Payroll administrators will soon be burying their heads in their computers – or sharpening their pencils and preparing to put in long hours if they haven’t yet automated their payrolls – to make the highly complex calculations required to arrive at the correct annual leave and bonus pay for employees.

These complex calculations are governed by the Basic Conditions of Employment Act (BCEA) that dictates the legal structure of all employment contracts and the rights of employees. The BCEA ensures that employees are treated fairly with regards to annual leave and severance or notice pay.
One focus of the BCEA is to ensure that leave pay is fully representative of individual employees’ actual earnings.
“Leave pay calculations have to take into account variable income types such as commissions earned, overtime, allowances and performance bonuses,” says Grant Lloyd, MD of payroll software specialist Softline Pastel Payroll. “They must be based on the average earnings of the employee over a 13-week period preceding the date on which leave commences.”
Because overtime, commissions, allowances and other payments result in fluctuating income, the calculations required to comply with the BCEA can be extremely complex and are difficult and time consuming without an automated payroll.
Legislation dictates that the calculation should be based on the ‘variable’ earnings over the 13-week period preceding the date on which leave commences. Employees in different departments, however, could either benefit or be prejudiced by the 13-week averaging, depending upon when they elect to go on leave.
Construction industry employees usually go on leave from mid-December (the traditional “builders’ holiday”). Lloyd says that in their case, averaging earnings over the preceding 13 weeks would be beneficial to employees as they generally work a lot of overtime in the last quarter of the year in order to ensure projects are completed before the industry shuts down for its traditional break.
“Accounting staff are more likely to take leave after the company financial year-end audit, so their major overtime would also be clocked in the build-up to year-end and be included in the calculation. The BCEA allows companies some discretion to calculate average earnings over a longer period, which in many instances is more likely to arrive at a leave pay settlement that is a more representative reflection of an employee’s average earnings, as well as being fair and just to both employee and employer.”
The benefits of using an automated payroll solution extend beyond time-saving, efficiency, speed and accuracy. Lloyd says payroll administrators are able to define the BCEA calculation parameter for the needs of the company, department or right down to individual employees.
“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 reasonable to all concerned.”
Lloyd adds that users of the software also benefit from the fact that automated payroll and HR solutions providers monitor amendments to the BCEA and provide updated versions whenever new legal requirements are promulgated. They therefore always operate in full compliance with the Act, ensuring that the BCEA leave and bonus payments are not subject to basic finger trouble, interpretation or even fraud.
“The software also caters for the automatic calculation and implementation of pay increases or bonuses. If a company elects to give employees across the board or specific departments a 12 percent increase, the 12 percent is automatically calculated against the selected employee’s current salary or wage and the new wage or salary amount is applied on the selected date and reflected on the individual’s payslip. The same applies to other transactions such as leave allocations and leave pay, travel allowances and bonuses.”