Why Calculating Pay Periods Correctly Is Essential For Both The Business – And Employees
Pay Period Calendar 2021 – Human beings thrive on certainty. They require that certainty to plan their lives – and nowhere is this more important than in their careers. However, for employees to enjoy certainty, businesses must also have certainty. And in term of payroll that certainty is key to the survival of the business and enabling it to survive the ups and downs of an increasingly volatile business environment – especially when in an environment where competitive forces are putting ever increasing pressures on organizations to perform – and this includes ensuring that internal processes are optimized.
The proper management of payroll – and that includes a tried and proven way of organizing a payroll calendar is an essential internal process, however – what are the choices that an organization is faced with when it comes to optimizing payroll periods – and just why is this so important?
Firstly, the business must manage it payroll calendar according to the unique requirements of its workforce – and this usually means that it is faced with a number of choices, the simplest of these being between the needs of salaried vs hourly employees – and the need to ensure that each class of employee is paid according to both their job function – and their qualifications.
The typical types of pay period that are found in most businesses are weekly, bi-weekly, semi-monthly and month. It may be confusing to some to think that there is a different between bi-weekly (a payment in to week cycles) and semi-monthly (two payments a month. But when payroll is calculated and the payroll calendar system is set up it soon becomes apparent that a bi-weekly payment schedule results in 26 payments per annum, while a semi-monthly payment cycle results in 24 payments each year.
It is also important for those in charge of the payroll system to understand that some years may call for 27 payment per annum for those who fall under the bi-weekly payment schedule. This can happen regularly when payments are for instance made every other Thursday. This becomes easier to understand when one considers that there are 52.1786 weeks in year, rather than 52. This actually results in 26.0893 pay periods who work under the bi-weekly payment schedule (it is commonly known as a ‘payroll leap year). In the cases where this is the case the most important thing that an employee can do is communicate the fact to employees. This allows those employees to plan their finances – and has a direct effect on employee morale and maintaining best practice when it comes to human relations. In fact, it has tremendously positive effect on employee relations as it effectively means that they will be getting a ‘bonus’ of an ‘extra’ salary while their working year.
So why is it so important for the business to be aware how many pay periods there are in the year? The impact of the number of pay periods in the year has direct (if obvious impact) on the amount of gross pay that is due during the course of the year. The impact on the bottom line is obvious – it directly results in a noticeable effect of the amount of liquidity available to the company. That effects several issues relating to the profitability and even the ability of the company to service debt and other sunken costs.
The ability to thoughtfully plan for payroll also has an impact on planning as far as the mechanics of making payments is concerned. It allows the payroll / accounting department to review time sheets (in the case of hourly employees) in a timeous fashion.
There is also the issue of overtime. Planning and calculating for overtime is one of the most challenging payroll issues that any business will face. There are instances when overtime is by nature unplanned. Company’s handle overtime in different ways. They may delay the payment of overtime until the following weekly pay period – or at the very least delay that payment by few days after the after normal weekly payments are due. Once again, the business is faced with two key issues when it comes to planning for overtime pay. The first issue is related to employee communication. It is essential that employees are aware when their overtime will be paid out. The second is making allowance for expenditure by the business.
Payroll management systems also allow the company to consider regulatory issues and taxation issues which face both the company and the employee. It is important for company management to realize that there are also federal and state laws which govern how payroll is to be handled.
There are a number of software packages to help perform pay calculations However, even with payroll software or an online payroll system those in charge of that essential functionality need to familiarize themselves with the unique requirements and demands as far as legislation are concerned, prior to choosing the correct system for the business.