Before using the Compensation tool, the first step is to enable and customize your payroll concepts. These concepts are the core elements that make up an employee’s salary, defining both earnings and deductions—for example, a fixed monthly salary, meal vouchers, tax withholdings, or company contributions. Organizing salary details into concepts makes payroll easier to manage, track, and analyze.

Managing Payroll Concepts

You can manage payroll concepts by going to:

Settings → Compensation → Payroll Concepts Configuration

From here, you can:

• Create new concepts to match your company’s needs
• Choose a preferred name for existing concepts
• Activate or deactivate concepts depending on whether you want to use them

Categories of Payroll Concepts

In Factorial, concepts are grouped into clear categories:

• Earnings – fixed pay, variable pay, benefits in kind, bonuses, etc.
• Deductions – taxes, social security, or other withholdings
• Company Contributions – employer-paid benefits
• Summarized Values – totals and reports for better insights

What’s in a Payroll Concept?

Each concept includes:

• Name – what it’s called (e.g., “Base Salary”)
• Category – the group it belongs to (e.g., “Earnings – Fixed”)
• Description – a short explanation of its purpose
• Unit – what it measures (money, distance, time and units)

This structure ensures clarity and consistency in payroll management across Factorial.

How to Activate Alerts for Undefined Compensations

To help prevent potential human errors, the Compensation module allows companies to activate alerts for pending or undefined compensations. These alerts ensure that all compensation items are properly tracked and managed.

Pending Compensations

• What it means: Compensations defined in an employee’s contract appear as pending when they are due in a payroll cycle.
• When alerts trigger: You can configure the date in each cycle when alerts are sent, so nothing gets forgotten.
• Resolution: Once the compensation is defined, the alert automatically disappears. 

Steps to Activate Alerts

1. Go to Settings → Compensation → Alerts for Missing Compensations
2. Choose your preferred day of the month to receive the alert

How to Define Compensation from an Employee’s Contract

1. In the sidebar, go to Organization
2. Select the employee you want to update
3. Navigate to the Contracts section
4. Click New Conditions
5. Choose Update Conditions and click Next
6. Select the Effective Date and click Next
7. In Role, Level, and Salary, scroll down to Additional Compensation
8. Click Add Additional Compensation
9. Define the additional compensation:
   1. Type: Choose the type and frequency of the compensation:
      • Variable - We have two type of variable compensations
        • Without a limit: The amount may vary each month, with no maximum limit. If the amount field is left blank, it will be treated as unlimited.
        • Up to: The amount may vary each month based on the employee’s performance, up to the specified maximum. The value entered in the amount field will be treated as the maximum an employee can receive.
      • Fixed: The amount remains the same every month.
10. Set up the Schedule: define the Recurrence and the First Payment date
11. Click Save
12. Click on Next to confirm all the other data
13. Click on Update conditions

How to delete or modify compensation from the contract

1. In the sidebar, go to Organization
2. Select the employee you want to update
3. Navigate to the Contracts section
4. Click New Conditions
5. Choose Update Conditions and click Next
6. Select the Effective Date and click Next
7. In Role, Level, and Salary, scroll down to Additional Compensation
8. Click on the setting pencil tool to edit or the trash icon to delete
9. Click on Next to confirm all the other data
10. Click on Update conditions

Understanding the Warning Tool in Factorial

The warning tool in Factorial is designed to help detect potential human errors or mismatches in employee compensation. By providing timely alerts, it ensures that payroll is accurate and aligns with the rules defined in employee contracts.

How the Warning Tool Works

• When a compensation is defined with a limit in the contract, the system monitors the amounts entered.
• If a compensation exceeds the defined limit, a warning alert is triggered.
• HR can review the alert and take appropriate action. Once reviewed, the alert can be dismissed.

Why Use the Warning Tool

Using the warning tool helps companies:

• Prevent payroll mistakes before they affect employees
• Ensure compliance with contract terms
• Maintain accurate records for auditing and reporting

By activating and monitoring these alerts, HR teams can save time, reduce errors, and improve the overall efficiency of payroll management.

How to Manage Employee Compensations?

The compensation side panel in Factorial gives HR teams a complete overview and control over employee compensations, making payroll management transparent and easy to track.

Key Features

• Traceability: See the source of each compensation (contract, time tracking, spending, benefits), who defined it. More than that, you can see the sync status with the payroll software, in case an integration is installed.
• Manual Adjustments: Add manual compensations for any payroll cycle by clicking the + button. Manual compensations can also be edited or deleted if necessary.

Steps to Manage Compensation

1. Click on the Compensation tool.
2. In the Definition tab, view the full list of employees and their compensations—both defined and pending.
3. Click on the desired employee.
4. Use the right-side panel to:
   • Validate existing compensations
   • Edit details if needed
   • Add new compensations using the + button

How to close Payroll cycle?

1. Once compensations have been defined and validated, locate the lock icon in the upper-right corner of the screen.
2. When the lock is enabled, no compensations can be synced from other connected modules or edited, except the users with permissions.
3. Click the lock icon to secure the current compensation settings.
4. The action is fully reversible by an administrator, allowing changes to be made if necessary.