Should Your Company Activate Workday® Retro?
Overview
Are you contemplating activating Workday’s® Retroactive Processing functionality (“Retro”) and don’t know if Retro is right for your company? Have you been struck by the passion of current customers’ responses when you have asked them about Retro? Did you find customers that told you Retro was the greatest thing since sliced bread, applauding the hours (and sometimes days!) it saves them every payroll cycle. Have you found others that told you they hated Retro with a fiery passion, lamenting that they felt it takes them more time to use and maintain Retro than to do the work manually? If you are trying to figure out to whom you should listen, this blog post will provide you with valuable information on what Retro does, the benefits of retro, and the costs and prerequisites of using Workday® retro.
How Retro Works in a Nutshell
Every period, the payroll team will run a retro calculation that will look for employees with supported retroactive events and create a retro result similar to a payroll result. Supported events are things like retroactive time entry, a retroactive benefits change, etc. Basically, any data event that changes employee data is likely a supported event.
If the retro calculation finds a supported event, it will try to recalculate all payroll results for the employee from the effective date of the event to the present. It finds the differences between the retro calculation and the original calculation for all earnings and deductions configured to recalculate with retro and will bring forward those differences onto either the current period on-cycle payroll or an on-demand payment (based on your preference). The on-cycle check or the on-demand then pays out the retro difference.
The term “supported retroactive event” is important, because Workday® as of yet cannot calculate retro for employees in certain situations. Employees in multiple jobs in different pay groups cannot have retroactive events calculated automatically. Neither can employees in multiple jobs in multiple companies. Any employees in either of these two situations will not be able to have retro run in any situation, so you will want to evaluate if these situations are applicable to you and if that is a deal breaker.
Also, when an employee has a one-off unsupported retroactive event (such as a one-time change in pay group, company, or tax authority), Retro will not recalculate any periods prior to the change ever again and some manual calculation may be required on occasion. There are reports available to help with this effort.
There is obviously a lot more to how Retro works that your Workday consultant should teach you if you implement it. However, in my experience, the above is what you need to know about the overall general process when trying to decide regarding whether to use it.
Adding Value
Now that you know how on a high-level Workday® Retro works, it is important to determine if using Retro would add any value to your company. This section will explore some of the ways that Workday® retro can potentially make a significant difference to your Workday® payroll experience.
Compensation Changes
Many people first think of compensation changes when they imagine examples of retro pay. In Workday®, a retroactive raise is a good example of how retro can make a difference. Workday® can find every instance that has calculated with the old rate and recalculate a difference with the new rate so that almost no manual effort is required to calculate back pay. How much value this adds depends on the frequency and scale of such changes in Workday®.
Time Tracking
Regardless of whether you use Workday® Time Tracking or a third-party system, Workday® retro can pick up retroactive time entries if configured to do so. How much value this adds depends on the scale of retro time entries you process every period.
One thing to consider is that many companies that use Workday retro will open up their time entry procedures to allow employees to enter time in prior periods, even if they previously discouraged this behavior. Because Workday® can calculate this type of back pay automatically if Retro is used, there is little cost to the payroll team to allow for this greater flexibility. However, if you choose not to use Retro, you may be unable to allow prior period time entry because Workday® payroll would never pay it out automatically.
FLSA
Workday’s® FLSA regular rate of pay functionality can work hand-in-hand with Workday® retro. Time worked and hours worked in a prior week can be loaded into that prior week’s total FLSA Wages and total FLSA Hours balances, with any differences in the overtime premium being automatically calculated and carried into the current period. There is not a way to allow automated retroactive time entry that flows automatically into Workday’s® FLSA functionality if you do not use Workday® retro. If you make use of compensation types such as shift differentials, commissions or non-discretionary target bonuses, that means that all of those regular rate of pay calculations would have to be performed manually for each period impacted if you did not use retro. As you can see, this can be a labor-intensive process that Retro can eliminate. Workday® retro can be a powerful tool in this situation that saves you from having to manually calculate additional overtime premiums for late time entry.
Absence
Much like Time Tracking, retroactive absence changes can flow automatically into payroll using the Workday® retro functionality. This includes both time off and leave of absence events. Depending on the expected frequency of such retroactive events, this could be a dramatic time savings.
Benefits
Finally, Workday® Benefits can smoothly work with Workday® retro to pull in any missed deductions. For companies that often have employees waiting up to 30 days after hire or other qualifying events to elect Benefits, this could potentially save you a good amount of time as well.
Please note that not all companies want to use Workday® retro with Benefits. You have the ability to determine exactly which earnings and deductions that you want to run with Retro, so it is possible to have retro run for Time Tracking earnings and not Benefits (or vice versa).
Costs and Prerequisites to an Efficient Workday® Retro Process
Using Workday® retro will save you time in some areas, but it will also cause you to spend new time in other areas. The goal is to determine if using Workday® retro will save you more time and hassle overall than not using retro. To perform this cost/benefit analysis, the next component to determining if retro is a good fit is determining what will be required to maintain Workday® retro.
Payroll Processing Time
In Workday®, a retro calculation is processed, reviewed, and completed prior to an on-cycle payroll calculation. In some ways, it can be viewed as a second payroll cycle within the cycle. For low retro activity environments, this process can be successfully completed in a few hours, possibly fewer for experienced processors. For high activity environments, the review of retro data could take longer. An important consideration when determining whether to use Retro is to determine how long it would take for you to process all the retroactive activity manually vs. processing it with Retro. Your Workday® payroll consultant should be able to help you get an idea of how long it would take to process Workday® retro with your expected retroactive activity level, as this amount of time varies between customers.
Stability of payroll configuration
Another prerequisite to having retro functioning properly is having a payroll process that already calculates payroll correctly without manual overrides for on cycle payrolls. If you are live on Workday® payroll (or are implementing payroll), and you find that you are needing to frequently override what Workday® calculates, you will want to fix/automate that configuration before you use Workday® retro. For example, if the salary earning prorates incorrectly during sub periods, it will prorate incorrectly during a retro calculation as well, but it will be more difficult (although still possible) to fix in a retro calculation than it is in a current period calculation.
Strength of HCM processes
Effective communication channels between the payroll team and the people inputting compensation, benefits, and absence data into Workday® will help you avoid many of the common pitfalls customers often face immediately after implementing Retro. For example, if an employee originally had the wrong hourly rate loaded, the way this rate is corrected can either kick off a retro calculation automatically or can require payroll to manually kick off retro for that employee. Determining desired processes and sticking to them is a critical part of having a positive Workday® retro experience.
Furthermore, the methodology of updating any type of configuration in Workday® that affects payroll will become centered around effective dates. Changing configuration with an effective date prior to the current period will make Workday® payroll think that the configuration change should have been in effect in prior periods, which could cause unintended retro consequences.
Your Workday® payroll consultant should be able to inform you of many of these pitfalls and recommend HCM processes that have learned from others’ experiences. I have a 90-minute training that I often give customer payroll and HCM teams. If your consultant cannot do this to your satisfaction, you should request another consultant. Trust me on the importance of this component; failure to abide by the recommendations in this section is probably the most common cause for why some customers are so passionately against Workday retro.
Conclusion
By now, I hope that you now have a better idea of all the components you should consider when deciding whether your company should implement Workday’s® retro functionality. I hope that you can appreciate the tremendous value that Retro can provide, where customers have often tripped up, and where you will need to focus to ensure its success.
