Arrears - What Is The Meaning Of Arrears And Its Importance | HRMantra Hr Software

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Arrears Meaning

An arrear, in simpler words, is the dues that have not been paid by the stakeholder in the given time.

Arrears are very tricky. Basically, a good amount of time of HR professionals goes into calculating, processing, and managing business arrears—especially ones related to employee payroll.

Now, clearing arrears is important to ensure the trust of employees. That''s not it! There are more reasons why arrear management is important for a company. Shall we discover all of them?

Let''s explore:

• Understand The Arrears Meaning
• What are Salary Arrears with Example?
• Reasons Behind Salary Arrears
• Importance of Paying Salary Arrears
• Processing Salary Arrears

Understand The Arrears Meaning

The word ""arrear"" is very common in the business world. It means nothing but a payment that is not paid or released at a particular time.

When you miss a payment more than once or twice, it will be accounted for under arrears. Arrears for most companies are those payments that are released or cleared at the end of a particular period.

Now, there are varieties of arrears that include DA arrears, salary arrears, and more.

What are Salary Arrears with Example?

Salary arrear often occurs at the time of annual appraisals.

Salary arrears refer to when some part of an employee''s salary is not paid for one reason or another.

Again, several reasons may be attributed to this, and will be explained subsequently in great detail. First, though, let us look at an example to understand salary arrears better.

Amit''s salary was Rs 15,000 in the month of April, and he got a hike of Rs 5000 from May. His increased salary was reflected in July. Though it was revised in the month of May, he received the same in July. This simply means his July payslip will include arrears for May and June – that is, a total of Rs 10,000.

Reasons Behind Salary Arrears

Here are some of the most common reasons why salary arrears happen:

• Missed Payments: This normally occurs when the finance or HR department ends up making a mistake during payroll calculation.
• Attendance Errors: This happens when the employees do not mark their attendance properly, or the managers do not approve it on time, and the HR processes payroll unknowingly. Most of such arrears get cleared in the next subsequent month.
• Bonus Omission: Most companies pay their employees bonuses, whether they are performance or festival bonuses. If the manager doesn''t approve the bonus on time, it gets adjusted in the employee''s next salary.
• Late coming Reimbursement Claims: Where the employees are entitled to reimbursement regarding expenses incurred on behalf of the office, such as travel, food, and fuel, but they fail to claim it on time, that also comes under arrears.
• Salary Revision: We have already given an example of this type of arrear in the earlier section. This type of arrear happens when an employee''s increased salary is adjusted in his or her next month''s salary.

Importance of Paying Salary Arrears

Most of the time, arrears in the salary are cleared in the subsequent salary of the employee. Since it was already a late payment, it becomes imperative to pay the employees as soon as possible.

Manual systems cannot avoid payroll errors completely. You can, however, do damage control and increase employee trust by promptly addressing these arrears.

Even though they would be irritated that the money wasn''t sent at the specified pay period, at least they know that their company corrects such mistakes with the payment of the arrears.

Salary Arrears Processing

Let''s face it—nobody likes getting an arrear; it is really depressing. Therefore, your main responsibility is to sort how you can fastly calculate and process the arrears at the earliest. You must take utmost care that they don''t have a bad experience once more.

Keep the following things in mind when computing salary arrears for the employee:

First, know the exact amount of the employee''s basic pay. The exact amount he or she was meant to receive has to be found out. Compare it with the amount he actually received. What is the difference between these amounts? Well, that is the arrear of the employee that shall be paid accordingly. There you have it on arrears—all you need to know.

Now that you know how directly arrears can impact employee trust and morale, it''s best to avoid them at all times. Irrespective of whether you can or cannot avoid them, the amount of time spent on them is saved for you by embracing automation.

HRMantra, our simplest HR software, will help. Start now, not a single second in managing it. Don''t take our word; book a demo to see for yourself!

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