You must have heard the word “Arrears in payroll” at your workplace. Arrears refer to the payment of salaries deducted for the previous day on the current day. In financial terms, “in arrears” means payment is behind.
This blog covers the A-Z of Arrears so that you can make the best decisions and won’t get confused again when you will get paid in arrears.
In this blog, we will throw light on the following subtopics related to Arrears:
- Meaning of ‘Paid in Arrears’
- Overview of Arrears in Payroll
- Common errors in Arrears payment
- Tips for Arrears Payment and management
- Need of payroll software for arrears
- HROne for Arrear Management
What does Paid in Arrears mean?
Arrears in accounting are related to two terms:
- Getting paid in arrears means when a service provider is paid after the agreement terms are met. Instead of getting paid in advance, the vendor gets paid by the end of the period, it comes under arrears.
- Arrears also refer to a situation when a company is lagging 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 until the account gets caught up.
Fact from the Past
In earlier years, “arrears of salary” were known to be salary due from an employer or a former employer that has not been paid or charged to tax.
What are Arrears in Payroll?
Arrears in payroll are when the payroll of the past week is run in the current week or there is a delay in the payroll schedule. Mostly payroll is in arrears as the last month’s attendance is taken into account at the starting of the next month. Paying the 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 results 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.
Most Common Errors in Arrears Payment
Arrears in payroll is tedious to understand, calculate, and payment. The entire payroll system might get affected by the wrong calculation of arrears. Some of the most common mistakes which you, as an employer need to avoid are mentioned below:
- Uncategorisation of employees, freelancers, and other workers
- Mismanagement in irregularity tracking and administering
- Error in calculating arrears by missing some or other components
- Non-compliance with statutory deductions
- Manual fetching of data while arrears calculation
Tips for Arrear Payment and Management
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 use payroll software to increase automation and reduce your management workload. It may be about you paying in arrears or getting payment in arrears.
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 check on organizations from where you have to make the payment- if that organization 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.
On the other hand, if you are paying arrear to your employees, you must take care of the following:
- To avoid the hassle of paying arrears to new joiners, assign a salary structure to them on their day of joining.
- Pre define the rules of arrears as per financial year and calendar date
- Maintain database to minimize the time consumed in recalculations and explanations
- Take special care of statutory deductions for PF, ESI, IT, LWF, etc., while paying in arrears
- Do not forget to generate and deliver payslips in case of arrears payment to employees
- For smooth and seamless payments, integrate payroll system with new-generation financial platforms like SAP Business One, Microsoft Navision, SAP R3, Tally, and more.
- Install payroll software for quick, easy, and painless arrears management
Why do Businesses pay in Arrears to Employees?
Paying in arrears gives organizations the time for secure financing, accurate time reporting, and calculating statutory deductions.
Why need Payroll Software for Arrear Payment?
In this era of innovative applications and hi-tech software, we can automate our manual tasks, reduce human workload and minimize errors and time consumed. Similarly, to ensure easy arrear payments, payroll software is a must.
The payroll management software automates arrears right from wage calculations, crediting payments, staying statutory compliant, and much more. Additionally, the software offers easy accessibility to approve arrears from anywhere and everywhere with mobile-friendly applications. Not only accessibility but software ensures data privacy and security along with maximum scalability.
There are numerous software applications online that can help in hassle-free arrears payment. However, we recommend you choose the leading one- HROne.
Why choose HROne for Arrear Management?
HROne is an enterprise-ready HCM suite with payroll management system that ensures saving in time, cost, and resources while paying in arrears to employees. This complete HRMS software offers the following benefits:
- Eliminate manual tracking and preparation of paid inputs from attendance records
- Automate the process of arrears after calculating deductions, taxes, and insurances
- Assure 100% compliance in accordance with statutory guidelines
- Automagically calculate salaries and arrears for new joiners as per company’s policies
- Error-free auto processing with smart error also based payroll system
- Generate 3 Dimensional report for all payroll and arrears related queries
- Reduce workload on payroll admin and simplify processes
Arrears in payroll is a bit complicated process to understand for both employees and employers. However, lack of understanding or ignoring the need to gain knowledge for smooth payment might be harmful to financial health.
For knowledge empowerment, we briefly described arrears, their importance, and tips for management for both employees and employers. We have also suggested the need for payroll software and recommended the comprehensive HRMS software for businesses willing to install one for their arrear management and other HR functions.