Is your business considering changing its pay cycle?
Why Would a Company Change Payroll Frequency?
The reasons for changing payroll frequency vary, but we often hear from business owners and managers, who want to minimize the costs of processing payroll, while still staying within state laws.
By changing to a less frequent schedule, they can accomplish this goal. On the flip side, your employees may express the desire for a different schedule.
To increase employee satisfaction, your organization wants to grant their request. Regardless of the reason, one thing to always keep in mind is the importance of striking a balance between your interests as an employer and those of your employees.
While you may want to adopt the most cost-efficient pay cycle for your company, your employees need one that is consistent and works with their existing financial obligations.
Bill Stephens, Certified Payroll Professional and HRIS Payroll Analyst at Axcet HR Solutions, has compiled a list of 10 steps for employers who are considering changing pay cycles. Bill has 18 years of experience in payroll outsourcing and tax compliance.
10 Steps for Changing Pay Cycles
According to Bill, by following the steps detailed below, you can help ensure a smooth transition.
1. Why Make the Change?
Determine the factors for making a pay cycle change and evaluate its value for the business. Is it contractual or financial? Is there an employee culture where a pay cycle change might be an issue?
2. Choose the Best Payroll Schedule for Your Business
When selecting a new payroll schedule for your business, a number of factors should be weighed, including what is best for your business and what your employees want.
Given the option, a weekly pay cycle would be the number one choice by employees because it provides them with better cash flow to meet their financial obligations. However, employers who choose this option would spend considerably more time processing payroll or likely incur more fees if payroll is outsourced.
Common pay cycles include:
- Weekly (52 paychecks per year)
- Bi-weekly (26 paychecks per year)
- Semi-monthly (24 paychecks per year)
- Monthly (12 paychecks per year)
By far, the most popular pay frequency change is from semi-monthly to bi-weekly.
Before choosing a new pay cycle, be sure to consider whether you have nonexempt employees who work overtime or exempt employees with contractual annual pay.
RELATED: 5 Reasons Small Businesses Should Outsource Payroll >>
3. Check Your Payroll Compliance
Be cognizant of federal and state statutes when making a change. Does your state have a minimum pay cycle that is more frequent than the one you are selecting? Do you have multiple worksites in different states that may necessitate multiple pay cycles? To check your state’s requirements, visit the Department of Labor’s website here.
4. Get Your Payroll System In Line
Make sure that all deductions have been updated to withhold the correct amount per pay period, if applicable, including child support orders and other involuntary orders.
5. Extra Pay Period?
If changing to a weekly or biweekly pay cycle, be aware changing cycles may cause a 27th/53rd check date in the current year, and will be an occasional concern in future years. Implement a plan of action for when this arises.
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6. Adjust PTO Accrual
Ensure your Paid Time Off plan changes to match your new pay cycle if time accrues per pay period.
7. Pick Your Time Frame
If there will be a gap in pay, evaluate the options to provide your employees to ease the transition. Will you allow employees to cash in paid time off? Will you provide an abbreviated payroll? Is scheduling the change around a bonus cycle a possibility?
8. Announce the Payroll Frequency Change
Communicate clearly to your employees all the details of the pay cycle change. Make sure they understand the importance of the change to the company and to them. Provide communication well in advance of the change so employees can prepare. Being mindful of advance notice is even more important if you are planning on decreasing your business' payroll frequency.
Ready to change your pay cycle but don't know how to announce it to your employees? Download our free employee memo to help ensure a smooth transition >>
9. Let’s Do This
Implement the pay cycle change. Provide an opportunity for feedback from employees and departments on the outcome of the change.
10. Congratulate Yourself
RELATED: Six Dos and Don'ts of Paying Overtime >>
Want to leave it to the professionals? Axcet HR Solutions has more than 30 years of experience and boasts one of the most experienced payroll teams in Kansas City.