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Private26556

   
27 pay periods  
Posted: 06/30/2008 08:01am   1056 Views
  

We are a company that pays its employees on a biweekly basis, and in 2009, we will experience 27 pay dates.  I was wondering the following:

 

Did you leave the biweekly base rate alone? What was the rationale behind the decision not to reduce it?

Did you take the annual salary and reduce it to accommodate the 27 pay periods?

If so, what was some of the feedback that you received from employees?

For new hires, did you take their annual salary and divide it by the number of pay periods that they will work in the year?

Did you "true up" terms when they left mid year?

Did you do anything different for merit?

Did you do anything different for your non-exempt population?

 

How did you handle benefits deductions?

 

Thank you very much!


Private10699

   
27 pay periods  
Posted: 07/03/2008 08:06am  
  

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.


#1

27 pay periods  
Posted: 10/06/2008 04:18pm  
  

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.


#2

27 pay periods  
Posted: 10/07/2008 05:51am  
  

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.   


#2

27 pay periods  
Posted: 10/07/2008 06:04am  
  
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.  

Private73222

   
27 pay periods  
Posted: 10/07/2008 08:54am  
  
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.

#2

27 pay periods  
Posted: 10/07/2008 11:13am  
  
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


Private73222

   
27 pay periods  
Posted: 10/12/2008 01:35pm  
  
Has anyone converted to a semi-montly pay frequency to resolve this issue?

Private26556

   
27 pay periods  
Posted: 10/14/2008 01:34pm  
  
We are looking at converting mid year to a semi monthly payroll.

Beth Nichols
Manager, Compensation
Human Resources

290 Concord Road
Billerica, MA 01821
978-715-1411 (p)
978-729-3118 (c)
978-715-1398 (f)

Millipore Corporation
ADVANCING LIFE SCIENCE TOGETHER(TM)
Research.Development.Production

www.millipore.com

Private10632

   
27 pay periods  
Posted: 11/13/2008 08:34pm  
  
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.

Private10775

   
27 pay periods  
Posted: 11/14/2008 02:47am  
  
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.  

Private10775

   
27 pay periods  
Posted: 11/14/2008 02:57am  
  
Elizabeth, my memory is fading a bit, but you might want to have someone check local/state law to see if there are any statutes requiring biweekly payrolls.   

Private10775

   
27 pay periods  
Posted: 11/14/2008 02:57am  
  
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. 

Private10775

   
27 pay periods  
Posted: 11/14/2008 06:42am  
  

For all of you who are interested in more extensive survey information on this topic, could you go to the post titled "Best Survey Source for Pay Practices?" and express your desires. 

(A quick way to find this post is to type "best survey source" in the search box in the upper right-hand corner of this page.) 


Private10775

   
27 pay periods  
Posted: 11/14/2008 06:54am  
  

Jennifer,

I know its been a while since you made your post about getting around the 27 pay period problem, but it has been weighing on my mind like a drippy faucet. 

I'd love to learn more about how you avoided the problem of an extra pay period in the 11th year by switching from a Wednesday to Friday pay date. 

Didn't that just push the problem of 27 pay periods to the next year? 

Was there any need to give a small adjustment because of the change in pay date?

When the next 11-year cycle comes up, are you going to change the pay date again?

This sounds very intriguing.  Thanks in advance for sharing.

Paul

(PS: if you'd rather continue this discussion off-line, I can be reached at cpaulwd@yahoo.com.)


Private10775

   
27 pay periods  
Posted: 11/14/2008 07:49am  
  

Here is an interesting link that provides state and local laws as they pertain to the length of pay periods.  http://www.toolkit.com/small_business_guide/sbg.aspx?nid=P05_4109 

If you are considering making a change in your length of pay period, you might want to have your attorneys double check this information.


Private10775

   
27 pay periods  
Posted: 11/14/2008 02:36pm  
  

Here's another resource for information on state pay period requirements: http://www.dol.gov/esa/whd/state/payday.htm

Surprise, surprise!  Its from the US Department of Labor!

And here's another interesting tidbit, I found it by surfing through WorldatWork's State Labor Law Directory at http://www.worldatwork.org/waw/Content/library/html/library-state-resources-2.jsp


Private10963

   
27 pay periods  
Posted: 11/18/2008 10:02am  
  

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?


Private10775

   
27 pay periods  
Posted: 11/18/2008 10:46am  
  

Steven,

I think you have provided the "light".  Great points!

Paul


Private10506

   
27 pay periods  
Posted: 11/20/2008 09:58am  
  
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.

Private10632

   
27 pay periods  
Posted: 11/20/2008 11:09am  
  

To reply to Steve Rasp's comments:

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.



Best Regards,

Brian Nolan
Compensation Manager

Omya Inc.
61 Main Street
Proctor, VT 05765
USA
Phone direct: 802 770 7300
Mobile: 802 558 9658
Fax: 802 776 8104
eMail: brian.nolan@omya.com
Internet: www.omya.com

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Private10775

   
27 pay periods  
Posted: 11/20/2008 11:09am  
  

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? 


Private10790

   
27 pay periods  
Posted: 11/20/2008 11:09am  
  

because beancounters rule

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.

E. James (Jim)


Private10775

   
27 pay periods  
Posted: 11/20/2008 11:09am  
  

Jim,

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.

Thanks, Jim, for helping me see the real light.

Paul  


Private26556

   
27 pay periods  
Posted: 11/20/2008 01:09pm  
  
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
them

Beth Nichols
Manager, Compensation
Human Resources

290 Concord Road
Billerica, MA 01821
978-715-1411 (p)
978-729-3118 (c)
978-715-1398 (f)

Millipore Corporation
ADVANCING LIFE SCIENCE TOGETHER(TM)
Research.Development.Production

www.millipore.com

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