When you change an employee's salary with a backdated effective date using the apply to current period method, Paycircle can automatically identify and recalculate salary-linked rate elements. This applies to system-calculated rates such as hourly rate or daily rate.
You can control this behaviour through a company setting, and it only applies to salary-derived elements created after this feature was released.
Company setting
To control whether back pay automatically generates, follow the steps below.
Click Company then click Payroll Configuration.
Click Settings.
From here, the Generate back pay for salary-linked elements is turned on by default; however, you can turn this off if you'd like to stop back pay entries from generating.
The setting applies to both UI and imported salary changes. Changing the setting takes immediate effect for future salary changes, but doesn't affect already generated back pay entries.
Backdate a salary
When you enter a salary change with a past effective date, using the apply to current period option, this:
Identifies salary-linked rate elements, such as hourly rate.
Shows a preview of which elements will be affected before you accept.
Recalculates those elements using the new salary, from the backdates effective date.
Calculates arrears for all affected elements.
Applies the change to the current pay run.
Example
An employee has:
Salary: £30,000.
Hourly rate: System-calculated from salary.
You backdate a salary increase to £32,000, effective from three months ago. You'll see a preview of the affected elements, and on acceptance this:
Updates the hourly rate based on the new salary.
Calculates three months of arrears based on the rate difference.
Adds the arrears to the current pay run, labelled by month.
Edit or delete back pay entries
If you need to adjust or remove automatically generated back pay, you can edit or delete the back pay elements after they have been created.
Limitations
This only works with the apply to current period method.
It only picks up salary-derived elements you create after this feature release.
It doesn't include percentage-based allowances, only system-calculated salary-linked rates.
National Insurance (NI) treatment
NI on arrears from backdated salary-derived elements is calculated based on the current period. This follows HMRC guidance that NI on arrears of pay must be assessed when payment is made, not allocated back to prior periods.