Back Pay

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There are three different types of back pay:

  • Paying a post-dated increase in an employee's pay rate.  
  • Payment for hours the employee previously worked but were missed out of a single earlier pay.
  • Payment for hours the employee previously worked that have been missed out of multiple previous pays.

Each of these types are handled slightly differently:

 

Back-Dated Pay Increase

To handle a back dated raise you will first need to set up a new pay code (if you haven't done so already), and then include that in the pay run.

Create the Pay Code

You can add a pay code for the back pay under Setup > Pay Codes. The pay code setup should look something like the screenshot below, and the settings should be:

The Tax Type should be Taxable Allowance.

Units should be set to Other. This is to ensure the ordinary and average rate calculations are not skewed by hours paid at an abnormally low rate.

The Pay Code Rate should be based on None.

The other default pay code settings should be correct, although you may need to tick Exclude from Ordinary Earnings if the back pay would unreasonably impact the employee's Ordinary Pay calculations.

back_pay_rate.png

 

Add the Pay Code to the employee's pay

The new pay code can then be added to a pay, either as part of the regular pay cycle or as a one off pay. If doing a one off pay we recommend setting the start and end dates to a past period, perhaps the period over which the back pay covers, or the same start and end dates as the last regular pay processed.

rate_-_add_to_pay.png

rate_-_edit_in_pay.png

It is important to select Extra Pay when adding the pay line to ensure that the tax is calculated correctly, as directed by the IRD:

Lump sum payments include annual or special bonuses, cashed-in annual leave, retiring or redundancy payments, payments for accepting restrictive covenants, exit inducement payments, gratuities, or back pay. These are also called "extra pays".

Please see the end of this article for more information on how tax is calculated on extra pays. 

 

Missed Hours for a Single Pay Period

If the back pay is to pay the employee for hours that they previously worked but were missed out of an earlier pay, you can simply create a new pay run that has the same Start Date and Period as the original pay. 

Either record the additional hours in the Timesheets before running that pay so that the hours flow into the pay for you (this may require that you Revoke any approvals first), or manually add the hours into the pay against the employee's normal hours-based pay code.

FlexiTime will automatically gross up the earnings from any pays that have the same Start Date and Period, so the employee's taxes will be accurately calculated to include their previous pay.

 

Missed Hours for Multiple Pay Periods

If the employee has had hours missed out of multiple pay runs then you will need to create a new pay code for the Back Pay and then include that in the pay run for the employee.

 

Create the Pay Code

Before adding back pay to an employee's pay you will first need to add a pay code for the back pay under Setup > Pay Codes. The pay code setup should look like the screenshot below, and the settings should be:

The Tax Type should be Taxable Allowance.

The Units should be set to Hours.

The Pay Code Rate can be based on the Normal rate.

back_pay_-_hours_missed.png

 

The other default pay code settings should be correct, although you may need to tick Exclude from Ordinary Earnings if the back pay would unreasonably impact the employee's Ordinary Pay calculations.

 

Add the Pay Code to the employee's pay

The new pay code can then be added to a pay, either as part of the regular pay cycle or as a one off pay. If doing a one off pay we recommend setting the start and end dates to a past period, perhaps the period over which the back pay covers, or the same start and end dates as the last regular pay processed.

bp_hours_missed.png

2017-10-24_1525.png

It is important to select Extra Pay when adding the pay line to ensure that the tax is calculated correctly, as directed by the IRD:

Lump sum payments include annual or special bonuses, cashed-in annual leave, retiring or redundancy payments, payments for accepting restrictive covenants, exit inducement payments, gratuities, or back pay. These are also called "extra pays".

Please see the end of this article for more information on how tax is calculated on extra pays. 

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