Considering a Payroll Frequency Change? Time to Learn New Math

Payroll frequency change

Plus: Be sure to communicate openly with employees and check your contractual obligations

 

You may have plenty of good reasons to change the frequency of your payroll, but the task is still a beast. There are numerous variables to consider during a pay period switch, including: state rules, employee earnings, and fringe benefit accruals. And, of course, timing is everything since the date of your switch takes will impact salaries, W-2s, and benefit calculations.

In other words, don’t make this decision lightly, warns human resources expert Vicki M. Lambert. Make sure you have properly evaluated your frequency options, the impact to payroll, and the effect on employees. 

Why Do It? Efficiency & Pay Equalizing

It’s common for businesses to have clusters of employees with different pay periods or identical pay periods ending on different dates, explains Accounting Tools. Reasons for this vary but can include union agreements, poor planning, or acquisitions. “Whatever the reason, the result is a payroll department that is continually processing payroll, which is not efficient.”

Instead: “A better solution is to have a single, centralized payroll system for all employees, where everyone is paid for the same time period, and at the same time,” the Accounting Tools notes.

Easier said than done? A switch can indeed cause headaches both for you and employees. You are looking at extensive planning and implementation, while employees may have spending patterns (such as automatic mortgage payments) linked to a specific pay date.

But there are big benefits to streamlining your payroll timeline. For one, less-frequent payroll periods save time and money on payroll processing costs, notes accounting software firm Intuit.

How To Do It: Recalculate & Communicate

To perform a payroll frequency change, says Intuit, you’ll need to address three key elements:

  1. Payments: Perform recalculations.
  2. Accounting software: Adjust settings where applicable.
  3. Employees: Communicate early about the switch (this is important!).

Take, for example, the two most common payroll frequency changes, according to Intuit: (a) weekly to biweekly and (b) biweekly to semimonthly. The first type of switch involves simple math with no need to convert factors such as accrued holiday pay.

Another way: On the other hand, a biweekly-to-semimonthly switch for salaried employees requires more homework, says Intuit. You’ll multiply a biweekly salary by 26 and divide the result by 24, or simply divide an annual salary by 24, then do the same for regular deductions.

Don’t forget to update your software (e.g., with QuickBooks Desktop, open an existing payroll schedule, click “edit,” and change the pay period).

Another factor: Do consider any contractual changes you might need to make and take the appropriate steps to make them, notes HR Zone. Employers may also wish to seek written consent for the payroll frequency change from employees as a nod to good relations.

Don’t Neglect Employee Relations

While you’re mired in software and calculation updates, don’t forget about the people part of this equation.

“In practice, introducing a new pay date can usually be done with minimal fuss if employees are informed,” says HR Zone. The key is to give employees plenty of lead time so they can address their own accounting needs before the switch.

“You absolutely need to make sure your staff is aware of this change,” affirms Jim Kohl for Namely in a blog titled “How to Change Pay Frequencies.

How? “Avoid just posting a note in the lunchroom, as you don’t want to risk your entire communication plan being foiled by an unfortunately placed fern,” says Kohl. He suggests communicating the change in emails, memos, and a company’s newsfeed or newsletter.

There are plenty of reasons why you may want to enact a payroll frequency change, says Lambert—and just as many reasons why you should work hard to get it right.

(This post first appeared in an AudioSolutionz blog)

By Jeff S on 2nd October 2018

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