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Ensure leave pay is a breeze and complies with the Basic Conditions of Employment Act

Phil Meyer

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

What legislation governs this?

The process is governed by the Basic Conditions of Employment Act (BCEA). This act sets out the:

  • Legal structure of all employment contracts; and

  • Rights of employees to ensure they are fairly treated regarding annual leave and severance or notice pay.

The BCEA aims to ensure that employees’ leave pay is calculated based on their actual earnings. According to Phil Meyer, technology director at Pastel Payroll, these 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 leave becomes effective.
“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.”

What are the pitfalls of doing these calculations on Excel?

Many of the leave pay calculation are quite complex so 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 Meyer.

 How can software make this job easier?

Automated payroll and HR software retains details of all the variable income paid to each employee. This means that the calculation for the average income over the 13-week period mentioned above is not only accurate but is available immediately.
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’s financial year-end audits are completed. In this way, they will benefit 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 Meyer.
Users of automated payroll and HR software also benefit because software developers monitor amendments to the BCEA and provide updated versions of the software whenever new legal requirements come into being. “The automated payroll and HR software is always fully compliant with the act, ensuring also that the BCEA leave payments are not subject typos, 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 and process a production bonus or commission using only one screen. This not only saves time but also allows global changes to be made to any transaction within the payroll system for all, or a selection of employees.

Phil's strengths lie in development and the support of operational systems in both financial services and payroll industries.

Phil currently looks after the team implementing Connected Services into various products in the Sage AAMEA region. He is also looking after the full product range of Sage Pastel Payroll & HR and is constantly developing these for both online and desktop environments using agile development methodology.