Understanding Variable Pay Components

Variable pay components are an integral part of every employee’s payslip. Each month, the payroll manager prepares this data to be entered into their payroll software. These components are then used to calculate the employee’s compensation and are, for the most part, reflected on the payslip. This guide covers all the important details on the topic.

What is a variable pay component?

By definition, a variable pay component is data whose value can change from one month to the next. The employment contract includes fixed elements such as the base salary and working hours, as well as variable parts like leave, bonuses, overtime, or on-call duties. This can also include benefits such as a mileage allowance or benefits in kind (company car, company housing).

Each month, depending on the employee’s activity, the manager prepares the various variable components. This meticulous calculation has a direct impact on the salary received by the employee. It must, therefore, be highly accurate, as any error can have damaging consequences for both the employee and the company.

Each variable component has several criteria:

  • a frequency: monthly, yearly, etc.
  • eligible employees
  • a calculation formula with a unit value or a specific rate
  • an impact on the calculation of remuneration and social security contributions

The different types of variable pay components

During each pay period, a certain amount of data is collected. Here is a non-exhaustive list organized by theme.

Variable pay components related to leave and absences

Most leaves and absences are recorded on the payslip. Some have a direct impact on the calculation of remuneration. This is particularly the case for sick leave or unpaid leave. Indeed, sick leave can reduce remuneration when there is a waiting period. As for unpaid leave, it suspends salary payment for the days concerned.

Variable pay components related to attendance

Each employee may receive additional compensation according to certain rules provided for by a company agreement or collective bargaining agreement:

  • a remote work bonus to cover work-from-home expenses
  • meal vouchers or a meal allowance
  • mileage allowances to cover daily commuting expenses
  • an attendance bonus to reward diligence at work
  • professional expenses
  • salary advances

Variable pay components related to working time

The number of hours worked by each employee can change from one month to another. The company’s activity and exceptional events are the factors that impact these variable pay components. Among them, we find:

  • overtime hours for full-time employees
  • supplementary hours for part-time employees
  • on-call bonuses

Bonuses

The collective bargaining agreement, a company agreement, or the employment contract may provide for the granting of certain bonuses under very specific conditions. Among these bonuses, we can mention:

  • commissions for sales employees
  • bonuses linked to annual objectives or performance
  • seniority and bonuses based on collective agreements
  • year-end or 13th-month bonuses
  • hardship bonuses
  • end-of-contract or retirement indemnities

How to best prepare variable pay components?

In many companies, this data is prepared on an Excel spreadsheet and then sent to the team in charge of payroll management or to the accounting firm when payroll is outsourced.

Collecting payroll information

The quality of the work done during this first step determines the reliability of the calculation that will follow. In many companies, this phase consists of consolidating Excel spreadsheets and paper forms. The HR department verifies the information submitted by employees and managers. This work is particularly long and tedious. It is a major source of inaccuracies.

Calculating variable pay components

This step requires a great deal of rigor. There is no room for error. Here is our checklist for a successful calculation:

  1. Verify the reliability of the input data
  2. Take into account the applicable legal criteria (sector-level agreement, collective agreement, contract)
  3. Validate the calculation formula
  4. Check the consistency of the calculated values

All that remains is to issue the payslip.

Example of a variable pay component calculation: the case of meal vouchers

Number of meal vouchers = number of working days – number of full days of absence – number of days with a lunch reimbursed by the company as part of a business trip

To simplify the calculation of meal vouchers, companies often start with a monthly average of 18 working days. This generally corresponds to the number of working days minus the average number of paid leave days taken each month. All that’s left is to subtract other absences (sick leave, unpaid leave, etc.).

Stop using Excel spreadsheets: how to simplify the calculation of variable pay components?

If you find all this very manual and time-consuming, you should know that there is a much more optimized solution. Our variable pay component management software module, integrated into My Intranet HRIS, will allow you to:

  • automatically collect data
  • directly calculate most of your variable pay components month after month
  • export the data to your payroll software

Our interface will format the calculated variable pay components according to the nomenclature expected by your payroll management tool to allow for quick integration without manual entry. Our system is already compatible with many payroll software solutions on the market.

Our module is based on absences, attendance data, as well as events entered by each employee in the HRIS. The payroll manager can adjust the automatic calculations and thus take into account events unknown to the software.

Optimal management of variable pay components

The payroll process is based on several steps:

  1. Data collection: leave and absences, working time, bonuses, etc.
  2. Verification of their consistency and passage through a validation circuit
  3. Manual entry or automatic integration into the payroll software

Each payroll software has an interface on which the manager enters the previously calculated variable components.

If the company is equipped with My Intranet HRIS and the payroll software has a compatible interface, the integration will be as simple as importing the data from the HRIS and verifying its consistency.

Discover the variable payroll components software now!
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What are the stakes for the company of an error-free payslip?

An incorrect variable pay component due to invalid input data, a calculation error, or a data entry problem leads to three risks for the company:

  • Socially, an impacted employee will be dissatisfied. This can lead to a loss of trust and a decrease in engagement and productivity.
  • Financially, a late correction can prove to be very costly for the company, especially if the duration or the number of impacted employees is significant.
  • Legally, an employee who feels wronged can turn to the Labor Court (Conseil des prud’hommes) to obtain compensation in court.

The more widespread the problem, the more likely it is to negatively impact the company’s social climate. In some situations, this will be escalated to the staff representative bodies.

Fortunately, a well-established process will save you all this trouble.

Variable Pay Components and GDPR: how to process sensitive data correctly?

All variable components constitute sensitive data. Some are even personal data. Therefore, they must be processed while ensuring their security and confidentiality. This ensures the company’s compliance with the General Data Protection Regulation (GDPR).

It is therefore best to avoid sending an Excel spreadsheet by email or, worse, a paper sheet. A secure interface should be favored for data transmission.