We continued to pay people their normal bi-weekly salary, just that their W-2 for 2008 will be higher due to the 27 pays. However, we are only taking benefit premium deductions from 26 pays - the first pay of the year did not have any benefit premium deductions taken.
27 pay periods Posted:
We are facing the same situation, and are in the process of deciding our own path forward. Here are the options we've considered, and our decisions regarding those options:
1) leave pay alone, and pay the 27th period as normal - our financial organization is not willing to incur the additional cash expenditure for the year. Nonexempt ees wll be paid as normal, as they have to be paid hour for hour for time worked.
2) convert to a semi-monthly pay frequency - a semi-monthly frequency would make time and record keeping for nonexempt ees very difficult; we are a mid-sized company (just over 5000 ees), and don't feel we can absorb the additional work/headcount which would be required to run semi-monthly payroll for exempts, and biweekly for nonexempts
3) annualize pay and distribute over 27 biweekly periods - this is the path we are taking
To answer your questions:
We aren't reducing the annual salary - we are annualizing based on the calculated hourly rate and distributing it over 27 pay periods rather than 26. This will result in a biweekly reduction of 3.7% of pay, but the annual rate will remain the same. We use PeopleSoft, and will be able to configure the system to accomodate our solution.
We have not yet communicated this to ees, and are in the process of devising communications, FAQs, etc.
We will not do anything different for new hires than for other ees.
We will not "true up" ees who leave.
We will not do anything different for merit.
Nonexempts will not be impacted at all.
We plan on having a 'benefits deduction holiday' the final biweekly period of 2009, so that benefits deductions will be taken over 26 pay periods for all ees. This does not include FSA/HSA, 401k, etc.
I hope this helps. I'm very interested in hearing the plans that others have for this situation, as well.
27 pay periods Posted:
Somewhat surprised these questions have just now come up. 27 pay periods occurs every 11 years. Is your company less than 11 years old; or has it been less than 11 years since you began paying on a biweekly basis?
For those employees with long memories, you may do well to check how it was done 11 years ago.
27 pay periods Posted:
Our company pays several 100,000 employees on a biweekly basis (both exempt and non-exempt). An annual rate of $50,000 is paid on a biweekly basis by dividing the annual rate of $50,000 by 26, or $1,923.08 biweekly. In the years when there are 27 pay periods, the biweekly rate stays the same and the employee actually grosses $51,923.16.
Our company has been around considerably longer ago than that, but the last time we bypassed the issue by changing our payday from Wednesday to Friday. In the years before that, it was never an issue - we just paid it. It is only an issue now due to being more frugal about the annual cash outlay.
27 pay periods Posted:
A previous employer that I had handled the biweekly situation this way (using the $50,000 annual salary example above):
Annual salary = $50,000
Divide by 26.07 to get the Biweekly Rate = $1,917.61
So instead of paying $1,923.08 BW the employer paid $1,917.61 BW. This way the employees received $49,857.86 in the years with 26 pay periods, and $51,775.47 in the years with 27 pay periods. To avoid the 10 years of unhappiness by employees wondering why they were getting shorted every year, the employer avoided expressing salaries in annual terms. They always quoted employee salaries in biweekly terms.
Either way you go using 26.07 or 26.00 to calculate the Biweekly pay amount, there is a bigger cost every 11 years
I just want to confirm - you stated that the employees' W2's were higher for that year. So does that mean that your company just paid one whole extra payroll in that calendar year? Was that a separate budgeted expense, or did your company build that into the budget at the beginning of the year? Thank you.
That is correct, Bryan. If you use a biweekly payroll, your accounting people better be prepared for a bump in payroll costs in the year with 27 pay periods. But any company with a biweekly payroll that has been in business for a long time knows this since it happens every 11 years.
Jennifer, my previous employer converted from semimonthly to biweekly. We spent a lot of time on communications explaining the conversion formula since there are always people who believe in conspiracy theories and won't trust your math.
I will probably be considered insensitive to the realities of accounting in today's expense-aware environment, but how exactly does one explain to an employee that they will be paid less for two weeks work in the 27 pay period year? After all, the 27 pay periods are paying for 54 weeks of work. It just happens that 27 payments are made in one calendar year periodically.
My company makes no adjustment to pay rates. Accounting is aware they will see a slight bump in payroll expense in the 27 pay period years. I can't imagine an explanation that would make me feel a reduction in my rate of pay is equitable. Can anyone help me see the light?
We did not adjust pay as we view each bi-weekly period as worked and to be paid. While one may argue the "annual" pay folks (i.e. exmpt) receive "extra pay", in the long run, a non-adjustment evens out and avoids disruptions and trust issues.
My company is looking at the cost of one additional payroll as being a
bigger issue than a "slight bump in payroll expense." So, hypothetically,
if a company had a $26,000,000 annual payroll, then an additional payroll
would cost the company $1,000,000. Certainly, an amount that would not go
unnoticed. Keep in mind, in the prior year and the following year, every
employee would receive their full annual salary.
I haven't yet heard from more than one another company that actually
divides the salary by 27 weeks. Do some companies just skip and pay only
26 payrolls in such a year? I would think that dividing by 27 would be
better received by employees, rather than skipping a salaried pay run.
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If you think that employees will be supportive of reducing their biweekly pay every 11th year when there are 27 pay periods, good luck! Please let us know how that plays out, and what your added costs of lawsuits were. Also, let us know which union organizes the employees.
To me, this is a lack of foresight on the company's part in not understanding that their cash flow will be affected by having a biweekly payroll. Why then inconvenience the human resources that make or break the success of your company?
that cant about the people being the most valuable asset of the enterprise only appears in the annual report for PR purposes... you didn't believe it, did you? Wanna buy a bridge? Remember, Andrea knows a lottery where you can claim a prize, too.
Oh, I forgot. The top secret HR mission in these tough economic times is to get lower level employees to get frustrated and voluntarily resign without giving them any severence pay or unemployment insurance. That will leave plenty of money for the people in the C-suite who didn't plan in advance for 27 biweekly pay periods to get huge golden parachutes when their companies go belly-up.
Sorry about the oversight. I now fully endorse cutting biweekly paychecks in years when there are 27 biweekly pay periods.
We haven't decided on how we are going to handle this (and thus why I
posed the question originally). For us, it is a $5m additional expense,
and in these times, that is an expense that impacts our budgets. We have
considered the following options:
paying what we need do legally on a state by state basis
taking the annual salary, dividing it by 27 pay periods and pay that
amount on a biweekly basis
skipping the final payroll of the year (please note that this was a
Finance suggestion that went over like a lead balloon)
paying out the non-exempts since they are paid in arrears
switching to semi monthly mid year and catching people up for what we owe