Automatic Back Payments

The process of back-paying an employee can often be time-consuming, intricate, and manual. First, you need to identify all the components of the employee's past pay that require adjustment. Next, you must calculate the rate differences for the back pay period, which becomes more complex if the employee is also entitled to penalties. Additionally, you have to determine the tax owed on the back pay.

 

The back pay feature automates these steps, greatly reducing the need for manual calculations.

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To access the back pay feature, go to Payroll Settings > Pay Conditions > Back Pay. If you cannot see Back Pay listed underneath the Pay Conditions menu.

Firstly, we will need to identify which employees had a pay rate increase over a defined period. When entering the defined period, the platform will check for any employee whose Pay Rate field, was updated with a higher rate than what was previously contained in that field.

1. To search for affected employees, go to Payroll Settings.
2. Under Pay Conditions, click Back Pay.
3. Click on Add.
4. Click on Add Employees.
5. In the context panel, select the applicable pay schedule the employees would be associated with.
6. Select the date range of when the changes to the employee pay rates would have occurred.
7. If you want to include terminated employees in the search, tick the Include terminated employee(s) checkbox.
8. Click Search.
9. A list will then appear with any employees fitting the criteria searched and show the old (previous) rate with the new (current) rate. If you have included terminated employees in your search, they will be identified with a star next to their name:

Upon reviewing the list, select those employees that do require a back pay by ticking the checkbox on the left of the employee’s name. If all employees need a back pay then you can tick the checkbox in the header and this will select all the employees. Then click on Add. 

 

Once employees have been selected, the back pay table will populate with their details as per the following example:

The following is an explanation of the columns and activities that can be performed in this table:

Effective date: The effective date is populated based on the employee’s anniversary date. This is the date entered in the Anniversary Date field from the employee details screen. If the anniversary date field is blank, the platform will apply the date in the employee’s Start Date field. In terms of the year that is populated, the platform will apply by default the most recent year that has passed prior to the pay increase being added to the employee’s Pay Run Defaults screen.

For example:

• An employee’s anniversary date is 12/6/2012
• The employer updated the employee’s pay rate on 10/4/2023
• The day and month used to determine the effective date will be 12 June, based on the employee’s anniversary day and month
• The year used to determine the effective date will be 2022, as that is the most recent year prior to the pay increase taking effect. 

There may be instances where the employee’s anniversary date is not the date the back pay starts from. If this is the case, you can override the employee’s effective date and then click the refresh icon so that the platform can update the total lump sum based on the new effective date. Another example where you may need to change the effective date is where there are 2 back pay records for an employee, for example:

The reason for there potentially being 2 records is that the employee would have received multiple pay increases during their anniversary period. In this instance, you may want to change the second record to a later date (if there is back pay to be processed). Otherwise, you can simply delete one of the records if they do not require any back pay.

In instances where the same effective date is to be applied for all employees in the table, you can override the first employee’s effective date and then click on the downward arrow. This will copy the same date across to all employees.

Old pay rate: The figure populated in this column is the pay rate that applied to the employee prior to being updated. If, for any reason, you want to change the figure entered in this field you can do so by clicking on the Override checkbox. This will open up the Old pay rate and Total lump sum fields thereby allowing the user to enter ‌a different old pay rate. Beware that the platform will not recalculate the total lump sum amount if the old pay rate amount is overridden. Instead, the total lump sum amount will also need to be manually entered. If you want to revert back to ‌platform-generated amounts, simply untick the Override checkbox.

Total lump sum: The amount populated in this field is the total back pay owing from the employee’s effective date up to the last pay run that the employee was paid at their old rate. Hovering your mouse over the tooltip info icon will display a breakdown of how the lump sum amount was calculated.

 

For more information on back pay automation, have a look here.

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We have put together a tutorial on how to setup a back payments and how to process this payment in the pay run.