In some cases employees will be given a raise, only to find that they earn less the period they got the raise than in previous pay periods. While this could be due to a typo or error when inputting the new salary, the most common issue revolves around the effective start date of this new compensation.
When an admin goes to create the new form of compensation (as seen above) they are required to add various pieces of information, such as the job title, Hire date, Compensation Name, Amount, and Type (as seen below).
Often times the "Hire Date" (also called the "Effective Compensation Date") is set sometime in the middle of the current pay period. This creates the difference in pay that an employee sees, as Humi Payroll will calculate their pay based only off of the days they have worked at this new compensation rate.
If one's most recent pay period was from May 1st to May 15th, and an employee was given a raise with a "Hire Date" on May 10th. Humi payroll will calculate the employee's pay as if they worked May 10th to May 15th at their new compensation level.
There are two ways that employers work around this problem:
1. Prorate the employee's compensation
When prorating an employee's compensation, divide both their new and old salaries by the total number of pay periods in a year. Multiple each result by the duration of the period worked at each salary level respectively. Finally, add them together and input the result in the employee's salary edit box when running payroll (note: this only works if done the same pay period as the raise, otherwise one must do a retroactive payment or do an off-cycle pay run).
Employee John Smith was on a $50,000 salary and on May 10th was given a raise to $70,000. The company John works at is on a semi-monthly pay schedule, and the current pay period spans from May 1st to May 15th.
Number of pay periods: 12 months * 2 (as it is semi-monthly) = 24
Per period pay for each compensation level: 50,000/(24) = 2083.33 70,000/(24) = 2916.7
Days worked at each compensation level: 9 days at $50,000 6 days at $70,000
Salary for the May 1st - May 15th period: 2083.33*(9/15) + 2916.7*(6/15) = $2416.7
2. Give raises on the first day of a pay period
The second solution is to give raises on the first day of pay periods. This ensures that the Humi Payroll will calculate the correct salary for each employee and no prorations will be necessary, as the employee will be working a full period at their new compensation level.