# 4 Understand Salary and Hourly Rate Calculations Overview

This chapter contains these topics:

## 4.1 About Salary and Hourly Rate Calculations

Depending on the nature of your workforce and the planning and budgeting requirements of your organization, you can use several methods to track the amount of money an employee earns each pay period and each year. Three components in the system determine this amount:

• Annual salary

• Hourly rate

• Standard hours per year

An employee's annual salary is the amount of money that the employee earns in one year. An hourly rate is the amount of money that an employee earns in one hour. Standard hours per year is the number of hours per year that an employee works. Therefore:

• Annual salary divided by standard hours per year equals hourly rate

• Hourly rate multiplied by standard hours per year equals annual salary

Employees who have multiple jobs within your organization can have a different annual salary, hourly rate, and standard hours per year for each job.

To save you time and reduce keying errors, you can set up pay information in the following tables

• Pay Rate

You can use either of these tables as the default source of pay rate information for employees. You can specify a default pay rate source in the human resources constants.

The type of information that you must enter for each employee, as well as the way in which the system calculates salaries or hourly rates, varies depending on the pay rate source that you specify.

The pay rate sources that you can choose from include:

• Pay Rate table

• None (no default)

The following scenarios describe, for each pay rate source, the interaction between annual salary, hourly rate, and standard hour per year.

## 4.2 Scenario 1: Pay Rate Source Equals the Pay Rate Table

When you need to associate pay rates with a specific group of employees, such as the members of a specific union, you can use the Pay Rate table as the default pay rate source. On the Pay Rate table, you set up hourly rates for a group of job types and steps and associate those job types and steps with a union code and effective dates.

To use the information in the Pay Rate table when you add an employee record, you enter a job type, job step, and union code, and leave the salary and hourly rate blank. The job type, job step, and union code must correspond to an entry in the Pay Rate table.

The system automatically enters the appropriate salary and rate information from the Pay Rate table. The system also supplies a default value for standard hours per year,. You can override these default values for an employee, if necessary. Overriding the standard hours per year does not affect the employee's hourly rate.

The following table describes what happens when you enter or change information that affects an employee's earnings:

Item Description
Hourly rate When you enter or change the hourly rate for an employee, that rate overrides the default rate from the table.
Standard hours per year When you change the standard hours per year for an employee, the hourly rate does not change.

The system recalculates the annual salary for the employee.

If you use Employee Multiple Job to change the standard hours per year, you can delete the employee's salary to cause the system to recalculate the pay period gross salary and the annual salary for the employee.

Full-time equivalents (FTE) When you change the FTE for the employee, you must also remove the value entered for standard hours per year. The system adjusts the employee's standard hours per year. The hourly rate remains the same.

### 4.2.1 What You Should Know About

Topic Description
Overriding the default pay rate source When the Pay Rate table is the default pay rate source, you can do one of the following to avoid using this default for an employee:
• Leave the union code blank

• Enter a union code that is not included in the Pay Rate table.

You must enter either a salary or an hourly rate for the employee.

See Section 4.4, "Scenario 3: No Pay Rate Source" for information about salary and hourly rate calculations for such employees.

## 4.3 Scenario 2: Pay Rate Source Equals the Pay Grade Step Table

To ensure that all of the employees working in a job receive the same rate of pay, and to establish progression within a pay grade, you can use the Pay Grade Step table as the pay rate source. On the Pay Grade Step table, you set up a pay rate for each step within a pay grade.

To use the Pay Grade Step table when you add an employee record, you enter a pay grade and pay step and leave the salary, hourly rate, and standard hours per year blank. The system automatically enters the appropriate salary, rate, and hours per year from the Pay Grade Step table. (For an hourly employee, salary appears only on the Employee Multiple Job form.)

To use the Pay Grade Step table when you add an employee record, you enter a pay grade and pay step and leave the salary, hourly rate, and standard hours per year blank. The system automatically enters the appropriate salary, rate, and hours per year from the Pay Grade Step table.

The following table describes what happens when you enter or change information that affects an employee's earnings:

Item Description
Pay grade step When you change the employee's pay grade step, the system replaces the employee's hourly rate, salary, and standard hours per year with the corresponding information from the Pay Grade Step table.
Hourly rate You cannot change the hourly rate for an employee. The system supplies the default hourly rate from the table.
Standard hours per year When you change the standard hours per year for an employee, you also must delete the employee's salary. The employee's hourly rate does not change. The system recalculates the employee's salary, based on the new standard hours per year and the hourly rate for the pay grade step.
Salary When you change the employee's salary, the hourly rate does not change. The system recalculates the employee's standard hours per year, based on the new salary and the hourly rate for the pay grade step.
FTE When you change the FTE for an employee, you also must delete the employee's salary and standard hours per year. The system adjusts the employee's standard hours per year and salary, based on the pay grade step.

### 4.3.1 What You Should Know About

Topic Description
Overriding the default pay rate source When the Pay Grade Step table is the default pay rate source, you can avoid using this default for an employee by leaving the pay grade step blank. You must enter either a salary or an hourly rate for the employee.

See Section 4.4, "Scenario 3: No Pay Rate Source" for information about salary and hourly rate calculations for such employees.

## 4.4 Scenario 3: No Pay Rate Source

If your organization consists of employees whose salaries and hourly rates are based on a pay range, rather than specific amounts for a job or pay grade step, you can choose to use no default pay rate source.

When you add employee information, you must enter either a salary or an hourly rate for each employee. The system provides a default value for standard hours per year, which you can override, if necessary. When you enter a salary for an employee, the system automatically calculates an hourly rate, based on the salary and standard hours per year. Conversely, when you enter an hourly rate, the system calculates salary. (For hourly employees, salary appears only on the Employee Multiple Job form.)

When you add employee information, you must enter either a salary or an hourly rate for each employee. The system provides a default value for standard hours per year, which you can override, if necessary. When you enter a salary for an employee, the system automatically calculates an hourly rate, based on the salary and standard hours per year. Conversely, when you enter an hourly rate, the system calculates salary.

The following table describes what happens when you enter or change information that affects a salaried employee's earnings:

Item Description
Salary When you change the employee's salary, the system recalculates the hourly rate, based on the new salary and the standard hours per year for the employee.
Standard hours per year When you change the standard hours per year for an employee, the system recalculates the hourly rate, based on the new standard hours per year and the existing salary.
FTE Changing the FTE for an employee has no effect on salary and hourly rate calculations.

The following table describes what happens when you enter or change information that affects an hourly employee's earnings:

Item Description
Hourly rate Changing the hourly rate for an employee has no effect on standard hours per year. The system recalculates the annual salary for the employee, based on the new hourly rate and the standard hours per year for the employee.
Standard hours per year When you change the standard hours per year for an employee, the system recalculates the salary, based on the new standard hours per year and the employee's hourly rate. (The salary appears only on the Employee Multiple Job form.)
FTE Changing the FTE for an employee has no effect on salary and hourly rate calculations.