How to Change Pay PeriodsPosted on September 30, 2015
Pay frequency is a sensitive issue that is important to both employees and management. Management needs to implement an efficient pay frequency that minimizes cost and abides by state laws, while employees need a payroll schedule with pay periods that they can rely on and that work with their monthly budget. Naturally, striking the right balance is a strategic decision.
The term “pay period” refers to the frequency with which an employer chooses to pay employees and contractors. Common pay periods include weekly, bi-weekly, semi-monthly, and monthly, with the most common frequencies being bi-weekly and semi-monthly.
Preferred pay periods vary from business to business, but are often mandated by state law. Currently, six states (Alabama, Montana, Nebraska, North Carolina, Pennsylvania, and South Carolina) do not mandate specific pay schedule requirements. Whatever your state requires, it is still important to weigh the advantages and disadvantages of each pay frequency option.
Common Pay Period Frequencies
Let’s break down the most common pay frequencies.
Payroll processed weekly results in 52 pay periods each year, and since most payroll providers charge per cycle, this is probably not the preferred choice for most companies. Employers also spend proportionally more time working on payroll in this scenario. This pay frequency is, however, one of the most attractive for employees, especially hourly employees. Many employees like weekly paychecks because it best meets their cash flow needs.
In this schedule, payroll processing occurs every two weeks, resulting in 26 pay periods per calendar year. Paychecks are calculated based on the last two weeks of work, with a full two weeks being 80 hours. Taxes are computed on a bi-weekly basis based on two weeks of pay. This frequency is preferred for companies with both salaried and hourly employees because it is easier to process both groups at the same time with this schedule.
This schedule typically processes payroll on the 1st and 15th of the month or the 15th and the last day of the month. Many companies choose this option because there are only 24 pay cycles rather than the 26 cycles on the bi-weekly schedule, so it can be less expensive for companies using a payroll provider who charges per payroll cycle. Check amounts in this schedule may vary because payroll may be processed on different days of the week, and pay periods have variable lengths because months have varying numbers of days. This pay frequency is typically used for salaried employees who receive a set amount of pay for each pay period. This frequency is not preferred for hourly employees because amounts are not fixed. To be considerate, many employers give employees a payroll calendar to help them keep track of their pay schedule.
Monthly pay cycles are the least expensive to administer; however, most employees don’t like this schedule. For many, it can be difficult or impossible to budget a full month ahead of time. So, it is relatively rare to see this pay frequency, especially for hourly employees.
How to Change Pay Periods
If your organization is thinking of changing from one payroll schedule to another, it is important to transition properly. Follow these six steps to change seamlessly to a new schedule.
- Create a team that will guide the change. Having one team in charge will increase ease of implementation and will decrease potential for mistakes during the process.
- Investigate the details. Charge one individual with the job of researching the legal ramifications surrounding the planned change in payroll frequency. Make sure your new schedule abides by state laws, and confer with your company’s lawyer to discuss contractual issues regarding the change.
- Save the date. Set a date for the change and make a timeline. It is especially helpful to make the change occur as close to the end of a fiscal year or the end of a quarter as possible to decrease record-keeping problems.
- Communicate with employees. Inform your people of the change sooner rather than later. Advance notice will allow workers to plan accordingly for the change. Communication is especially critical if you plan to decrease the frequency of pay as this will impact employees’ monthly budgets.
- Educate your employees about the change. Hold a question-and-answer session with your employees about the transition. A session like this will allow employees to feel heard and informed, and also helps prevent any confusion.
- Integrate planned changes into new contracts rather than rewriting all existing ones. Write the new pay schedule into contracts offered to new hires, gradually phasing out the old pay frequency and converting to your new schedule over time.
Pay frequency is an important strategic decision for management because of its effect on legal compliance and costs, as well as its impact on employees. No matter which pay schedule you choose, Paycor’s solutions streamline payroll processes, saving you valuable time and allowing you to spend more time on strategic decision-making.
Learn more about our payroll, HR and time & attendance solutions by getting in touch with a Paycor representative.
Sources: eHow.com, ArticlesBase
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