Prorated calculations and weighted period calculation
It is often necessary to prorate data that only applies during part of a period or wage time frame. Profit supports recalculations for changes during a period using what is known as the ‘Weighted period calculation’. You specify the application of this method yourself in the properties of the CLA.
In short, you have the following options:
- Apply a weighted period calculation
For new timetable or salary lines added during a period, Profit will determine the weighted average of the relevant values. For example, in the event of a salary increase, Profit determines the weighted average of the old and new salary. For the calculation you can use working days or calendar days.
In the case of wage components at the employee level that go into effect during a period, Profit calculates the weighted value in the salary processing.
AFAS specifically refers to ‘weighted calculation’ rather than ‘prorated calculation’. The weighted calculation has restrictions, which keeps it transparent. The weighted period calculation is only available at the employee level.
- Do not apply a weighted period calculation
You can specify whether or not you will use the weighted period calculation. If not, then Profit by default performs the wage calculation on the basis of the data available on the last day of the period to be processed. Changes that you specify to become effective during a period (for example, a wage increase) in that case therefore always apply to the entire period.
For a company car, Profit always applies a weighted period calculation based on calendar days, regardless of the setting for the weighted period calculation you have specified in the CLA.
An exception to this is that Profit will always apply a prorated calculation when an employee enters or leaves employment during a period. When leaving employment, Profit for example will recalculate the period salary on the basis of the number of days that the employee is still employed during the last period.
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Why doesn’t Profit support a prorated calculation for changes during a period?
Applying the prorated method makes salary calculations and journalising highly complex and non-transparent as a result of which such actions can no longer be properly controlled. AFAS wants to keep salary calculations clear and transparent for the salary administrator, as well as the remunerated employees.
The following aspects, at a minimum, apply to a wage calculation:
- Entries on the Contract, Agency, Timetable, Job and Salary tabs are interrelated for an employee. An entry for the first four always results in a new salary line.
- Entries on these tabs can take place prior to a provisional processing, between a provisional processing and approved period, or as an RAE entry after the period has been approved.
- Not all employees have a fixed timetable; this means that the days on which they will be working are not known. Consequently it is impossible to determine which days fall prior to or after the change.
- You can specify entries for the parameters of wage components at the CLA, employer or employee level, or when entering wage entries.
- Many wage components make use of the employee’s master data for the calculation, such as job, timetable, fleet, outstanding loans, or sickness and leave.
Example:
The following example provides an idea of the level of complexity that can arise:
- An employee has a job change during the period, for example on 15-2, and now falls into a different wage scale. This means that a different hourly wage applies to the first half of the period than the second half.
- Twenty hours overtime are recorded during this period. The question is, what is the hourly rate that should be applied to these hours? The entry program operates on a per period basis, not per day. Consequently the days on which the overtime hours were incurred, and therefore the applicable hourly rate, are not known.
- This individual becomes sick on 12-2 and reports back to work on 18-2. The medical expenses must be posted to the journal entry at an hourly rate. What is this hourly rate? Should the sick pay on the 15th be calculated on the basis of the old or new hourly rate? And suppose that the sickness entry is only entered after the salary processing. What should happen then? Suppose that the overtime hours over the past three periods count towards the sick benefit. How should this be calculated?
- Then, in March, it turns out that a collective salary increase of 1.2% applies retroactively to 1/1. This means that Payroll must recalculate everything with RAE for periods 1 and 2.
- Subsequently it turns out that a number of allowances apply to this person retroactively to 15-2, because a number of additional responsibilities apply to the new position. These components are entered in April. Suppose that the value of these components is dependent on the position. In that case the overtime and the sick pay must be recalculated on the basis of all these combinations of values.
- In addition there are wage components that are part of the new position and that have to be activated effective 15-2. At the same time other components are expiring. On what date should the old components be halted and the new ones be initiated? 14-2? 15-2? 16-2? And what if the components are dependent on the number of working days and the timetable is unknown?
- Finally, this individual is given a different car on 20-2 because the new position comes with a different car with a different personal contribution. This implies a recalculation of the earlier contribution and a calculation of the new contribution.
In short: if changes occur during the period and we would have to take all of these aspects into account, a tremendously complex situation would arise that would always be debatable. Debate between you and AFAS, as well as debate between you and your employees.
The only way of correctly carrying out such a wage calculation is to carry out the calculation on a daily basis. You can imagine that a wage calculation for a period in that case would on average take 30x as long.
For that reason AFAS has adopted the standpoint that an entry during the period must always be manually calculated and processed.
Calculations with an average number of days per period
AFAS is of the opinion that working on the basis of an average number of days per period always leads to incorrect wage calculations.
If a period comprises 22 days or more, then a calculation on the basis of averages does not work properly if the month, for example, includes 10 days of sickness and 12 or 13 days of leave. The affected employee in this case would end up with 23 wage days and a salary that is higher than what would be expected on the basis of the average of 21.75 days.
We have turned a blind eye to this view for the salary components, by allowing calculations based on averages here. This is not possible for allowance components. To make that possible the number of allowance components would double (one for actual figures and one for averages). We consider this an undesirable situation from the perspective of performance.
In summary: if an employee is only paid salary it is possible to perform calculations on the basis of the average number of days per period, although we do not recommend this. If this employee also has allowances, then a prorated calculation on the basis of actual days is essential to achieve consistent calculations.