With the new year underway, have you thought about what the best pay cycle is for your 2024 payroll calendar? Companies change their pay cycle frequency for many reasons such as complying with state, federal and local laws, changes to job titles, duties and responsibilities, implementing fair and consistent payroll calculations, fostering a culture of financial security, easing the administrative burden on payroll professionals and more.
Whatever your reason for making the change to your 2024 payroll calendar, you will need to define your new pay cycle frequency up front so you can clearly lay out its benefits and the steps needed to get there. Below are examples of different pay cycles you can consider and some pros and cons that come with each:
Weekly pay cycles consist of 52 pay periods each calendar year.
- Pros: This payroll frequency is the most popular with hourly employees because it provides them with a sense of financial security as they can rely on a more frequent flow of income. It also provides an easy way to manage and calculate overtime.
- Cons: While this pay cycle is most attractive for employees, it is also the most time consuming for your payroll team and the most expensive for organizations.
Bi-weekly pay cycles consist of 26 pay periods per calendar year.
- Pros: This is a good alternative to a weekly pay cycle as it works well for both hourly and salaried employees given it’s still frequent enough for employees to feel financially secure. It also allows your payroll team to better manage the payroll process, including the management and calculation of overtime.
- Cons: While this pay cycle does provide some cost savings over weekly cycles, it is still a higher cost to the organization.
Semi-monthly or bi-monthly pay cycles consist of 24 pay cycles per year, paying on the 1st and 15th of the month or the 15th and last day of the month.
- Pros: Depending on the makeup of your employee base and the payroll taxes required for each employee, this pay cycle can be ideal for small businesses as it reduces the administrative burden for your payroll team and is less expensive to the organization.
- Cons: There are bigger gaps and less consistency between paychecks, which employees may not prefer. Plus, overtime can be difficult to manage and calculate.
Monthly pay cycles consist of 12 pay periods per calendar year.
- Pros: This pay cycle significantly reduces the administrative burden for your payroll team and is the lowest cost to the organization.
- Cons: This pay cycle does not work very well with hourly employees and works better for salaried workers and overtime is more difficult to manage and calculate.
Of course, understanding the different pay cycle options is just the beginning. You also have to make sure your choice follows the compliance standards your organization needs to align with.
It’s no surprise that compliance impacts when you change pay cycles - so, here are a few important tips to make sure you're matching your pay cycle strategy with the regulatory requirements your organization must follow:
- Know your federal, state and local laws as it relates to payday requirements. Check the state provisions on the state department of labor website to ensure you're prepared.
- Understand how your pay cycle change will impact your people’s overtime. Check Fair Labor Standards Act (FLSA) regulations to ensure that you correctly identify employees who are classified as nonexempt and paid overtime requirements.
- Familiarize yourself with any employment contracts, collective bargaining agreements and union contracts that clearly define rules related to payday requirements.
With compliance verified, you'll be able to push forward with the exciting part of the pay cycle evaluation — actually making your 2024 payroll calendar changes.
Pick your conversion date
When picking your conversion date, or the date you want the new pay cycle to take effect, it's important to determine what is best for the business and your employees. One way to go about this is to look at your 2024 payroll calendar and identify if there are any common pay period start dates from your old frequency that align with your new frequency. Choosing an overlapping date can eliminate some of the gaps in an employee’s paycheck, which they will surely appreciate.
If you cannot align your new frequency with your old frequency, you will need to make some adjustments with your employees' pay. This could include providing them with an additional check if you owe employees for hours worked between the frequency change or offering additional pay options, like a bonus or a loan, for advanced hours when an employee is shorted days in the frequency change. These are just a few examples, and you’ll need to determine what is best for your organization. But as you may already know, getting payroll right is one of the most important factors in establishing trust with your people so make sure your solution to the new pay frequency gets clearly communicated.
Ensure your payroll solution is ready
One of the most critical steps in changing pay cycle frequencies is conducting a review of your current payroll solution. This will help you prepare for adjustments that need to be made and ensure that you’re paying your employees accurately. There are several areas that need to be addressed when preparing your payroll system for a pay cycle change and having the right HR technology can help make evaluating these easy:
- Accruals: Check how the change will impact time-off accruals. Recalculate vacation, sick or personal leave accrual rates based on your new pay period.
- Calculations: Check how the change will impact any calculations. Recalculate overtime premiums, weekend pay, special pay, etc.
- Deductions: Check how the change will impact employee deductions. You will need to check involuntary deductions like taxes, Social Security, Medicare, state/local income tax and any wage garnishments like child support, student loans, etc. In addition, you’ll need to check voluntary deductions like insurance premiums, retirement plans, commuter benefits, job-related expenses, housing expenses and other relevant areas. Keep in mind that these amounts may be increased or decreased depending on how often you run payroll. Once you have reviewed your deductions, you will need to communicate changes to the appropriate agencies and ensure the system is set up accordingly.
- Compensation: Check how the change will impact employee compensation, bonuses and other allowance plans. Make any necessary adjustments to accommodate for the new pay frequency.
- Payments: Make any necessary adjustments to autopay, direct deposit and pay cards. This will also need to be communicated to appropriate vendors.
- Reporting: Identify any adjustments that will need to be made to reporting for internal and external use. This may include things like changes to calculations, reporting dates, changes to the general ledger (GL), etc.
- Integrations: Review any integration points to other software applications and/or vendors. Make updates and don’t forget to test those integrations after changes are made.
Having a testing phase is an important part of ensuring that your payroll system is ready for your new frequency.
Communicate with employees
Communication is the key to success when it comes to making a change to your pay cycle frequency. It's important that you are giving your employees advanced notice of any changes that impact their pay. Communicating as early as possible will help them better prepare personally for the changes to their paycheck. Here are a couple things to consider when communicating pay cycle changes to your employees:
- Have clear, easy-to-understand communication strategies and processes in place. 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 communications like a pay cycle change notice in your payroll solution, personal emails, companywide newsletter, in-person or remote training, text messages and phone calls will maximize your chance of reaching and preparing your people.
- Be sure to plan out and clearly share how employees can access resources, get answers to questions or address any concerns about the change.
Make your case for change
Changing your pay cycle requires good communication and collaboration across the company. If you're considering making a change to your pay cycle, ensure that you have a solid strategy in place that can help streamline the transition. A reliable payroll solution like UKG Ready® can help you and your teams gain efficiency through the change process and help your people gain confidence in their pay information.