The rules for paying workers are complex and constantly evolving. That’s nothing new. And if you’re like most people, you try not to think about it. “That’s the job of the Payroll software.” Most people want their time tracking systems to be as simple as possible, but NO Simpler! And naturally, the system needs to adapt to the moving target of ever-changing laws and rules and do so easily. Add to this that employees are more likely to leave after receiving an incorrect pay stub, and you can see the importance of generating the perfect paycheck.

Fully automated HCM systems like Kronos utilize pay rules to implement these complex and arcane laws around who gets paid how much and when. This makes our system easy to configure, test and operate compared to other payroll solutions. And you don’t need to pay high-priced and hard-to-reach technical experts to implement rules that seem to pop up almost every week.  Pay rules come in several flavors, to deal with the complex layering for rules. For example: 

•    Sequence Rules - How to process hours toward overtime allowing for differences with union and non-union employees
•    Fixed Rules - dictates pay periods and day divides
•    Exception Rules - flag when employee punches in early, late, or forgets to punch
•    Combination Rules - How to process payroll when rules are combined 
 
So, what is it that makes these rules so complex? In short, it’s the combination rules. What happens when there are overlapping rules regarding overtime, rest between shifts and a myriad of other factors, all going on at once? Unfortunately, a unified HCM platform can’t relieve the complexity of overlapping laws and regulations, but it can make it easy to implement them with an integrated approach to time and pay rules.

So How Complex Are They? 

On our data science practice, we recently examined the complexity of our customers' situations to get a profile of their pay rule complexity.

We wanted to get some idea of the complexity of our typical customers. But how to measure complexity? We created an index, which factors in the number of combination pay rules, the specific rules involved, and the number of overlapping and conflicting rules. From this data, we created a scoring system for complexity, and measured it against the frequency of usage.  In other words, complexity by frequency. Since there are quite a lot of these combinations, we focused on a small number of the highest complexity situations for an organization. It turns out there’s quite a range. 
 

Paycode Complexity (3)

Simple Pay Situation

The chart above shows a very simple pay structure, with a maximum complexity level of 2. Also, most of the rules as actually used, have a complexity level of zero. It’s about as simple as it gets. In fact, it begs the question, is it too simple? Do these pay rules adequately describe the overlapping situations encountered by this employer? In this case, it does, but this is a very simple case. For most other situations, this structure is too simple to cover the overtime, weekend, and exception rules necessary to run a business. 

Let’s look at a different customer. 

 

Paycode Complexity (4)

 

Complex Pay Situation

Looking at our second example, it’s a much different story. Here the maximum complexity level is 153. And while the most complex rule is not invoked very frequently, there are a wide variety of highly complex rules (those with a score of 10 or higher). Taken together, there is not just one complex rule, but a series of complex rules. And as a group, the frequency of highly complex rules is substantial. Of course, even a low frequency of any given rule means that the pay rule is used under specific circumstances. That’s why it was created! However, this analysis can highlight these rules, making sure that the most complex rules still apply.

What does this tell us, aside from the obvious, that the second case is more complex than the first? The second case has a number of highly complex rules in place. This is where a discussion with the customer is needed. Which are the most complex rules, and are they justified? Is the complexity due to local regulation? Union rules? Or does this result from overly complex company policies, that cause employee (and manager) confusion? 

You know your pay structure is complex. This analysis visualizes just how complex it really is. And if you can leave it to your HR or payroll team to worry about generating perfect paychecks so you don’t have to, be sure to give your payroll manager a high-five.

If you’re interested in evaluating the health of your payroll approach, getting more insights around payroll options, and exploring solutions that could work for your organization, we've got you covered. Make sure you've got all the tools and strategies you need to manage your pay structure's complexity. Your employees will thank you for it.

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Published: Tuesday, August 13, 2019