As companies grow, there are plenty of reasons to change from semimonthly to biweekly payroll frequencies, or weekly to monthly, or any combination of the above. Regardless of the prevalence of these changes, switching pay frequencies involves a lot more than just the flip of a switch.
What's the Secret to Switching Pay Frequencies? B.R.A.K.E.
Below, you’ll find the five things you need to consider before making the leap to a new pay frequency. As in driving, before you change direction you’ll need to brake and come to a complete stop. To help you remember, we came up with a catchy (and hopefully not too cheesy) acronym: B.R.A.K.E.
One of the biggest considerations in any pay frequency change is the effect on benefits. Exhibit A: plan remittance to carriers. Managing remittance can be especially complicated when changing from semimonthly to biweekly. With biweekly payroll, you have two months a year with 3 paydays. These additional days can change deduction amounts. Some companies block those 3rd pay period(s) from collecting. Bottom line? Regardless of the change in pay frequency, benefits will need to be reviewed and considered because your deduction amounts will change.
Outside of health benefits, you’ll want to consider any other frequency-based deduction that has been configured in your system. Examples to consider include any child support or garnishment deductions, as these are typically processed on a schedule. Make sure to review any garnishing agency paperwork when changing pay frequencies to ensure you are deducting the proper amount from your employees before moving forward.
As mentioned previously, pay frequency regulations are state-specific. For example, New York requires weekly pay frequencies for manual workers. However, semimonthly is acceptable in New York for other kinds of employees. Conversely, for those doing business in Nebraska or Pennsylvania, there are no state mandates on pay frequencies—meaning it’s entirely up to the employer to decide what works best. So, before changing pay frequencies, make sure you are compliant within the states you do business.
Accruals are a two-part consideration. First, the monetary accrual of pay on a new frequency needs to be considered. This is as simple as breaking down an employee’s annual salary by the new pay period frequency. The reason this is reviewed is because salaried employees may be set up with their per-pay-period amounts, and not their annual salary. It’s important to make sure your payroll system has these updated amounts. When changing pay frequencies, a salaried employee would receive more per period in 24 increments than they would in 26 or 52. Ensuring salaried amounts are set up properly before changing frequencies is crucial.
Next, some companies use pay frequency to calculate their time off accruals. Basically, if a company offers 80 hours of PTO, instead of granting that all at once, it might be accrued per pay period. In this example, a semimonthly payroll would accrue 3.33 vacation hours per pay period (80 ÷ 24 = 3.33) and a biweekly payroll would accrue at 3.08 (80 ÷ 26 = 3.08).
You don’t want to under or over accrue hours—and you certainly want to ensure you’re paying the proper amount, so be sure to consider both of these rate examples.
Knowing might be the most important step of all. You absolutely need to make sure your staff is aware of this change. Notifying employees should happen as far in advance of the change as possible. 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. Instead, multiple emails, memos, and company newsfeed posts leading up to the change can ensure employees are alerted to the new schedule and can prepare accordingly.
With any change to payroll, employees will understandably worry about their benefits, deductions, and accruals. Give them enough time to prepare for their new pay frequency in terms of budgeting and any automatic bill payments that they may have set up.
You’ve reviewed salaries, deductions, state requirements, and notified your employees, what else could be left? The execution of the change.
The implementation of your new pay frequency needs to be handled strategically. Ideally, you will not disrupt your pay schedule at all. You can achieve this by seeing when an old and new pay period dates align closely. Any seasoned payroll professional would also suggest making a clean change—meaning that you make the change happen with the start of a new quarter or calendar year. By leveraging payroll reports and working closely with your vendor, you can pull-off the “old switcheroo” with relative ease.
There’s a lot tied to making a pay frequency change. Just remember to B.R.A.K.E. and study all the factors involved. Once you have a plan in place, you’re ready to move forward and put that old pay frequency in the rearview mirror.
Jim Kohl is the Senior Manager of Managed Services at Namely, the HR, payroll, and benefits platform built for today's employees. Connect with Jim and the Namely team on Twitter, Facebook, and LinkedIn.
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