Payroll under a collective agreement – what must you keep track of?
Short answer: If your company is covered by a collective agreement, pay is not only a question of the individual employment contract. The agreement sets minimum rates, supplements, pension and days off, and every adjustment must be in the payroll system before the next payroll run.
If your company is covered by a collective agreement, pay is no longer only a question of what is written in the individual employment contract. The agreement sets what you must pay as a minimum, which supplements must be triggered, and how pension and days off must be handled. Here is what you need to keep track of.
First: which collective agreement applies to you?
You are covered by a collective agreement if you are a member of an employers’ association that has concluded it, or if you have yourself acceded to it with a trade union. Get the agreement handed out and keep it together with the payroll setup. We often see that the owner-manager knows it broadly, but the details about supplements and pension have never been looked up since the payroll system was first set up.
Minimum pay and rate adjustments
The agreement typically contains a minimum wage and fixed rates that are adjusted on certain dates during the agreement period. This is where the first errors arise: pay continues at the old rates, because nobody remembered the date. The error grows month by month, and the amount must be paid back as back pay when it is discovered.
Supplements: evening, weekend, overtime and public holidays
Most agreements have rules for payment of supplements for work at certain times and for overtime. The rules for when a supplement is triggered, and how it is calculated, vary between agreements. That is why working hours must be registered correctly before pay can be run correctly. Incomplete timesheets are one of the most common causes of incorrect supplements.
Pension
Collective agreements usually contain rules on pension contributions: which pension fund must be used, how large a share the employer pays, and from when the employee must be enrolled. The contribution must be paid correctly and on time, and it is the employer who is liable if an employee has not been enrolled.
Days off, holiday and pay during absence
Many agreements give additional days off or holiday days beyond the rules of the Holiday Act. The same applies to pay during sickness, parental leave and child’s sick days, where the rules can be better than the statutory minimum. This means the holiday and absence records must be kept according to the agreement, not only according to the law.
The mistakes we see most often
Old rates after an adjustment. Supplements that are not triggered because working hours are not registered. Pension calculated on the wrong basis or paid late. Employees who are not enrolled in the pension scheme. Mistakes of this kind can lead to demands for back payment, and if the union raises a case, it can end up in a disciplinary procedure under the union rules.
How to get an overview of the agreement
A collective agreement is often many pages long, and most owner-managers have only read the parts that were necessary when the employee was hired. Start with a simple schedule with the points that matter for your pay: minimum rates by position type, supplements, pension contributions, additional days off and adjustment dates. The schedule becomes your checkpoint every time payroll is run.
What happens at a new pay adjustment?
When the agreement is adjusted, rates must be changed on a specific date, and it is precisely in that transition that errors arise. If the payroll system is not updated in time, the new rates are not paid out. Employees who have moved to another position group, or whose working hours have changed, must also be checked, so that the right rate is used.
How to get it under control
Make a short overview of the rules that apply to you: rates, supplements, pension, days off and dates of adjustment. Have payroll checked regularly against the agreement, especially after an adjustment. And keep the registration of working hours in order, because that is what pay is built on. If you instead let an external payroll administration handle it, you get a setup where the agreement’s rules are fixed in the system, and where the rates are corrected when they change.
How do you find out which collective agreement you are covered by?
There are several ways. If you are a member of an employers’ association, it can typically tell you which agreement applies to your industry. If your employees are members of a trade union, it can also confirm which agreement it has concluded. And if the agreement is referred to in your employment contract, that is a good start. Have it confirmed in writing before you build the payroll setup on it.
When there are several agreements in the same company
Some companies have employees covered by different agreements, because they have different tasks or are employed in different functions. Here it is important to make an overview of which employees belong to which agreement, and when they change. Otherwise you risk an employee receiving the wrong rate simply because the setup was made from another group.
An annual review
Agreements are often adjusted, and rates and dates can change. Set a fixed annual review in the calendar, where you check rates, supplements, pension contributions and days off against the payroll system. It typically takes less time than correcting an error that has run for several months.
Frequently asked questions
What happens if we have paid too little for a period?
The pay must be paid back, and the error is corrected in the next payroll run. The sooner it is discovered, the smaller the amount, and the fewer employees are affected.
Can we work out ourselves which rules apply to us?
Often yes, if you have the collective agreement and know your employers’ association. But many details are difficult to interpret, so it is a good idea to have them reviewed, especially when the payroll system is set up.
What does the collective agreement mean for pension?
The collective agreement typically sets which pension fund must be used, how large the contribution is, and when the employee must be enrolled. The employer is responsible for paying the contribution correctly and on time.
Who should check the collective agreement when it is revised?
The person responsible for payroll should review the changes and update the rates before the next payroll run. It should be a fixed part of the payroll routine.