We had it happen when we pulled out of a PEO. They required us to cut a final paycheck through 12/31 which would not normally have been paid until after the first of the next year. I did get lots of questions that year on W-2s since everyone was high by a paycheck. And then the next year I got lots of questions because everyone was low a paycheck. In your situation, you would not be low a paycheck so you should not get questions the second year.
You might also need to look at annual deductions for anyone who gets close to govt limits (such as 401k max deductions). If they take the max and divide by 26 pay periods rather than 27, the employee deduction will not occur in the last paycheck and possibly not get matched.
As to the budget, luckily I have a great CFO and CEO. I just let them know in advance which months will have three payrolls and they budget for it. They usually only see the extra payroll twice, but they deal with the third the same as they would for the other two.
Has anyone ever argued and implemented that the exempt salaried should have the annual rate divided by 27 that year? Since hourlies would get paid for hours worked, it would not affect them. It would be an interesting case study!
Alright maybe it has been a long day for me but for the life of me I can't see the 27th pay period and the 3rd 3-pay month for 2008. I have looked and looked at my pay dates for 2008. My first pay date of 2008 is 1/4. The 2 months that have 3 pay dates are February and August. Am I misunderstanding what you are talking about?
If you paid on Tuesdays or Wednesdays, you would have 27 paydates in 2008. Because your first paycheck would either be January 1 or 2, 2008 and the 27th pay date would be on December 30 or 31, 2008. Because you pay on Fridays, your first paycheck is January 4, 2008. The 27th pay for you is on January 2, 2009.
You wil run into this problem in 2010.
It can depend on your paydate, which biweekly cycle you are on (odd/even weeks) and possibly what day of the week you pay on. It doesn't happen often luckily. It will happen to our payroll in 2009 because our payday falls on 1/1 which means we will pay the day before the holiday 12/31. Then in 2010 our last payroll will also fall on 12/31.
Before considering a change in your pay periods, you need to consider several factors. The first of which is whether or not it would be legal in your state. But also, you need to consider your workforce.
I would never consider a semi-monthly payroll because 90% of my workforce are non-exempt employees who are scheduled to work 40 hours a week. For me, dealing with O.T. would be a nightmare and could quite possibly double my payroll time. I already have to deal with weighted-averages because I have employees who cross between first and second shift pays. To add figuring out how many hours were worked last pay period that have to be counted toward O.T. this pay period would probably send me over the edge! [:O]
No time better than the present to go to twice monthly. Annual salary/24, as long as annual salary/52 beats the minimum salary level requirement.
The last time this happened, some companies changed nothing and simply paid higher wages. Other companies cut checks to ensure the actual annual salary rate was hit. If you have people close to the minimum salary level, that could be a problem for you.
Twice monthly would be more of a nightmare for me than it will be dealing with 27 pay dates this year. I work for a manufacturing plant where 90% of my employees are hourly. Trying to figure out OT when part of the workweek was under one pay period and the rest of the workweek was under the 2nd would probably drive me over the edge!
Well, going to weekly pay (what we do here) is also going to be the kind of problem you'd like to avoid. Great granularity in reporting and so forth but the payroll treadmill moves fast.
Since I don't work (and have never worked) for a company that even thinks about not paying someone every pay period, I'm having a bit of a problem. Sure, I understand the theory that I make, let's say, $52,000 for the year. I also understand (and most offer letters for exempt employees state) that I am paid a bi weekly salary of $2,000. So if that's what I make, then that's what I make. I should be getting a paycheck for $2,000 every two weeks. Since most companies pay in arrears, it's for work I performed at prior to the pay date. For the first pay period of the year, it's for work performed the prior year. I know that the IRS still looks at it as pay for 2008 and that may have a good part with why some have problems with this.
I suppose if you pay twice per month, that would solve pretty much any delima you would have.
I just got hooked up with the Forum and happen to know a couple of relevant things on this topic. Re computing OT with a semi-monthly payroll, we have had that schedule for years and ADP cannot do the necessary adjustments, which we must do by hand. In my opinion the issues with a bi-weekly payroll are nothing compared to the hassles of a semi-monthly schedule. The problem of OT needing to be based on calendar weeks and pay periods almost never falling on calendar weeks requires a lot of unnecessary adjustments, and even if you get it right it is practically impossible to explain to employees. And, depending on when you actually cut checks, you may have to use estimated hours and adjust for corrections in each following pay cycle. And, if you pay any bonuses (and many types of commissions) you also have to find a way to work those amounts into the OT calculation as "regular pay".
I'll take the 10-year 27th payday problem over the weekly/monthly hassles with a semi-monthly payroll!
So, since you are paying on 12/31/08 instead of 1/1/09 you effectively have moved your 27 paydates in calendar year 2008 instead of 2009, correct? We pay on every other Thursday, but 1/1/09 is a holiday so I am determining what the best practice would be. In the past, our practice is if the pay date falls on a holiday, we pay the prior day.
Have you had employees upset when the 27th pay date occurs because it might cause them to fall into a higher tax bracket?
Actually the scenario I referred to happened back in 2005/2006. But we will hit the 27 payrolls in 2009 because of how it falls with 2010.
And the CFO and I have been discussing it and have decided for exempt salaried individuals that we will take the annual salary and divide it by 27 rather than 26 in 2009 so that the year end 2009 salaries will be what the employer expects to pay, rather than one higher. I am sure it will make some employees mad (because their biweekly will go down about 4%), but the employer can not take the hit of an extra payroll in 2009 unfortunately. Not in this economy. In years past though they could and might have taken the hit.
In 05/06, I didn't get any negative feedback, only some questions about why their W2 for both years was first high and then low compared to their annual salary. I didn't have one person complain about the taxable consequences....or that it changed their tax bracket.
To answer your question on when you should pay if the paydate falls on the holiday, you need to check your state wage laws. Some have specific requirements. You can always do more, but not less than the state law. Our policy is to pay on the day prior, but I do know some companies (in misc states) that pay after.