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What are some of the issues that should be addressed as part of a pay frequency conversion?

First, you will want to determine what the new pay cycle will be. For example, is yours a weekly payroll that will be going to biweekly or semi-monthly? Will this change apply to both exempt and nonexempt employees? Many states regulate the timing of wage payments, so you will need to consult state law to be sure that the proposed change in pay frequency is permissible. Information about state payment frequency laws can be found in APA’s Guide to State Payroll Laws, Table 2.1. Once the new frequency and the employees who will be affected by it have been determined, you will also need to look at the cost involved, as you may be processing more or fewer payrolls, depending on your change.

If you are changing to a semimonthly pay frequency from either weekly or biweekly, you will need to remember that the workweek is still the factor that determines whether nonexempt employees are entitled to overtime pay, not the pay period. This may be a challenge for some time and attendance software systems, as they may not be programmed to calculate the hours by the workweek. Be sure to consult your vendor.

You must notify your employees of the date of the change in accordance with the laws in the state where you operate. You may want to also notify any benefit providers if you typically make payments to them each pay period, so they will be aware of the changes. It is also a good idea to notify any other payees that receive payments that have been withheld from employees pay on a pay-period basis, such as for child support or creditor garnishments.

Once the above tasks are completed, the set-up will need to be done for the changes within your payroll and/ or time and attendance software. You will need to check the period start and end dates, and the payments to be calculated based on the new frequency. All deductions will need to be updated and tax information will need to be calculated based on the new frequency.

The best way to audit this is to run a sample payroll with the new information prior to the pay date and check each employee’s deductions and taxes. You may want to “spot check” a few employees who have more complex payment situations for verification. For tax auditing, you may use IRS Circular E, Publication 15T, to confirm the federal income tax withholding is calculating correctly and the equivalent state publication for the state withholding and/ or local taxes. If all is correct, you may move forward and process your payroll with your new pay frequency.

With the proper communication and auditing procedures, the conversion should be a smooth transition for all!

- Sherri Hook, CPP is the Payroll Manager at Payroll Solutions and a volunteer for the American Payroll Association hotline.