Converting employees to a new pay period

It is very common for a business to have clusters of employees with either different pay periods or similar pay periods that do not end on the same date. This situation may be caused by union agreements, poor planning, or perhaps acquisitions. Whatever the reason, the result is a payroll department that is continually processing payroll, which is not efficient.

A better solution is to have a single, centralized payroll system for all employees, where everyone is paid for the same time period, and at the same time. Making this change can cause problems for employees, who likely have spending patterns that are based on when they are paid. The following options can make the transition process easier for them:

  • Increase pay frequency. If management has decided to pay employees more frequently than is currently the case, then there is no issue, since this improves the flow of cash to employees.

  • Electronic payment. If employees are currently paid by check, emphasize that switching to an electronic payment will speed the flow of cash into their bank accounts, usually by at least one day.

  • Bridge loan. If employees will be switched to a longer payment interval, pay them an interest-free loan for the first bridge period, and gradually pay off the loans through automatic pay deductions in future periods. Thus, a switch from a weekly to a monthly pay period could call for the issuance of loans that equate to the three weeks of net pay in the bridge period.

  • Halt use it or lose it requirement. If employees are currently required to use their accrued vacation time or otherwise lose it at the end of the year, allow them to roll it forward into the next year and then cash them out in the bridge period; this is essentially a pre-paid bridge loan, as just described.

Whatever options are used, be sure to over-communicate them to employees. By doing so, there is no question about the nature of the pay change and how the company is handling it. The best form of communication is to use several methods, such as e-mail, in-person notifications, posters, and so forth. Also, be willing to adopt any suggestions from employees that may lead to an easier transition period.

Related Courses

Human Resources Guidebook 
Optimal Accounting for Payroll
Payroll Management