You must have heard the word arrears often at the workplace. Whenever an employees’ salary is cut, it comes in arrears or he is paid in arrears. If this is all that you know about arrears, the saying, “Little knowledge is always dangerous.” goes for you.
In this blog, we don’t just tell you what arrears in payroll mean but also a lot more. So, let us begin.
What does it mean to be paid in arrears?
Arrears in accounting are related to two terms. They are:
- Getting paid in arrears is when a service provider is paid after the agreement terms have been met. When the vendor instead of getting paid in advance, gets paid by the end of the period, it comes in arrears.
- Arrears also refer to a situation when a company is lagging behind in terms of payment. In this scenario, the arrears amount is considered from the due date of the first payment missed. When the account is paid in arrears, each following payment is applied to the earlier payment uptil the time the account gets caught up.
What are arrears in payroll?
Arrears payroll is said to be there when the payroll of the past week is run in the current week or there is a delay in payroll schedule. Mostly payroll is in arrears as the last month attendance is taken into account at the starting of the next month. Paying salary of the month in advance isn’t really possible as the employer or even the employee cannot predict his attendance for the month.
The Missed Payments
The missed payments or arrears are the result of payroll mistakes. An invoice may have got skipped or some automatic payment may have not been taken. This is why it is better to have a defined policy in place for arrears. Doing so will reduce confusion and fear in the mind of employees. For instance, if you have paid the amount for February and March but some amount of April month or whole amount altogether has been missed then whenever April’s payment would be settled, it would be considered in arrears until that time.
Tips for Arrear Payment
It may be difficult as a business owner for you to manage arrear payment while taking care of all the other business functions. So, we suggest you to use payroll software to increase automation and reduce your management workload. It may be about you paying in arrears or getting payment in arrear. Other than using the software, here are some tips you should use when your payment is in arrear:
- Audit your payable account on a regular basis so that you are up to date.
- Keep a tab on organisations from where you have to take the payment- if that organisation is constantly putting your payment in arrears, take it as a warning sign.
- If even after reminders, the client isn’t paying you, you should stop giving your services to the client till the time arrears are being settled completely.