It’s common for many organizations to pay their employees at the beginning and middle of every month. So common in fact, it comes as no surprise when we hear this particular pay period being referenced in a song or our favorite television show. But why? Why do so many businesses across the globe choose to pay out on the 1st and 15th of every month? Is it because everyone else is doing it or is it something more? Do you know, without a doubt, that your existing pay cycle frequency is what’s best for your business?
Now that payroll teams are midway through the current fiscal year, it’s time to evaluate some takeaways from the previous year’s closeout process. This is a great time to apply what’s been learned and explore ideas on how to continuously improve. One way to start is by looking at ideas for changing your existing pay cycle. While this may appear to be a difficult task, there are some key items to consider that can help payroll professionals ease the burden, gain efficiency and ensure results that engage your people when preparing for and executing on a change in your pay cycle frequency.
Evaluate Your Pay Strategy
Determining why you need to change pay cycles can help your payroll department manage the change more effectively and craft a clear message to your employees. Companies change their pay cycle frequency for many reasons:
- Cost savings
- Compliance laws (state, federal, local)
- Job title changes
- Duties and responsibilities
- Fair payroll practices
- Employee payroll management
- Culture demands
- Mergers and acquisitions
- Administrative burden
- And more…
Once you determine the reason the business needs to make the change, you’ll be better able to identify the pay cycle frequency that makes the most sense for your organization. Let’s take a look at how you can shift your pay strategy to gain efficiency and help your people benefit from a new pay cycle.
5 Ways to Identify the Benefits of a New Pay Cycle:
1. Company Impact
You will need to identify your new pay cycle frequency upfront so you can clearly define its benefits and determine the steps needed for a positive impact. Below are examples of different pay cycle frequencies and some highlights of the pros and cons that come with each:
- Weekly pay cycle/52 pay periods per year: Preferred option for hourly workers because overtime is easy to manage and calculate. While this frequency is most attractive for employees, it is the most time-consuming for payroll professionals and the most expensive for organizations.
- Bi-weekly pay cycle/26 pay periods per year: This pay cycle works well for both hourly and salaried employees. Overtime is still easy to manage and calculate. This pay cycle is most attractive for payroll professionals because they are better able to manage the payroll process. While this pay cycle does present some cost savings over weekly cycles, it is still an overall higher cost to the organization.
- Bi-monthly pay cycle/24 pay periods per year: Most organizations pay on the 1st and the 15th of the month or the 15th and the last day of the month. Overtime can be difficult to manage and calculate. However, this pay cycle reduces the administrative burden for payroll professionals, accounting departments and is less of an expense to the organization.
- Monthly pay cycle/12 pay periods per year: This pay cycle is rare with hourly employees and works better for salaried workers. Overtime is much more difficult to manage and calculate. It does, however, significantly reduce the administrative burden for payroll professionals, accounting departments and is the lowest overall cost to the organization.
While understanding the different pay cycle options is important, it’s only half the battle. You also have to make sure the choice you go with follows the compliance standards your organization needs to align with.
2. Compliance Standards
The fact that a change in pay cycles could have an impact on compliance standards shouldn’t be a surprise, but there are a few important things you should know to make sure you’re matching your strategy up to the regulatory requirements your organization must follow. Having a strong knowledge of federal, state and local laws is important when upgrading systems or making changes to your existing payroll strategy. Your payroll department or human capital management (HCM) provider should ensure compliance for your organization at all times.
3. Conversion Date
What is the best date for your business and its people to implement the changes in your pay cycle frequency? One way to make this determination is to look at your current payroll calendar. Identify if there are any common pay period start dates from your old frequency that align with your new frequency. Choosing a common start date can eliminate some of the gaps in an employee’s paycheck. As all payroll professionals know, accurate payout calculations are top priority when establishing trust with your people. Make sure your solution to this conversion gets clearly communicated to all who will be impacted.
4. Payroll Systems
One of the most critical steps in changing how often you pay out is conducting a review of your current payroll solution. This will help you prepare for adjustments that need to be made and ensure that your employees’ paychecks are accurate. There are several areas that need to be addressed when preparing for a change in frequency to your payroll system. Below are high-priority areas for you to review:
- Data reports
- Software integration
Calculating PTO accrual rates, reviewing voluntary and involuntary payroll deductions, making necessary adjustments to direct deposits and integration software testing helps ensure your payroll system is ready for a change in payout frequency.
5. Communicate Changes
Having multiple methods of communication is a great way to get the message out and educate your people on what is changing, why it’s changing and what they need to know. A combination of different options like a payroll frequency change notice in your payroll solution, personal emails, companywide bulletins, in-person or remote training, text messages and phone calls will maximize your chance of reaching and preparing the majority of your employees.
Changing your pay cycle frequency is a big undertaking that requires good communication and collaboration across the company. If you’re considering making a change to your pay cycle frequency, ensure that you have a solid strategy in place to help streamline the transition. A reliable payroll solution can help payroll professionals gain efficiency through the change process and help your people gain confidence in their pay information.
Payroll Efficiency for Your Business and Your People
Place your business payroll in qualified hands. At Quanta, our deep knowledge of important payroll concepts allows you to breathe easier at any frequency. Need a better way to run your small business? Contact us today to speak with a lifecycle specialist about adjustments to your payroll process. We’re not just a payroll company, we’re a people company.