a selfie, and generate payroll with just a few clicks. That’s one of our biggest selling points, and one of the biggest reasons why our clients love us.

But that’s not why our product is genuinely enjoyed by some of the best companies in the Philippines and Singapore.

The real reason why our product is valuable to your business is because we save you time.

Time Management Redefined

Beyond the #selfie clock ins, facial recognition, leave management feature, and many more, what PayrollHero wants more than anything is to give you back the time you lose from outdated time, attendance, and payroll methods.

One of our clients, The Coffee Bean and Tea Leaf Philippines, shared their experience on how PayrollHero makes their payroll processes faster and more efficient.

Here’s a snippet from CBTL’s CEO Walden Chu:

We wanted a payroll solution that was cloud based and built for the Philippine business environment, PayrollHero was exactly what we were looking for and took our payroll processing time for 700 employees from 16 days to 5 minutes” – Walden Chu, CEO, The Coffee Bean & Tea Leaf Philippines

WATCH: Walden Chu’s Testimonial on How PayrollHero Helps Their Business

16 days to 5 minutes.

That’s 144 working hours (or more, due to OT) brought down to just 5 minutes. I don’t know about you, but that’s A LOT of time saved.

Walden-Chu-PayrollHero-Testimonial

And that’s not all… The time that our ridiculously efficient product saves results into a world of other benefits for businesses.

Time Saved Results to Happier Employees

Because time, attendance, and payroll becomes easier to do, employees who act as primary stewards of these processes are taken a huge load off of their shoulders.

It’s not a secret that HR staff, payroll administrators, and accounting / finance employees are the ones that are most affected by the hassles of traditional payroll processes.

With PayrollHero, these employees can relax and focus on other important aspects of their work such as recruiting and employee engagement (for HR), and internal audit / accounting for those in Finance.

The system was not made to replace these employees, but rather, to help them become more efficient and less stressed with the rigours of traditional payroll. A more streamlined, easy, and hassle-free payroll solution can make these employees less stressed and happier at work.

Happy Employees are Good for Business

It has long been proven that happy employees are the best brand ambassadors you can ever have.

The happier your employees are, the more energized and motivated they are to work; and those little things eventually add up. Your customers will notice how happy and engaged your employees are, and this in return, causes them to love your brand even more.

Word of mouth referral goes a long way in growing your business. So the happier your employees are, the more customers you will attract. It’s a domino effect that you can take advantage of.

Beyond Business

Of course, making employees happy isn’t just done to boost your profits. As an employer, it’s important to always put a premium to your employees’ happiness.

With PayrollHero’s selfie clock in, we are able to help your employees start the work day with a smile.

Check out this video of how employees clock in and out of work using PayrollHero’s TeamClock App:

Not only do employees start the work day with a smile, they also clock out happily as they get ready to come home to their loved ones.

The overall mood of employees skyrocket, and because of this, their personal lives improve as well.

Right Person. Right Place. Right Time.

Not only does PayrollHero save you time; we also save you money.

Biometrics and time cards for time and attendance can be tricky. For one, it can easily be gamed by dishonest employees. There’s the case of buddy punching and ghost employees that is pretty much prevalent in the Philippines.

Take a look at how much money you can lose just because of buddy punching:

buddy-punching-PayrollHero

Even if you only have 1 buddy punching employee (which is very unlikely), you’ll be losing P4,000 a year! Now, in most cases, for companies with a very unreliable time and attendance process, buddy punching is more common.

If you had 500 employees, and 10 of them are regular buddy punchers, you could lose as much as P40,000 a year

With PayrollHero, you are LITERALLY free from buddy punchers because our system makes sure that the right person clocks in at the right place, at the right time.

You can learn more about Selfies vs Biometrics in this post.

Time to Make a Change

If you’ve made it this far down, then I can only assume that you are considering PayrollHero for your business. Whether you are running a restaurant in the Philippines, or a retail store in Singapore; or even any business in Asia, there’s just so much PayrollHero can offer for you.

time-attendance-with-PayrollHero

Handling time, attendance, and payroll for your business will never be the same once you go for PayrollHero.

It’s time to make a positive change for your business. Let us help you save money, and most importantly, save precious time for you and your employees.

If this is something that you’re interested in, we’d love to chat with you. You can contact us at sales@payrollhero.com or visit any of our websites: Philippines, Singapore, Global, to learn more.

Biometrics VS Selfies – Which is Best for Your Business?

selfie-biometrics-PayrollHero

Restaurants and retails stores usually generate payroll by multiplying their employees’ hourly rate with the number of hours worked by each employee.

The number of hours worked is measured by a time sheet that employees punch in, a biometric device or (if you’re one of our awesome clients) the PayrollHero app that lets your employees take selfies to clock in and out.

We get a lot of questions about why businesses should change from biometrics to anything else. Some say that the biometrics system is already ideal… that it’s fast and accurate. While all of this might be true, we have a strong argument for why biometrics may not be the best option for your business.

The PayrollHero app – an all in one solution

Biometric devices work as a standalone system. You need to get a whole new software for processing information from the device and integrating it into the software that calculates attendance. Often, you need another system to monitor scheduling, manage leaves and generate payroll.

On the other hand, PayrollHero’s TeamClockMyClock app records all the information you need to know about your employee on the cloud. It is an end-to-end solution that relieves you of the hassle of integrating multiple systems together.

The only device you will ever need is either of the following: iPad, smartphone (Android or iOS), or a computer (PC or Mac). PayrollHero’s apps are compatible with these devices so you are assured to have a streamlined process from start to finish.

PayrollHero-Blog-Ads

Wear and tear

The biometric device is subject to wear and tear. If you have hundreds of employees using a couple of biometric devices, you are more likely to face this issue. However, MyClock or TeamClock are is accessed within an iPad / smartphone (or computer),  which is less likely to undergo the kind of wear and tear that biometric devices are prone to.

Software updates

The PayrollHero app updates from time to time to give the user a better experience and introduce new features (for example, we have just introduced leave management! Check it out). The app is always improving and finding ways to make time and attendance easier for businesses, whereas the biometric device can only go so far in it capabilities.

There are other issues with the biometric device too. Biometric devices lead to manual calculations when there are minor infractions where employees come just a couple of minutes early or late.

We handle this problem by implementing thresholds within which these infractions are excused. This frees up time for your HR manager to do more important things, like finding the best talent for your company and managing employee relations.

Altogether, the biometric device may be faster in recording clock ins, but the time wasted by the HR manager in fixing the inefficiencies in the device is far more.

So if you’re ready to let go of your biometric device and embrace the selfie clock in, contact us at sales@payrollhero.com or visit our website to learn more.