Payroll Play 2/10: How to change Payroll Frequency for your business?

Before changing payroll frequency, several factors should be weighed. In this article, I’ll walk you through them. Let's dive in.

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Scenario

• You’d like to improve your cash flow projections.
• You might want to tailor the pay cycle for hourly vs. salary employees.

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Actions

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1. Check with Local Laws

• Ensure compliance with both federal and state laws.

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2. Consider Company Cash Flow

• Assess your business's finances.
• Ensure you can meet payroll obligations under the new frequency.
• Evaluate cash flow projections to avoid any financial strain.

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3. Choose Your Payroll Cycle

• Weekly payroll

It contributes to higher staff satisfaction, but processing payroll weekly can be more time-consuming and costly for employers if you don’t have an automated system in place that can facilitate weekly payrolls without adding extra workforce hrs.

NB: To not go wrong in your calculations for hourly employees, try an hour converter for payroll like this or this.

• Bi-weekly payroll

When you set payroll every two weeks, it’s more likely to be a win-win situation. Your employees gain frequent pay and you maintain administrative efficiency.

• Semi-Monthly Payroll

It is often preferred for salaried employees. A bi-monthly pay period may lead to slightly lower annual payroll processing costs compared to bi-weekly pay due to fewer pay periods.

• Semi-monthly vs bi-weekly payroll

The bi-monthly payroll is better since you have two fewer payrolls per year to prepare.

• Monthly payroll

It’s the least preferred option for employees due to longer wait times between paydays, but it offers simplicity and cost-effectiveness for employers.

• Earned Wage Access

Employers should carefully evaluate EWA providers as well as scheduling and payroll software to ensure compliance with applicable wage laws and regulations.

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4. Update Pay and Deduction Amounts

Update tax and deduction amounts according to the new payroll frequency to maintain consistency and accuracy.

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5. Align the PTO Plan

If necessary, ensure your paid time off (PTO) plan aligns seamlessly with the new payroll schedule to avoid any discrepancies.

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6. Inform Employees

Communicate the new payroll schedule clearly to all employees in advance to allow them to adjust it with personal budgets.

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7. Update Contract Templates

Revise and update contract templates to reflect the new payroll schedule.

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Expected Results

• Improved cash flow projections.
• Increasing payout frequency worsens cash flow but boosts employee satisfaction.
• Or conversely, reducing frequency results in more company cash but less satisfied employees.
• Tailored pay cycles meet individual needs and preferences.
• Enhanced compliance with payroll regulations mitigates legal risks.

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