Concept: Future Payment Plans and True Ups
Compensation Administrators can create future payment plans to define the type of bonus (amount or percent) and bonus targets across multiple bonus or one-time payments. At the end of the period, the Compensation Administrator can true up a future payment plan by paying the outstanding balance. Future payment periods can extend beyond annual.
Typical bonus plans define the type of bonus (also amount or percent) and the plan target. A manager can distribute a bonus target over several predefined bonus payments (called tranches) and accumulate the bonus paid to date across bonus or one-time payment plans. Bonus plan frequencies can be annual, monthly, or quarterly. Bonus plans that include tranches don't use true up, but a future payment plan can include bonus plans that use tranches.
Plan Type | Security Group | Description |
|---|---|---|
Future payment plan | Compensation Administrator | The bonus target can consider multiple bonus and one-time payment plans and does a true-up at the end to pay the outstanding balance. |
Bonus plan with tranches | Manager | Workday pays out the bonus target in predefined installments using fixed frequencies. |
A true up event represents a combination of fixed pay, variable pay, and short-term incentive pay. You can set a target bonus and accrue bonuses over the year or period until you reach the target bonus. A true up also enables you to distribute a total bonus in tranches over several periods. Distributing the payout over several tranches is an advantage to the company. The advantage to the employee is an advance on an annual bonus. During the final bonus cycle of the period, Workday totals and reconciles the individual period bonuses against the true up target. The final payout also provides an opportunity for managers to factor in performance against the period target for each employee.
There are 2 types of true up events:
- Single Plan True Up: The company grants an annual bonus (800) and defines tranches to pay out 1/8 of the target for the first 3 quarters. In the fourth quarter, the company pays the remaining 5/8 (500). Alternatively, a final process calculates the outstanding balance, paid as a true up. Workday supports this true up type within the current compensation review process.
- Multiple Plan True Up: The company sets a guaranteed minimum amount (800), and then awards various bonuses or one-time payments over the year. At the end of the year, you pay the remaining amount as the true up target. If an employee receives 3 bonuses totaling 500, the true up value is 300, which the Compensation Administrator or Manager can adjust. Workday can calculate the true up value across several bonus plans or one-time payment plans. Workday supports this true up type with these tasks:
- Create Future Payment Plan.
- Assign Future Payment Plans.
- Complete Future Payment True Up Bonus.
In a single plan true up, Workday pays the total bonus amount in portions and prorates the bonus target by a percentage called a tranche percent.
Example: An overall bonus target is 40% and the target for the first tranche is 12.5%. An employee with an annual base salary of 100,000 is eligible to receive a 5000 bonus for the first tranche (100,000 X 0.4 X 0.125 X 1). When the manager proposes a bonus for this employee, Workday calculates 5000 or 5%. The employee receives 40% before the end of the true up period, but not all at once. You can define tranches to regulate when to pay bonuses and how much each portion is.
The reference frequency for true up bonus plans or bonus plans with tranches is typically annual because the true up target is generally an annual target. In other words, the frequency reflects the true up period. If the bonus frequency doesn't reflect the true up period, Workday de-annualizes all employees’ annual salaries and then applies the tranche percent, which might be inaccurate.
The purpose of a future payment plan is to contain the configuration options specific to the multiple plan true up process and the true up bonus target, currency, and frequency. The future payment plan is also the plan used when you launch the true up process. Future payment plans aren’t full compensation plans. They’re defined outside of worker compensation, similar to eligible earnings, and have the same security as eligible earnings.
Future payment plans enable you to enter multiple bonus and one-time payment plans, but not tranches, which apply only to bonus plans. Tranches apply to a single bonus plan target and are part of a single bonus plan. A future payment plan target can apply to multiple bonus and one-time payment plans.
Proration, waiting periods, and bonus accrual estimates aren’t part of future payment plans. Merit Increase Matrices (MIM) don't apply to future payment plans. You can, however, assign a review type to the true up plan to view performance results for the period. Managers can also adjust recommended targets during a compensation review process.
To participate in a future payment plan, you must assign an employee to the plan and to any other relevant bonus plans for calculating the true up.