Total Compensation

Chapter 11

Learning Outcome

Understanding the use of an HRMS in support of the Total Compensation and Payroll functions of the organization

Introduction

Historically, the need to handle large amounts of information accurately, led to the early automation of payroll and related functions. Many human resources management information systems evolved from adding a broader range of capabilities to what started out as payroll systems

Compensation/Payroll Model

• Level 1 refers to the global, strategic context.• Level 2, between the strategic context and the "hands-on

programs", represents the planning and development programs• Level 3 refers to the practical, hands-on functions , for example:

job evaluation, linking performance appraisal processes with pay-for-performance, and individual salary determination. • Level 4, reflects the monitoring and auditing processes which

ensure that compensation/payroll programs, in support of, and in conjunction with other functions in the organization are operating as they should.

Compensation/Payroll Model Cont’d

An organization's compensation strategy is generally influenced by: • the organization's financial situation -- how

much it can pay;• the salary market -- how much other

organizations are paying for similar jobs;• how much the organization wants to pay

compared to the competition• how the organization is going to pay its

employees - that is, the payroll function.

Salary Market Surveying

Many organizations keep track of the salary rates paid by others in their industrial sectors, and outside, by participating in, and subscribing to published salary surveys.

Salary Policy Line

• A salary policy line outlines the salary that the organization wishes to pay at each job evaluation level.

• The difference between the actual salary line (what the organization is actually paying at each job evaluation level) and the salary policy line represents the salary adjustments required to bring actual salaries into line with the established salary policy line.

Salary Policy Line Cont’d

• Salary policy lines may be established in different ways, for different purposes. • The organization's compensation strategy

should be based on the strategic/business plans of the organization

Job/Position Definition

Job requirements derive from organizational requirements as reflected in strategic/business plans. Traditionally job requirements have been documented in formatted job descriptions.

Work Planning and Review

Job requirements provide the context or mandate against which individual work goals may be developed. Performance against these at the end of the performance period may be assessed and used to determine merit pay, in those organizations that use merit as a determinate of pay increases.

HRMS Requirements – Position Management

The HRMS must be position driven. Positions must be linked to a job to obtain salary and employment equity attributes.

Job Information

The HRMS must have a Job Class Table to store salary information as well as NOC (national occupational code) and OC (occupational codes) used for coding jobs for employment equity purposes.

Organization

An organization table must link to positions and have the attributes necessary to track costs. A location table must also link to the employee to identify actual work and/or mailing location.

Affilitation

An affiliation table is necessary to record the major affiliation(s) of each employee, whether this be employment function, professional affiliation, union affiliation, etc.

Seniority

The HRMS must provide a field that can be updated manually to reflect Seniority Date.

Attendance Management

The HRMS must provide sufficient fields and capacity to record all absences by type, date, paid/unpaid, etc.

Employee/Position History

The HRMS Must track all individual appointments, showing all jobs held. It must also track who is, and has been in each position.

Performance Evaluation

The HRMS must provide for the tracking of goals and objectives; performance intervals and evaluation.

Employment and Pay Equity

The HRMS must provide for the tracking of goals and objectives; performance intervals and evaluation.

Deductions

The HRMS must provide for the tracking of goals and objectives; performance intervals and evaluation.

Salaried Employees

The payroll system must be capable of accurately calculating the pay for each salaried employee. Salary must be calculated according to the number of days (entitled to be paid) if the employee starts/stops work during a pay period. The HRMS must calculate additional pay if additional pay is earned. Adjustments must be able to be made accordingly.

Hourly Employees

• The system must be capable of accurately calculating the pay for each hourly paid employee according to the rate of pay and hours worked. A complication in some organizations for both salaried and hourly employees is that individuals may work at multiple jobs at multiple rates of pay for different cost centres during a pay period

Hourly Employees Cont’d

The system must:• produce, on demand, time sheets for each employee and/or

work unit;• track and analyze shift pay differentials;• store and report on a variety of salary related data including:

leave of absences, sick leave, workers compensation, union duty and other union business including union education, and vacation; and,• have provision for extra fields for information that will be

required in the future.

Year-to-date Information

• The system must be able to accumulate earnings, and deductions, and to display year-to-date information.

Record of Employment

The system must be able to produce accurate records of employment as required.

Income Tax Statements

• The system must be able to produce accurate income tax statements at year-end. In Canada these are known as T4s (Statement of Remuneration Paid) or T4As (Statement of Pension, Retirement, Annuity, and other income). In addition to the paper forms provided to each individual at year end, the system must also be able to produce electronic records of all T4s for government purposes (i.e., Revenue Canada).

Retroactive Pay

The system must track all pay events and facilitate the calculation of retroactive pay.

Health Tax

In jurisdictions to which it applies, the payroll system must be able to calculate and remit payroll-related health tax.

Lieu Time

• Where it applies, the system must be able to track time off in lieu of overtime. This must link to Attendance Management

Pension Reports

• The system must be able to track and report all pension deductions.

Leaves of Absence

• The system must be able to track periods of leave of absence, with and without pay, maternity leave, unpaid sick leave, etc.

Short and Long Term Disability

• If applicable, the system must continue to pay the employee on Short Term Disability (STD) if the employee has sick leave accumulated. The system must be able to track and administer long term disability (LTD) where this is required.

Mass Changes

• The payroll system must be capable of making mass changes of data, such as when pay increases are processed. Major data entities, such as organizations and jobs, must be table-driven. A name change to an organization unit in a table will result in a name change of the organization of all employees linked to that organization.

Time and Attendance

• A payroll system must have the capability to accurately capture, analyze, and report attendance on the job, as well as the time worked in the various categories for which an individual is eligible. Because of the complexity of “time and attendance”, many HRMS’s have special modules for this purpose.

Spreadsheet Interface

• The system must be able to interface with popular spreadsheets such as Lotus 1-2-3 for downloading of pay information for analysis.

Interfacing with other systems

The HRMS containing the payroll system must be able to interface with accounting and other systems to ensure that most effective use is made of the organization's corporate information resources.

Audit Trails

• The payroll system must be able to provide a complete record of all pay transactions, including employee, amount paid, pay type, cost centre, date paid.

Question 1

• In some organizations pay and employment equity information is maintained in systems separate from the HRMS. The reason for this is to maintain confidentiality with respect to the pay and employment equity data, and to ensure that this data is not used as the basis for administrative decisions. Do you agree with this approach? Can you think of pragmatic alternatives?

Question 2

• What are some reasons that the HRMS in many organizations evolved out of the automation of compensation and payroll processes rather than from other HR functions?