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Allowances - Fixed vs Variable

Bianca Sylvester
Updated
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This guide will show you the uses of Fixed and Variable Allowances.

 

Contents

 

Overview

The configuration of Allowance Codes determines whether the amount is changeable, whether it is an addition or a deduction and whether the value is calculated as a percentage of salary or whether it is an amount. These configuration variations also determine how changes are applied to Allowances when an employee has a change in Job and Pay on which an Allowance is based.

Sliders can be used to configure whether the Allowance forms part of Total Pay.

Note: Total Pay is only displayed in the standard Current Pay report and shows basic pay combined with any Allowances that are toggled on to be included as total pay.

How a Code is configured will determine what can and cannot be changed when data is recorded and what happens automatically.

The remaining sections of this guide will illustrate some examples of this

 

Fixed allowances

  • In the example below an Allowance Code has been created which has a Payment Type of Amount, and the value is a Fixed Amount set at £100 which is recorded in the Allowance Rates
  • When the Allowance is given to an employee, the rate of £100 is automatically applied and the original value from the Code Table indicated in the record
  • Although the amount of the Allowance is configured as Fixed in the Code Table there is the ability to overwrite the value as required if the Allow rate to be changed? has been toggled on

If the Allowance does not have an End Date and the employee has a subsequent change in FTE then on saving the newly created Job and Pay record the Allowance will be unaffected as it is a Fixed Amount.

In the illustration above the Essential Car Allowance has been closed and a new one created to reflect the new amount as this was an amount that was not Fixed. Whereas the amount for the Charity contribution has remained unchanged as it is Fixed.

Notes:

  • If an Allowance recorded for an employee has an End Date then a new Allowance will be added automatically if the Job and Pay change date happens within the date range of the Allowance starting and ending. If the Job and Pay change date is outside of this then a new Allowance will not be created.
  • If an Allowance is a Fixed Amount it will remain Fixed and not be affected if a Job and Pay change is made, regardless of whether an End Date has been added to the Allowance record. A Fixed Percentage will update in line with Job and Pay as the rate is linked to an employee's salary.
  • If Grades and Spines are used in your organisation then it is particularly important that the Allowance Codes are configured correctly. If the Allowance is not Fixed, all Allowances will be automatically updated when Spines are updated in the Code Table

 

Variable allowances – change in salary

In the example below an Allowance Code has been created which has a Payment Type of Percentage. The percentage value is currently set at 4.7% which is set in the Allowance Rates.

When the Allowance is given to an employee the percentage rate is applied to the employee salary and the calculated amount presented.

If the Allowance does not have an End Date and the employee has a subsequent change in salary then on saving the newly created Job and Pay record the existing Allowance will be closed and a new one created with the newly calculated percentage value.

Note: Allowance Codes do NOT have to be configured with Rates. This may be useful in scenarios where the amount varies on an employee by employee basis.

 

Variable allowances – change in FTE

In the following example below an Allowance Code has been created which has a Payment Type of Amount and it is not a Fixed Amount. The value is currently set at £1660 which is set in the Allowance Rates.

The full Allowance amount will be given to an employee with 1 FTE (full time hours). Because the amount is not Fixed, the system will look at the employee's FTE and pro rata the amount accordingly.

Similarly, if the Allowance does not have an End Date and the employee has a subsequent change in FTE then on saving the newly created Job and Pay record the existing Allowance will be closed and a new one created with the newly calculated percentage value.

 

Note: For more details on Updating Allowances please see the linked guide.

 

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