Understanding Employee Compensation

Before you enter employee compensation, you must select an appropriate pay rate source based on the business purpose and organizational structure. The type of compensation information that you must enter for each employee and how the system calculates salaries or hourly rates depends on the pay rate source that you have set up in the system options.

The available pay rate sources include:

• Pay rate table.

• Pay grade step table.

• None (no default pay rate source).

The pay rate source that you select depends on the nature of the work force and the planning and budgeting requirements of the organization. The pay rate source also affects how the system calculates salary and hourly rates for employees.

To understand how the pay rate source affects salary and hourly calculations, you first need to understand how the system identifies the components described in this table:

Component	Description
Salary	The amount of money that the employee earns in one year.
Hourly Rate	The amount of money that an employee earns in one hour.
Standard Hours per Year	The number of hours per year that an employee works.

These equations explain how the system calculates a salary and hourly rate:

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

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