Under the terms of the FLSA, all non-exempt employees need to receive at least the minimum wage. This will be either the federal or state minimum, whichever is higher. When you are adjusting your employees’ pay, it is essential that you remain compliant with relevant labor laws. It’s also a good idea to consider the rates of pay offered by your competitors. This way, you can ensure your company remains competitive within the labor market. When prices increase in the wider economy, your employees will find it more difficult to achieve the same standard of living with their salary.
- Changes may happen for a number of reasons, from starting new employment to getting a promotion or leaving a job.
- Generally, the rules discussed about income tax withholding adjustments apply to Additional Medicare Tax withholding adjustments.
- If employees within your organization are doing the same job but earning different amounts, a pay adjustment may be necessary.
New, trends and analysis, as well as breaking news alerts, to help HR professionals do their jobs better each business day. Growth in the Social Security wage cap from $128,400 in 2018 to $160,200 in 2023 represents nearly a 25 percent increase over the past five years. Overtime can be irregular, which is why it is often an easy oversight.
Document the changes in accordance with applicable wage and hour and employment laws and your company policy. You should keep a copy of this documentation on file as a part of employee recordkeeping according to those laws and be sure to share a copy with the employee for their own records. Payroll adjustments must comply with all relevant federal, state and local laws. HR software can be helpful, but having a human resources professional oversee this task can be beneficial. Overtime wages are a frequent adjustment made for nonexempt employees based on the number of hours over the non-overtime threshold in a workweek, typically 40 per workweek.
If you are unsure about any of these legal requirements, it is a good idea to seek independent legal advice. When a worker receives a demotion, they may also receive lower compensation to reflect their new position. As demotions are often difficult for both employees and businesses, you may want to seek legal advice when making such pay adjustments. Payroll adjustment software is by far the best way to manage these tasks. These systems enable you to record and store all information automatically, which helps the HR team closely monitor processes and with greater accuracy. You can also visualise all of the changes in one single view, as well as attach medical certificates to the corresponding payslip, for example.
Notify the Employee
When calculating retro pay, an employer is still responsible for ensuring taxes are paid. Once manually calculated, retro pay is added to the next payroll run (noted as ‘miscellaneous income’) but doesn’t have to be entered as a change to a single paycheck. Any pay missed during changes to a shift pattern, where an employee isn’t fully compensated, can create quickbooks for contractors a shortfall. When shift patterns become irregular, like overtime pay, bonuses, or missed or extra hours, there is often a shortfall in pay, which will need to be owed retroactively. The definition of full-time hours may dictate whether employees are eligible for fringe benefits and could have implications for your hiring strategy and pay structure.
This means that you cannot make adjustments to pay based on a person’s race, gender, religion, sexuality, medical history, or age. Consider a company that predominantly offers merit increases to younger workers, for instance. This could be an indication of age discrimination within the business.
Before you change an employee’s wages, make sure you understand pay adjustments and how to make them. A business also might need to make a temporary payroll adjustment, such as a correction to an overpayment. Either way, it’s important to carry out this function properly for wage and hour compliance and morale. Making payroll adjustments for employees is an important part of running a business. A pay adjustment is any changes to an employee’s pay, whether an increase or decrease, one-time or long-term.
- Meanwhile, the standard deduction for married couples filing joint returns has increased to $29,200 — a $1,500 bump from 2023.
- There will always come a time when you need to change the pay of an employee, which can be either for good, or at times, for bad.
- Most of these are done for employment tax purposes and deductions from government benefits provided to the employees.
- Raises for tenure are common, and help retain employees for longer periods of time.
- When teams have clarity into the work getting done, there’s no telling how much more they can accomplish in the same amount of time.
A pay raise, for example, is a positive and permanent adjustment because you’re increasing your employee’s pay moving forward. In contrast, a year-end bonus is a one-time salary adjustment where you increase your employee’s pay for one period, and then it goes back to normal. Some changes in benefits can necessitate a compensation adjustment. This can be a gross-up adjustment, for example, to cover the income and payroll taxes owed on the benefit.
How to pay retroactively
The annual Social Security and Medicare trustees report released in March said the program’s trust fund will be unable to pay full benefits beginning in 2033. If the trust fund is depleted, the government will be able to pay only 77% of scheduled benefits, the report said. Explore our collection of customizable account templates for Microsoft Excel and Smartsheet, including balance sheets, expense reports, and more. Empower your people to go above and beyond with a flexible platform designed to match the needs of your team — and adapt as those needs change. To amend information in their previous payroll, you and your employee need to carry out a PPA. The “claim” process is used to request a refund or abatement of the overpayment.
Meanwhile, the standard deduction for married couples filing joint returns has increased to $29,200 — a $1,500 bump from 2023. Whether your state requires it or not, notifying the employee in writing is a good rule of thumb. Letting your employee know can help avoid confusion and frustration. Not to mention, putting it in writing—and getting your employee’s authorization—can act as documentation. To help you figure out how much you received in benefits over the course of the year, the Social Security Administration should send you a form in January. Laws relating to the prevention of pay discrimination include the Americans With Disabilities Act and The Equal Pay Act of 1963.
For example, you may have incorrectly classified an employee as FLSA-exempt. As a result, you may not have paid the employee the overtime compensation they were owed. All workers covered by the act are also entitled to compensation of at least 1.5 times their usual rate of pay for any hours they work in excess of the 40-hour workweek.