12 questions you need to ask before changing payroll frequency

For companies considering a change in payroll frequency, here are 12 questions that should be considered to plan for and address challenges.

Is your company considering a pay frequency change? There are numerous reasons why companies switch frequencies, including state-mandated laws, minimization of costs, and employees’ preference. Regardless of the reason for the change, it can be a complicated undertaking.

Cognizant is no stranger to taking on complex payroll frequency changes. Our Workday practice has successfully assisted clients through this entire process, guiding them through the beginning discovery and design to testing (including a plan to parallel test with frequency changes) to communicating with employees. Based on our experience, here are the top twelve questions you need to ask before making a pay frequency change.

1.    What are your state laws or FLSA requirements?

Many companies choose to go from semi-monthly to bi-weekly because of state laws or federal Fair Labor Standards Act (FLSA) requirements. Some states require a maximum frequency of bi-weekly, so this is the very first step you need to find out. To view your state laws on payroll, visit the U.S. Department of Labor State Payday Requirements.

2.    What payroll change do you want to make?

The reasons clients switch to different payroll frequencies depends on many factors. We’ll outline two of the most common payroll frequency changes: to bi-weekly, and to semi-monthly.

In our experience, employees prefer a bi-weekly payroll schedule because it’s predictable, consistent, and easy to understand. Reasons clients have made the switch to bi-weekly include:

• Preferred for processing hourly employees
  • Makes FLSA calculations simpler
  • Semi-monthly could vary between 72 and 96 hours for a full-time hourly worker
     
• Consistent pay days every two weeks
  • Timesheet submission follows a set schedule
     
• Potential cost savings (going from weekly to bi-weekly)
  • Payroll specialist may work fewer hours since the time spent gathering and inputting data would be reduced

On the other hand, plenty of companies decide to make the switch to semi-monthly payroll. Some of the reasons for this include:

• Less time spent running payroll
  
  
• Bi-weekly payrolls have a 27th pay period some years due to leap years
  
  
• Clean accounting periods
  • No accruals are necessary
  • Costs are recognized in the month incurred
     
• Benefits premiums are typically monthly, which makes reconciliation easier

3.    When should I make the conversion?

We’ve helped clients change their payroll frequencies both during the initial payroll implementation and as a phase two, after the payroll implementation. You should start by checking calendars and ask if there are days that align perfectly with the old and new period; for example, the start date of the new period might be the same as the start date of the old period. If so, this is a good day to make the change.

If no days align with both periods, you have a couple of options to consider regarding how the adjustment to the period will be handled.

• Option A: Use “catch-up” payroll if you owe more days between periods.
  
  
• Option B: Advance hours if there are shorted days in the period. Offer employees a loan to cover the overlapping pay periods.

4.    How will benefit deductions be handled?

You already know each of your employees will be concerned about paycheck deductions from benefits like health and dental insurance, so it’s important to address how these will be handled. For example, in a semi-monthly to bi-weekly conversion you can choose to either:

• Remain at 24 periods (skipping the third payroll twice a year)
  
  
• Convert to 26 periods
  
  
• Skip deductions on the first payroll (if shorted days in period and collect on the next third payroll)

5.    How will garnishments be handled?

Common examples of wage garnishments that will affect payroll include taxes, child support, defaulted student loans, and court costs that weren’t paid. You’ll need to see whether agencies will need to be informed of the frequency change, and what deduction amounts or calculations will be affected. For example, you may be switching from a smaller weekly deduction amount, or a larger bi-weekly deduction amount.

6.    How will this impact time-off accruals?

With a change in payroll frequency, you may need to change the time-off accrual frequency.

7.    Are there any reports impacted?

If you have reports or calculated fields based on payroll frequency or specific pay groups, you will need to update them.

8.    Will compensation, bonus and other allowance plans need to be updated?

If you have compensation, bonus or allowance plans that are currently using a frequency that doesn’t match your new payroll frequency, you may need to restructure them to fit the new payroll schedule.

9.    How will this impact integration (ADP check printing, benefits-related integrations)?

Double-check whether or not your integrations are hard-coded for pay frequencies or specific pay groups. If so, connect with vendors to make updates and test the integrations.

10.    How will you communicate to employees?

Communication must occur several times throughout the process so that the employee is prepared for the change. A couple of emails is not enough. Send out an FAQ document during the project so employees are aware of the change. This will allow them sufficient time to get used to the idea of it, as well as prepare anything needed on their side. For example, send out regular emails or newsletters and reiterate whether the first check will be shorted, whether the company will provide a loan, etc.

11.    Are resources available to perform the tasks associated with the frequency change project?

To complete a successful project, you need to involve the team that manages benefits and compensation (usually HR or Finance), because they will need to set up and test these changes. Keep in mind that your human resources or finance employees have another full-time job and may not be able to devote much time to the project. Know that the payroll department, especially the manager, needs to be involved in meetings regarding the change so they can voice concerns and requirements. The payroll team also must be heavily involved with testing the change, as described below.

12.    What’s your testing plan?

Testing is crucial to your success. You should test all integrations that affect the vendors and provide them with a timeline early in the project to allow for end-to-end testing. We recommend running a parallel test to confirm the changes are occurring correctly and employees are being paid accurately. Be sure to create a checklist of any manual processes that need to occur for the transition pay period.

In our experience, starting with these 12 questions will ensure that you address and plan for some of the key challenges associated with a change of this kind.

Cognizant’s Workday practice has thorough experience with Workday Payroll, and in the past year alone has helped several companies change payroll frequencies, including a well-known American manufacturer of soups and related goods, and a large financial services client with over $5 billion in revenue. In both cases, the clients made the switch from semi-monthly to bi-weekly. Our manufacturing client made this change to comply with state law and it opted to give employees a bridge pay when converting from semi-monthly to bi-weekly. Our financial services client switched its hourly population (roughly 18,000 employees) from semi-monthly paid current, to bi-weekly paid in arrears during its Workday Payroll deployment. Company leadership chose this frequency to simplify its overtime and FLSA calculations, and to help eliminate overpayments that couldn’t be collected.