This blog explains how to set up different types of rates and link them to a salary basis. With the rates-based salary basis functionality, you can calculate overall salaries by adding components such as base pay, HRA, and other allowances. Key features include tracking changes to component values, allowing user input or default values, and criteria-based derivation. It supports various frequencies and currencies for components.
Rate definitions are highly customizable, enabling you to adjust them to fit your organization’s needs. This flexibility allows you to tailor the setup to meet your salary management goals, whether you need user-entered values, default settings, or criteria-based calculations.
Key steps to create a new salary basis based on rates
Below, we outline the key steps to create a new salary basis based on rates. For example, you can have a user-enterable Gross Amount, percentage-based Basic Pay allowances, condition-based rates for Skill Development Allowance, and an Overall Salary that dynamically adjusts based on user inputs.
Step 1: Create an element for the user-entered value
- Create an element entry that links to the user-entered component on a salary basis. This connection ensures that the ‘Test Gross‘ amount entered by the user directly influences the calculation of the overall salary components, maintaining consistency and accuracy throughout the salary management process.
- Navigate to My Client Group >> Compensation >> Elements >> Create ‘Test Gross’. Create an element under the primary classification: ‘Earnings’.
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- Click Next to enter the basic information on the element entry.
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- Click Next and submit the element.
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- Add the required eligibility criteria to the elements and submit the element details to complete the process.
Step 2: Create Rate Definition for User-Entered Gross Amount
- Create a rate definition categorized as an element to facilitate user entry of the gross amount. This setup allows users to input their ‘Test Gross’ directly, ensuring that this value is seamlessly integrated into the salary calculations.
- Navigate to My Client Group >> Compensation >> Rate Definition >> Create.
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- Choose the category as an element to allow the component to be user-enterable, and add the element created in Step 1.
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- Scroll down to the Rate Contributor section and click Add to create a new contributor. Add the relevant details and click Save and Close to continue.
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Step 3: Create a Basic Salary Component
- In this step, you will create the Basic Pay component, which is calculated as 40% of the Test Gross.
- Navigate to My Client Group >> Compensation >> Rate Definition >> Create ‘rr_basic’.
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- Choose the category as Derived Rate and update the details. Before submitting, scroll down to the Rate Contributor section and click Add.
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- Add the Rate Contributor by specifying the rate name and Factor Value as 0.4 (representing 40% of ‘Test Gross’).
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- Save the Rate Contributor, then submit and close the rate definition page to continue.
Step 4: Create the component ‘Skill Development Allowance’
This component operates based on specific conditions, with varying amounts for different grades: 1000 for Grade 1 and 0 for Grade 2. There are two sub-steps to set this up.
Step 4 (i): Create Value By Criteria for Skill Development Allowance
- In this step, you will set up a Value By Criteria for the Skill Development Allowance, allowing for different amounts based on employee grade. When the criteria is Grade 1, the value (amount) is 1000. When the criteria is Grade 2, the value (amount) is 0.
- Navigate to My Client Group >> Compensation >> Value By Criteria >> Create.
- Create Value By Criteria and click OK to continue.
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- Create the first criteria for Grade 1 and enter the value.
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- Click on create’>>value for entering the value for the first criteria
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- Similarly, create the second criteria for Grade 2 and enter its value.
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- After creating both criteria and their values, click Submit.
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Step 4 (ii): Create Rate Definition for Skill Development Allowance
- This step links the Value By Criteria created in Step 4(i) with the rate definition.
- Navigate to My Client Group >> Compensation >> Rate Definition >> Create ‘rr_Skill Development Allowance’.
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- Click Submit to continue.
Step 5: Create the component ‘Other Allowances’ as a Derived Rate
- Create a rate definition to estimate balances by subtracting other components from the Gross amount. Before submitting, complete the rate contribution.
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- Scroll down to the Rate Contributor section. Click + to create a rate contributor.
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- Choose the components in rate contributor as derived type.
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- One example of rate contributor is shown below.
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- Create the rate contributor for all the other components as below in the rate contributor section. Click on submit.
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Step 6: Creation of Overall Salary Component
- Including at least one overall salary component in the salary basis is mandatory. The ‘Total CTC’ component aggregates all individual components, ensuring that the total aligns with the gross amount entered by the user. This serves as a validation mechanism, confirming the accuracy of salary calculations.
- Navigate to My Client Group >> Compensation >> Rate Definition.
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- Click Submit to continue.
Step 7: Creation of salary basis to connect the components together
- All the different types of rates are linked to the salary basis.
- Navigate to My Client Group >> Compensation >> Salary Basis >> Create.
- Create a salary basis of ‘Salary Basis Type: Salary amount is determined by rates’ by selecting the appropriate name, frequency, and legislation to meet the requirements.
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Step 8: Validating the result
- To validate the result, navigate to the Person Management page and change the salary tab.
- Go to My Client Group >> Person Management >> Choose Employee >> Actions Button >> Compensation >> Change Salary.
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- Choose the salary basis and switch to the Component tab.
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- Update the Gross Amount, which is user-enterable, to see other components auto-populate.
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- Click Continue and Submit to complete the process.
Business Benefits of Rates-Based Salary Basis
- Enhanced Flexibility and Customization: Rates-based salary structures allow organizations to tailor compensation packages to meet specific needs, such as varying allowances based on job grade or location. This flexibility helps attract and retain talent by accommodating diverse employee circumstances.
- Improved Accuracy in Salary Calculations: By breaking down salaries into individual components, organizations can calculate overall compensation more accurately. Automated calculations based on user inputs and predefined criteria reduce the likelihood of errors and ensure compliance with company policies.
Limitations of Rates-Based Salary Basis
- Complexity in Management: Implementing a rates-based salary structure can be complex, requiring significant setup time and ongoing management to ensure all components and rates are accurately maintained. This complexity may lead to confusion among HR teams and employees if not communicated effectively.
The Bottom Line
Setting up a rates-based salary basis in Oracle HCM Cloud streamlines salary management by offering flexibility and customization. By incorporating user-enterable values, derived components, and criteria-based allowances, organizations can tailor compensation packages to meet specific needs. The blog walks you through the step-by-step process, making salary calculations accurate and compliant, while highlighting both the business benefits and the challenges of managing this approach.
End-to-End Oracle HCM Cloud Solutions
If you’re looking for comprehensive end-to-end Oracle HCM Cloud solutions to streamline your HR processes, including advanced salary management like the rates-based salary basis discussed in this blog, feel free to connect with us. Our team of experts is here to help tailor the perfect solution for your organization’s unique needs. Let’s take your HR to the next level—reach out today
Author: Reshma P Eldho, Associate Oracle HCM Consultant
