Calculating Leave Pay

Calculating Leave Pay

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The end of the year is in sight and companies face the administrative burden of making the complex calculations related to determining the correct leave pay due to individual employees.

The process is governed by the Basic Conditions of Employment Act (BCEA) which sets out the legal structure of all employment contracts and the rights of employees to ensure they are fairly treated in terms of annual leave and severance or notice pay.

Many of the calculations for leave pay are quite complex and arriving at the correct allocations manually or on spreadsheets is a time consuming exercise.

“All of these calculations have to be correct or the company will breach the provisions of the BCEA,” says Grant Lloyd, managing director of payroll and HR software specialist Softline Pastel Payroll, part of the Softline and Sage Group plc.

The BCEA aims to ensure that leave pay is fully representative of individual employees’ actual earnings and Lloyd says the calculations have to take into account variable income types and must be based on the average earnings of each employee over the 13 weeks preceding the date upon which leave becomes effective.

Contributing factors

“There are many elements that affect the calculations such as overtime, commissions, allowances and other payments. The bottom line is that they lead to fluctuating income so each employee’s income has to be calculated individually. It can be a nightmare to execute this manually or on spreadsheets.”

Automated payroll and HR software retains detail of all of the variable income paid to each employee so that the calculation for the average income over the 13 weeks preceding the leave is not only accurate but is available immediately with a few key strokes.

Circumstances may lead to some employees benefiting from higher variable earnings during the three months prior to the leave date. For example accounting staff may take leave when company financial year-end audits are completed, thereby benefiting from the overtime payments they may have received during the preceding 13 weeks.

Similarly, people employed in the construction industry which usually shuts down in mid-December, are also likely to have worked overtime to ensure contracts are completed before shut-down and therefore their leave pay calculations will be affected.

“In consultation with management, payroll administrators can establish parameters that the software will automatically follow so that calculations of average earnings are always consistent with the requirements of the BCEA and fair to all concerned,” said Lloyd.

Up-to-date information

Users of automated payroll and HR software also benefit from the fact that the software developers monitor amendments to the BCEA and provide updated versions whenever new legal requirements are promulgated. “The automated payroll and HR software therefore always operates in full compliance with the Act, ensuring also that the BCEA leave payments are not subject to basic finger trouble, interpretation or even fraud.”

In addition, automated payroll and HR software solutions offer functionality that enables the user to give the entire company an increase, based on either a set value or a specific percentage as well as process a production bonus or commission using only one screen. This not only saves time, it allows global changes to be made to any transaction within the payroll system for all, or a selection of employees.

Automated payroll systems turn leave and bonus processing into a quick, accurate and simple task that eliminates administration headaches before the December holidays.

http://www.pastelpayroll.co.za/index.asp

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