Applies to Product - Dynamics 365 Human Resources
What’s happening?
Customers are seeking clarification on how allowances, such as Cost-of-Living Allowance (COLA), are categorized within the Dynamics 365 Human Resources system. There is confusion regarding whether these allowances should be treated as fixed compensations or variable compensations, and whether multiple compensations can be applied for the same period.
Reason:
Allowances like COLA are generally treated as Fixed Compensation because they are predictable and recurring. Fixed Compensation plans are used to define salaries, allowances, and other recurring payments, which are tied to an employee’s position and are typically consistent over time unless there’s a change in role or a formal update to the compensation plan. Variable Compensation, on the other hand, covers payments that are performance-based, one-time, or tied to specific achievements (e.g., bonuses, commissions).
Resolution:
Allowances such as COLA should be categorized as Fixed Compensation within the system.
It is possible to configure and apply multiple compensation plans for the same time period in Dynamics 365. For instance:
Fixed Compensation: A base salary and a COLA allowance.
Variable Compensation: A performance bonus or incentive tied to a variable compensation plan.
Both fixed and variable compensations can coexist and are calculated independently in the system.
Fixed Compensation Plans should be set up as part of the employee’s record under the Compensation tab, where allowances can be defined as additional fixed components.
Variable Compensation Plans are configured separately in the same tab and linked to employee records as appropriate.
Further information at Compensation plans - Human Resources | Dynamics 365 | Microsoft Learn