The payroll guide

How are wages calculated? Which forms of alternative payment are best suited to your SME? How do you compensate overtime? And what does the future hold? Discover it all in this guide, including the best payroll tips.

Contents

  1. The payroll process
  2. How are wages calculated?
  3. 7 useful payroll tips
  4. Alternative remuneration: the top 6 fringe benefits
  5. How should I compensate overtime?
  6. The do's & don'ts at the salary interview
  7. 6 payroll metrics to optimize your payroll
  8. The future of payroll administration

1. The payroll process

What does payroll mean?

The end of the month is nearing, which for most companies means that payroll is coming up. The process involved is called the payroll process. This process consists of several steps that you have to carry out yourself and others that you can outsource to your payroll provider.

First of all, it is important that you collect all payroll information and pass it on to your payroll provider. This information includes the gross salary, the fringe benefits, one-off salary components and leave or sick days. Your payroll provider then ensures that this data is correctly entered into the payroll engine, which in turn provides you with the pay slips for the calculations per employee.

Seems simple, doesn't it? But actually it is quite complex and time-consuming, because of the large amount of information and various additional processes per employee. We are happy to guide you through the process, so that your payroll can be as accurate and efficient as possible.

2. How are wages calculated?

In Belgium, the calculation of wages is in most cases the responsibility of the payroll provider to which you are attached. Are you, as an HR manager or business manager, interested in how it all works? Then you came to right place. First we'll teach you the tricks of the trade, then we'll go deeper into some crucial aspects.

The basis of the wage calculation

The wage calculation starts with the gross salary of the employee. However, this amount is never the full picture: the employer pays more, the employee receives less, because both parties are subject to social and fiscal contributions.

The employer (in the private sector) pays approximately 25% social security contributions to the NSSO (National Social Security Office) on top of the gross salary. For example, if the gross salary of an employee is set at EUR 2,500 per month, the total wage cost for the employer is actually EUR 3,250.

The employee pays 13.07% of that gross salary to the NSSO, which brings the total to EUR 2,173.25. On top of this the employee pays withholding taxes. These are determined by the gross salary and the personal situation of the employee: for example, does he/she have dependent children? What remains is the net salary of the employee.
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Fixed wage versus variable wage

Fixed wage
A fixed wage is a guaranteed wage, linked to the condition that performances are delivered. The fixed salary can have different calculation bases: per month, per week, per day, per hour or per item. In practice, the most common fixed wages are the monthly wage (white-collar workers) or the hourly wage (blue-collar workers). The quality of the services is not important, what counts is the fact that the services are delivered.

Variable pay
In contrast to fixed pay, variable pay is linked to the quality and/or quantity of the work done by the employee, the team or even the whole company. In addition, the variable pay can also be linked to the working conditions and whether or not sector-based premiums are imposed. Contrary to the fixed remuneration, the variable remuneration is not only linked to the delivery of work performances.

What data is crucial for payroll?

Dimona
The Dimona declaration is the electronic message by which the employer will report any change in the workforce to the NSSO. This way the payroll provider always knows for which employees it must make a wage calculation and during which period these persons must be paid. However, you should always bear in mind that there must be a minimum period of employment of 3 hours.

Fringe benefits
In addition to the gross salary, fringe benefits are also sometimes included in the total salary cost and therefore also in the wage calculation. These are alternative benefits that supplement the salary and optimize it in this way. Therefore, they are also called salary optimizations. In many cases they are also (partially) exempt from social security and/or tax contributions. Want to let your employees play a role in how their pay is calculated? Then opt for a cafeteria plan. This allows them to exchange parts of their normal wage for another benefit that makes more sense according to their needs. Want to know more about the options in terms of alternative remuneration? Click here.

The one-off wage components
Until now, we only discussed static data for the wage calculation: things that were agreed upon beforehand between the employer and the employee in the employment contract. But when calculating wages, variable wage data such as non-recurring wage components must also be taken into account:
  1. bonuses or premiums
  2. expenses
  3. overtime compensation
Vacation and sick days
Finally, there are a number of variable data linked to vacation and sick days that influence your payroll. Salaries are usually paid during these days, but given the few exceptions, these must still be recorded for an accurate salary calculation. Moreover, days off are not counted as a day worked for meal vouchers and eco vouchers. These must therefore be settled. 

In addition, there are certain types of leave that are not paid out, such as social leave. Different rules also apply for starters. They have not yet acquired full holiday rights, but they can appeal to youth holidays or European leave. However, the payment of those holidays differs: youth holiday is paid out at 60%, European leave is paid by the employee him/herself.

Personal data
Make sure to check whether personal data of certain employees have changed. If someone lives at a different address or if their marital status has changed, you must inform your payroll provider. Why is this so important? A change of address can have a direct impact on the payment of commuting expenses and a change in marital status has a direct impact on the withholding tax that is calculated.
With Officient, employees can use the Self Service in which they can easily edit their data. In this way, we save HR work and shift part of the responsibility to the employee, which provides more transparency.

3. Seven useful tips for payroll

1. Don't wait until the end of the month to pass on the details of new employees
For most companies, the end of the month is the time when they calculate and then pay out the wages. Various data must be passed on to the file manager to start the wage calculation for a punctual and correct payment. This often leads to an excess of personnel administration in a short period of time. Therefore, do not wait until the end of the month to pass on the data. This way, your account manager can first enter and check the changes in the personnel file and thus get started with the wage calculation.

2. Pass on all personnel administration changes at once
A personnel administrator helps other companies with their payroll as well as your company. Try to group all relevant personnel changes that you anticipate in the middle of that month and pass them on at once. That way, the file manager doesn't have to shuffle between different files for each change. This lowers the chance of input errors on both sides.

3. Don't forget to draw up a framework agreement and carry out the dimona in good time for flexi-jobs
Since 2015, there has been a new type of statute: the flexi-job. This is a government initiative to avoid undeclared work, if you want to earn some extra money in addition to a full-time (at least 4/5) job. It is important for compliance that you have a framework agreement in place in good time, with a clear description of the expected work. Do not forget to have a dimona drawn up immediately once the agreement has been signed.

4. Make sure that the performances you pass on correspond with the indicated dimona's
When you want to compensate an employee for the performances delivered, you must also make sure that this person is officially registered with a dimona. Check if the performances correspond with the indicated dimonas. Especially in companies and sectors where there is a lot of fluctuation in the number of employees, this is important.

5. Keep an overview of your conditions concerning eco and meal vouchers
Meal and eco vouchers may be two very well-known extralegal benefits - exempt from social security contributions - but the granting conditions differ according to the joint committee. Keeping a clear overview and distinction here is therefore also part of the tasks of the personnel administration and is important for compliance.

6. Talk to the right party for problems with holiday pay
As far as payroll is concerned, all employees in the private sector are entitled to holiday pay. However, the way this is calculated and the parties responsible for implementing it differ between blue and white collar workers. If a problem arises with the holiday pay, you should be able to address the right party:
  1. For white-collar workers, the employer is responsible for paying the holiday pay. This is an administrative task that is often carried out by the payroll provider.
  2. For blue-collar workers, however, this is arranged by a holiday fund (National Office for Annual Vacation or RJV), which handles both the calculation and payment. Which holiday fund is responsible depends on the sector in which the company operates (you will find an overviewhere ).
7. Use payroll software
Synchronised data and a stronf integration with your payroll provicder means that your payroll administration runs more efficiently. On the one hand, because you can keep and forward complete and structured data. On the other hand, because this can be done in one go.

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4. Alternative remuneration: the top 6 fringe benefits

Alternative remuneration is becoming increasingly popular within payroll. Not without reason, as it offers an interesting counterbalance to the traditional pay raise. Why are these wage optimisations such a welcome opportunity? The mechanism of social and fiscal deductions makes a traditional raise a less interesting option. Neither the employer (a wage cost that is too high in relation to the net wage increase) nor the employee (a net wage that is too low in relation to the gross wage increase) benefits much from it.

"82% indicate that their remuneration consists for 1-20% of fringe benefits."
1. Mobility
One of the most popular forms of alternative remuneration is a contribution to commuting. After all, employees have to get to their workplace and that brings transportation costs with it (in most cases). According to the law, these costs are private expenses, but nevertheless there are sectoral obligations and as an employer it is a nice gesture to reimburse these costs. The optimisations in terms of mobility can vary depending on the distance and desired method of transport. Find out what works best for whom. These are the most common ones:
  1. increased contribution to the commuting costs
  2. company car
  3. mobility allowance
2. Assets
Assets are also a popular pay optimization, both among employers and employees. And that's logical because they create a win-win situation: the better equipped employees are for their job, the better they can perform. Laptops and mobile phones (including subscriptions) have become indispensable in the business world and are usually seen as standard assets. But have you thought further? For example, you could offer them a fixed home work allowance.

3. Vouchers
The best known vouchers are the meal vouchers and the eco vouchers. Employees can use these to buy food products and environmentally friendly products or services respectively. However, other cheques are also becoming more and more popular. Just think of the culture and sports vouchers that ensure that your employees can relax sufficiently in their free time.

4. Bonuses
A bonus is a one-off extra payment for outstanding performance. This can range from profit bonuses and innovation premiums to end-of-year bonuses. Or a wage bonus can be used: a "non-recurrent result-related benefit" that must be granted to all employees or to a clearly defined group on the basis of objective criteria. Its payment must be linked to the achievement of a collective objective.

5. Insurance
Group insurance
Group insurance is one of the most important fringe benefits in Belgium. With this insurance, the employer saves on premiums for the supplementary pension of his employees. Group insurance can, as the name suggests, only be taken out for a group of employees. This group can consist of one or more employees, but everyone within the same group must be affiliated to the group insurance.

Hospitalization insurance
A hospitalization insurance reimburses certain medical costs of a hospitalization due to illness, accident or childbirth. Hospitalisation insurance offers an extra guarantee and can be further extended according to the employer's wishes. In addition, it often happens that an employee can include family members in this insurance at a lower rate than for an individually purchased insurance.

6. Cafeteria plan
On the one hand, the employee's freedom of choice is central to this form of alternative remuneration. They are encouraged to choose (within the range offered by the employer) the benefits that best suit their personal circumstances.

On the other hand, the introduction of a cafeteria plan means a modern pay policy for the employer. The employer profiles himself as a committed and interesting party who is attentive to the personal needs of his employees. And by responding to those individual needs, one can expect to increase their commitment and motivation.

5. How should I compensate overtime?

Overtime is an important part of your payroll, as you always have to pay for overtime. The compensation is made according to the arrangement you make as a company regarding the conditions under which overtime is allowed: that can be either catch-up rest and overtime pay, or a full payment.

Paying overtime with catch-up rest and overtime pay
Catch-up rest means that your employees can take the number of overtime hours as days off. When you look at this over a longer period of times, the catch-up rest ensures that the total of hours worked during a week comes back to 38 hours. This recuperation must be effective and may therefore not be included in other days off.

In addition, you must also compensate the overtime financially with a wage bonus of 50%, also called overtime pay. If the overtime occurs on Sundays, holidays or replacement holidays, the allowance is increased to 100%.

Paying overtime in full
Another way of compensating overtime is to pay the full amount of overtime hours at a standard rate of 150%. There is a tax advantage to this:
For employers, this advantage means that the withholding tax on professional income is reduced by 41.25%. They can allow employees to work up to 180 hours overtime at this favourable rate. For employees, the benefit takes the form of a tax reduction of 57.75%. This can encourage them to work overtime from time to time.

Voluntary overtime
Finally, employers can also allow employees to work up to 120 voluntary overtime hours in response to peak times. For these overtime hours, employees are entitled to their normal pay, plus the overtime bonus. However, they cannot be compensated with days off.

6. The do's & don'ts at the salary interview

Don't: Don't reject immediately
The request for a salary increase may seem to come out of nowhere to you, but to the employees it is probably a lot less impulsive. So don't respond with an impulsive decision. They took the time to consider very carefully what their added value is and why they deserve a raise. We suggest you do the same. Talk to the team manager and colleagues or consult the performance review reports in Officient.

Do: Consider and negotiate

"
Salary negotiation is not about winning-unless both parties win. If either party feels they have capitulated, not negotiated, both parties lose."

Nobody likes to lose. Research and communicate clearly what the possibilities are from the current position of the company, negotiate and come to a solution together. In this way, you show your employees that you attach importance to transparency and to their involvement, whatever the final decision may be.
Don't forget the team
Every employee is part of the bigger picture. If you want to give someone a raise, be sure not to lose sight of the team. Keep in mind that it should be feasible to promise the same to all employees within that team, provided they deliver the same performance. No idea how to start? With Officient you can compare salary costs and performance.

Do value the individual
Should you value the team? Yes. Should you simultaneously value your employees as individuals? Absolutely. Weigh and balance whether a pay increase is the best solution. If not, consider alternative ways of optimising pay. Above all, remember that every employee is unique, and therefore respond to specific needs. Is there a particular asset that would make the job easier? Are there training courses that the employee would like to follow? Is that person involved enough in the work culture? Instead of giving them what they want, give them what they need. How else do we approach this appreciation? You can read about that here and here.

Don't create tension
It takes courage to ask for a raise and the whole process leading up to the question can create tension. Be tactful, clear and relaxed, because you want to avoid additional stress at all costs.

Do create an opportunity
You can use the salary negotiation as an opportunity to learn a lot about the capabilities of your employees, and even more about the people behind the hard work. If you ask the right questions and listen, something good might come out of it.

7. 6 payroll metrics to optimize your payroll

Do you know whether your payroll process is running optimally? Payroll metrics are a way of mapping out the precision and efficiency of your payroll process. They are KPI's(Key Performance Indicators) which help to monitor the performance and execution of your process. These payroll metrics help you to intuitively detect and evaluate the accuracy and efficiency of your payroll administration.
You should definitely not lose sight of these 6 metrics
1. Compliance
If your payroll calculation is not compliant with what the law requires, then it doesn't matter that your payroll information is accurate and that your payroll is executed in a timely manner. Moreover, not complying with the law can cost you dearly. That can include fines, and even employees being barred from working until compliance is in order

2. The number of inconsistencies
Perfection applies to payroll: your payroll information must be 100% accurate for a 100% correct payment. Before you look at other metrics, you must filter out all possible errors and inconsistencies. Measure how often they occur per month and compare with previous months to determine if you are going in the right direction, taking into account these variables:
  1. The delivered performces
    How many hours must employee be compensated for? Does X get more than Y for the same performance?
  2. The different types of wages
    An employee with a fixed salary is paid differently from an employee with a variable salary or a freelancer.
  3. The different types of leave
    Some types of leave are paid out, others are not. So be very careful about this.
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3. The time needed for payroll administration
Check how much time you invest in payroll administration: from entering leave days to the final payment. You can also look at and analyse each process separately. For example, how long do you spend on data collection? This way, you will clearly see what takes the most time and how you can speed up these most time-consuming tasks.

4. The cost of your payroll process
Based on the two statistics above, you can determine the financial cost of inaccuracies and paid hours. Once you know what the cost is and where it comes from, you can look for effective ways to reduce it.

5. Efficiency
How often do you have to review or follow up on disbursements? How long does it take to correct an error? Do you have many payments that fall outside the normal payroll processing cycle? How quickly do you answer questions related to payroll processing? Asking these questions will ascertain how efficient your payroll process is. For example, it may turn out that certain complex processes would run better if you automated them, while others are more a matter of accuracy.

6. Security
First of all, check whether all payments are made to the right person and to the right account number. Afterwards, you must also guarantee the security of your payroll. After all, this concerns personal data that must not be lost.

8. The future of payroll administration

Payroll is one of the foundations of HR. The process has been around since the very beginning and is constantly evolving in line with changing contexts. What does the future of payroll look like? Take a look at some interesting trends.
A transparent policy on pay packages
You don't ask about someone's pay. Or could greater openness about pay packages have a positive effect? Many argue that it should and will become an essential part of the payroll process. Sharing information with your teams about how certain positions are paid and why would be a good thing. The idea behind this is that transparency about the structure of your payroll promotes fairness, equality and flexibility within the process. It gives your employees the chance to provide feedback, which in turn allows you to optimize your payroll.
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The rise of the gig economy
The term job has long since lost its traditional meaning. Fewer and fewer people are compromising their work-life balance, while more and more people are looking for other challenges. Modern forms of work are on the rise, not least because corona is putting us all at home. the gig economy is a good example. It is a form of workforce planning in which employees are deployed according to the needs of the project. This will make payroll a lot more complex, which brings us seamlessly to the next trend.

Improved protection of payroll data
Big data is becoming increasingly important within human resource management and therefore also within payroll administration. In contrast to internal payroll transparency, it is best to ensure watertight external protection. GDPR legislation demands that all sensitive information, such as payroll data, must be protected with the highest caution.

Automation and AI
Companies that still do all this on paper are seeing black snow. How do you create a transparent payroll administration? How do you best protect data? How do you deal with the complexity that the gig economy brings? With good reason, people are looking in the direction of automation and AI (Artificial Intelligence). Automation is not only cost and time efficient, it is also cloud-based. This means that payroll information can be consulted and modified securely anywhere and on any device: from leave to sick notes, from pay slips to payroll evolution and even payroll metrics. If you manage your data in this way, you can significantly optimise your payroll processes. Not only do you reduce inconsistencies, you also create more quality, better decisions and transparency.
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AI goes one step further: the extremely smart systems can generate and analyze more complex data than any program. As a result, it can take the payroll process to the next level.

Interested in a detailed salary guide for 2021? In an exciting collaboration with a number of experts from different fields, we developed a free guide that answers some crucial questions. Download your copy here and discover how you can reward your employees fairly and in a future-proof manner.