Contract Pay Smoothing Model
The smoothing model takes the amount actually earned under the contract and then smooths it to generate equal payments for the remainder of the contract period. The smoothing model both pays out and accrues reserve, depending on what is need to smooth the payment.
Understanding How Smoothed Pay is Calculated
To administer pay using the Contract Pay - Smoothing model, it is important to understand how the smoothing model is calculated using either the Reserve Payout Factor table or the Work Day Schedule table as the smoothing factor.
Using Reserve Payout Factor (RPYF) Table as the Smoothing Factor
To understand how the smoothed pay is calculated using the Reserve Payout Factor table as the smoothing factor, an example of an employee and how the system calculates this employee’s pay is provided.
Reference Table |
Reference Table Setup |
Reserve Payout Factor (RPYF) |
The Numerator and Denominator indicate the portion of the total contract that should be paid out. |
Site Specific Parameters |
USE NEW CONTRACT MODEL must be set to Y. The system will use the smoothing model to calculate contract pay. USE WDAY FOR RESERVE PAYOUT must be N in order for the system to use the Reserve Payout Factor table as the smoothing factor. ALLOW CON/RES BALANCE UPDATE must be set to Y in order for a user to update the balance online for Reserve Pay Summary (RESP), Contract Pay Summary - Smoothing Factor (CONS), and Contract Pay Summary (CONP). |
Pay Class |
Amount Basis ID must be set to Contract Pay. Contract Pay must have Allowed selected. The Contract Days Count must have the number of days the employee has contracted to work. The Reserve Pay Allowed field must be set to one of the following options:
Contract Hours Per Day is entered to show the number of contract hours per day for which an employee is paid. |
Example: Mr. Jones has a contract worth $36,000. His contract is for 200 days at 8 hours per day (approximately 10 months). He has opted to be paid over the course of the entire year (12 months). He is exception-paid, and his salary is annualized. He works 23 days in the first pay period, and 20 days in the second period according to the Work Day Schedule (WDAY) table.
The following calculations occur for employees receiving contract pay under the smoothing model:
Information Calculated |
Numeric Formula Applied |
Per diem contract rate is calculated by dividing the total contract pay amount by the total number of contract days that are defined on the Pay Class (PYCL) table. |
Total Contract Pay = $36,000 Number of Contract Days = 200 $36,000/200 = $180 |
Pay period contract earnings are calculated as the per diem rate multiplied by the number of days in the period. |
Per Diem Contract Rate = $180 Number of Days in Pay Period = 23 $180 x 23 = $4,140 |
Remaining contract earnings are calculated as the total contract value at the pay period end date divided by the number of days in the contract, multiplied by the number of days remaining in the contract after the pay period end date. |
Total Contract Pay = $36,000 Number of Contract Days = 200 Number of Days Remaining = 177 ($36,000/200) x 177 = $31,860 |
Remaining contract value is calculated as the employee’s pay period earnings plus remaining earnings minus any previously accumulated reserve balance. |
Pay Period Earnings = $4,140 Remaining Earnings = $31,860 Previous Reserve = $0 $4,140 + $31,860 - 0 = $36,000 |
Target pay period amount is calculated by the remaining contract value multiplied by the smoothing factor, which is defined on the Reserve Payout Factor table. |
Remaining Value = $36,000 Reserve Payout Factor = 1/12 $36,000 x (1/12) = $3,000 |
New contract reserve amount is calculated by subtracting the pay period contract earnings from the target pay period amount. |
Pay Period Amount = $3,000 Pay Period Earnings = $4,140 $3,000 - $4,140 = -$1,140 |
The target pay period amount is re-calculated during the Gross-to-Net process to ensure that the value reflects all recent table and employee changes.
Example: Mr. Jones is paid $3,000, and $1,140 is posted to the Reserve Pay Summary table for the first pay period in the contract.
Using Work Day Schedule (WDAY) Table as the Smoothing Factor
The main difference between using Work Day Schedule (WDAY) as opposed to the Reserve Payout Factor (RPYF) is the calculation of the target pay period amount. If you use Word Day Schedule (WDAY) you do not have to set up the Reserve Payout Factor (RPYF) table; however, the payments might be less even. To understand how the smoothed pay is calculated using the Work Day Schedule (WDAY) table as the smoothing factor, an example of how the system calculates the example employee’s pay is provided below.
Reference Table |
Reference Table Setup |
Site Specific Parameters |
USE NEW CONTRACT MODEL must be set to Y. The system will use the smoothing model to calculate contract pay. USE WDAY FOR RESERVE PAYOUT must be Y in order for the system to use the Work Day Schedule table as the smoothing factor. ALLOW CON/RES BALANCE UPDATE and CREATE RESERVE SUMMARY RECS must be set to Y in order for a user to update the balance online for the Reserve Pay Summary balance. |
Pay Class |
Amount Basis ID must be set to Contract Pay. Contract Pay must have Allowed selected. The Contract Days Count must have the number of days the employee has contracted to work. The Reserve Pay Allowed field must be set to one of the following options:
Contract Hours Per Day are entered to show the number of contract hours per day for which an employee is paid. |
Example: Mr. Jones has a contract worth $36,000. His contract is for 200 days at 8 hours per day (approximately 10 months). He has opted to be paid over the course of the entire year (12 months). He is exception paid, and his salary is annualized. He works 23 days in the first pay period, and 20 days in the second period according to the Work Day Schedule table.
The following calculations occur for employees receiving contract pay under the smoothing model:
Information Calculated |
Numeric Formula Applied |
Per diem contract rate is calculated by dividing the total contract pay amount by the total number of contract days. |
Total Contract Pay = $36,000 Number of Contract Days = 200 $36,000/200 = $180 |
Pay period contract earnings are calculated as the per diem rate multiplied by the number of days in the period that are defined on the Pay Class (PYCL) table. |
Per Diem Contract Rate = $180 Number of Days in Pay Period = 23 $180 x 23 = $4,140 |
Remaining contract earnings are calculated as the total contract value at the pay period end date divided by the number of days in the contract, multiplied by the number of days remaining in the contract after the pay period end date. |
Total Contract Pay = $36,000 Number of Contract Days = 200 Number of Days Remaining = 177 ($36,000/200) x 177 = $31,860 |
Remaining contract value is calculated as the employee’s pay period earnings plus remaining earnings minus any previously accumulated reserve balance. |
Pay Period Earnings = $4,140 Remaining Earnings = $31,860 Previous Reserve = $0 $$4,140 + $31,860 - 0 = $36,000 |
Target pay period amount is calculated by the remaining contract value multiplied by the smoothing factor (total number of work days and holidays in the pay period/total number of work days and holidays from the beginning of the pay period to the end of the contract). |
Remaining Value = $36,000 Smoothing Factor = 23/280 $36,000 x (23/280) = $2,957 |
New contract reserve amount is calculated by subtracting the pay period contract earnings from the target pay period amount. |
$2,957 - $4,140 = -$1,183 |
The target pay period amount is re-calculated during the Gross-to-Net process to ensure that the value reflects all recent table and employee changes, and to eliminate timing problems with check cancellations and retroactive payments.
Example: Mr. Jones is paid $2,957 and $1,183 is posted to the Reserve Pay Summary table for the first pay period in the contract.
