Average Rate calculations seem incorrect

Details
Last Updated: Wednesday, 26 February 2025 14:25

Average weekly rate is based on total qualifying earnings over the last 52 weeks divided by 52, or if less, the number of weeks employed. When an employee takes a week of leave they should be paid at the greater of their ordinary and average. The difficulty can be in translating this correctly to an hourly rate which is commonly how leave is taken. For employees with a contracted standard number of hours per week it is straight forward. When these vary, KeyPay compensates by using the actual hours paid to determine average hours worked. This can be compared to the standard contracted hours and the average hourly rate adjusted if applicable. Provided KeyPay is configured correctly and updated to reflect changes in employee work patterns, history has proved the average to be very accurate.

There are several reasons why the average may be incorrect, but the rate is always a moving target. It can change suddenly when a larger pay, (commission or back-pay?) moves into or out of the averaging period. Any unexpected discrepancy should be investigated as the employee may not get paid enough while on leave. A quick approximate check is to take 8% of total earnings and compare that to the time allocated for leave multiplied by the average rate. Any of the following could be the cause of differences:

  • The stated leave hours per week has been reduced as the employee is working less hours. See other FAQ about solutions.
  • Employee has been converted from Salaried to Hourly or vice-versa and the leave units have not been correctly adjusted. When an employee changes from daily to hourly, the daily leave figures must be adjusted by the standard hours per day. The average must be converted from a daily pay rate to hourly.
  • The time worked rate slots are not configured correctly for some payments. These are normally for units of time worked, but in some cases, (maybe for piece work) the quantity does not represent units of time. e.g If paid at 10c per piece and 10,000 a week are produced, the payroll must be told not to record this as 10,000 hours worked!
  • The set leave hours per week does not reflect the actual normal hours worked. If set to 20 hours for each week of leave, but they actually work 40, then the average will be doubled to provide the correct weekly average earnings while on leave.
  • Overtime increases time-worked above the standard leave hours per week. If regular, the employee should technically be given more time off to match. Usually though, it remains the same and a higher rate will result. Any payment at a higher rate will increase the earnings, but not necessarily the time worked. e.g T1.5 on a public holiday.
  • Large bonuses or similar extra lump sums can distort the average. Some payments may not actually qualify for leave accrual, although that is not common. These payments do not have a time component so they can only increase earnings, resulting in more money over the same actual hours.
  • The opening balances for the employee may not have been entered correctly. This only applies to existing employees when first setting them up on the payroll.
  • A change in the payroll period end date, or an employee becoming salaried and moving from weekly to monthly, can immediately change the date range over which the average is calculated, with the result that pays occurring 52 weeks ago can be either excluded or re-included thus changing the earnings total over the now different period.

The first steps to investigate these types of problems is to print an average rate calculation report which shows every pay for the last 12 months, along with the qualifying hours, gross pay and the calculations of average-rate. This report may still not agree when used historically, as calculations are based on the employees current entitlement and time worked, which may now be different than that used at the time or even since last posted.