If you have employees, you need to determine how often you will pay them. Choosing a payroll frequency impacts how many times you run payroll and distribute wages. Common pay periods include weekly, biweekly, semimonthly, and monthly.
After picking a pay frequency, you may want to change it. Read on to learn about changing payroll frequency, including why you would want to and how to do it.
Changing payroll frequency: Why?
When you’re running a business, you regularly have to make decisions. Sometimes, you make the wrong choice for your company. If you pick a pay frequency that doesn’t work for your enterprise, you’ll need to change it up. But, what is the changing pay periods law?
Under federal law, you must use a consistent pay frequency. You cannot repeatedly change your business’s pay frequency. You cannot change frequencies to get out of paying overtime wages or prolong wage distributions. Doing so goes against the Fair Labor and Standards Act (FLSA) and can mess up tax withholdings.
You can, however, change your payroll frequency if the change is permanent, you have a legitimate reason, and you are not doing it to get out of paying wages.
Here are some reasons why you might decide to change your small business’s pay frequency.
1. Better financial planning
Sometimes, the payroll method you choose messes up your cash flow projections—this is the case if you run payroll using a biweekly frequency.
Under a biweekly frequency, you pay employees twice per month. However, there are two, three-paycheck months per year. Not being prepared for the third paycheck during those months can throw off your budget and create problems for your business.
If you have difficulty handling the months with the third paycheck, you may consider changing payroll cycle to a more financially consistent method. For example, semimonthly, weekly, and monthly payrolls always have the same number of payrolls per month, making it easier to budget.
2. For consistency
A semimonthly payroll frequency can be more confusing than others. Semimonthly paydays are inconsistent that they do not take place on the same day of the week.
When you use a semimonthly schedule, you pay employees on specific dates, but the days vary. For example, you might run payroll on the 15th and the last day of the month. Because the 15th and the last day of the month aren’t consistently on a Friday, paydays can be anytime during the week.
Inconsistent paydays can be challenging to keep track of for some small business owners. If the inconsistency causes you to be confused and disorganized, you may consider changing pay frequency.
3. To handle employee changes
Sometimes, changing payroll frequency doesn’t affect all your employees. When an employee’s position changes, you may need to change their pay frequency, too.
Some businesses pay employees using different pay periods, depending on whether they are hourly vs. salary.
For example, you might pay hourly workers using a monthly pay period and use a biweekly period for your salaried employees. If you transition an employee from hourly to salary, you must change your payroll frequency for that worker.
4. To comply with state laws
Another reason businesses change pay frequencies is that they have to. If you use a frequency that goes against your state’s law, you must replace it immediately. Although no federal law says how often you must pay employees, there are pay frequency requirements by state.
Most states set pay frequency laws. The states with pay period laws set a minimum frequency you must use. And, laws may depend on other factors, such as occupation. Make sure to check with your state for more information on frequency laws.
Changing pay frequency: How
Once you’ve decided to change your payroll period, you must implement the new frequency. Do the following before running payroll under the new frequency.
1. Check with your state
Before changing your pay frequency, verify that you can. Check your state laws to make sure the frequency you want is allowed.
If your desired pay period goes against your state’s frequency requirements, select a different pay period. Or, keep the one you have.
2. Change deduction amounts
The annual amount you withhold for taxes and other payroll deductions, like benefits or garnishments, is the same for all pay frequencies. But, the amount you withhold per pay period is different.
When changing payroll frequency, be sure to increase or decrease the amount you withhold from employee wages.
For example, moving from a biweekly payroll to a weekly payroll means you will withhold less in taxes per week because the employee will earn less per pay period.
3. Send a pay frequency change notice to employees
Telling your employees about the frequency change is essential. Otherwise, you will need to deal with disgruntled employees wondering where their hard-earned wages are. And, failing to tell employees can disrupt their budgets.
Distribute a pay period change notice well before you implement the change. That way, employees can adjust their finances and ensure they have enough money to cover bills and other expenses.
For example, you pay employees biweekly. If you decide to move to a monthly payroll without sending out a payroll frequency change letter, employees may not have enough funds to cover their expenses between paydays.
Also, keep records of your notifications (e.g., emails, dates you sent out letters, etc.). That way, you can retain proof that you told employees about the pay frequency change.
4. Implement the change
Finally, you can implement the pay frequency change. How you establish the new frequency depends on how you run payroll.
If you have an accountant or bookkeeper who manages your payroll, notify them of the change.
If you run payroll by hand, mark down the new frequency, so you don’t forget. Then, adjust payroll withholdings.
If you use software to run payroll, enter the new frequency into the system. The software will automatically adjust tax withholdings based on the new pay period.
Interested in changing your pay frequency? With Patriot’s online payroll software, you can pay employees as often as you want. Because we charge per employee, your pay frequency doesn’t determine how much you pay. Get your free trial today!
This is not intended as legal advice; for more information, please click here.