Updated: Aug 24, 2019
Risks and pitfalls associated with this practice.
Years ago when computers were not as ubiquitous as today, HR or accounting staff would laboriously calculate attendance and payroll manually. This meant punching numbers into a calculator and writing down the results on a columnar pad. Depending on company size, this task could take days or even weeks to accomplish.
Due to the length of time required to manually compute attendance and Payroll deductions (such as tardiness, under time and absences) companies opted to apply these deductions to the next payroll period, instead of the current. Sometimes referred to as "Cascading Deductions" this procedure was implemented because it provided ample time needed to calculate.
A side effect of this cascading procedure is that the very first payroll period (for new hires) will have NO DEDUCTIONS - they are paid in full. This is because no previous period exists. Succeeding payroll periods will then have deductions based on the attendance of the previous period.
Corollary to the above, when an employee resigns the last period will be double deducted.
Today, technology has drastically shortened the time needed for attendance and payroll. What took days or weeks to accomplish could be done in a matter of minutes or hours.
Despite the availability of this technology, some companies still cling to this outdated practice. Either they have gotten used to this procedure and uncomfortable with change, or afraid to use technology.
Risks and Pitfalls:
The following are the negative effects of this antiquated practice:
1. In case an employee unexpectedly abandons his job, he will be able to run away with undeducted attendance and payroll deductions. Needless to say, this would be grossly unfair to his employer.
2. When an employee resigns, his last pay would be double deducted. This is because attendance deductions from both the previous and current payroll periods are now applied to his last pay. There is a risk that his last pay may not even be enough to cover both previous and current attendance deductions. An unnecessary risk to his employer.
The Correct Procedure:
The best practice is to apply attendance deductions in "real-time". This means that attendance deductions that occur within a payroll period are immediately applied (deducted) from the same payroll period. No delays. Automation has made this not only possible, but essential.
In order to ensure fairness, the best practice is to apply attendance deductions in "real-time".
Transitioning to "Real-Time" mode:
Once a company decides to abandon this "cascading" practice and go the "real-time" mode, the next challenge now is how to transition. This is tricky because the very first payroll period just after the transition would entail a double deduction. Most employees are unprepared to be hit by a double deduction and will surely cause morale issues.
Our next blog will discuss a suggested transitioning strategy. Stay tuned! :-)
Disclaimer: The ideas, comments and suggestions expressed in this article are solely the author's and is offered to you the reader at your own risk.