Changing pay cycles about more than process, cash flow

HR, payroll play critical roles in every step of the process
By Janice MacLellan
|Canadian HR Reporter|Last Updated: 09/15/2014

Changing pay cycles is an important decision that should be thoroughly considered by any organization, be it small, medium or large. A properly thought-out plan and execution can result in considerable savings for a business, while also ensuring employees’ lives remain generally unaffected.

Paycheques and salaries are highly sensitive areas, and a shift in pay cycles without adequate preparation and communication can ultimately affect employee satisfaction and engagement. Ensuring it is done right is crucial to the overall success of the organization.

There are a number of factors to consider when making the decision to change a pay cycle. The most crucial element is a full commitment from HR and payroll as they are often the cheerleaders who push the idea forward to the entire organization, while ensuring open and clear dialogue with employees.

Pros and cons

The most common pay cycles for Canadian businesses are biweekly and semi-monthly. However, pay cycles can vary by province and industry — some industries, such as manufacturing, may still run on a weekly pay cycle.

The most obvious advantages to changing the cycle are the savings — of both time and money — which can vary according to an employer’s size. For instance, most organizations incur administrative charges every time they run a payroll. If one is processing payroll 24 times per year, as opposed to 52, this can mean significant savings for the business, no matter what the size.

Similarly, if the pay cycle is changed from semi-monthly (24 cycles) to bi-weekly (26 cycles), the advantage is greater consistency — since the payday is the same day every second week — and less confusion for employees as they work to plan their financial commitments.

There are other important factors, and some downsides to consider. If the pay cycle is changed mid-year, this can affect the records of employment (ROEs) which are set up based on the pay schedule. For instance, if the cycle is changed mid-year to a biweekly pay, one-half of the ROEs will appear as weekly and the other half as biweekly. The only way to resolve this would be to run all of the ROEs again and start over.

Most companies opt to change the pay cycle at the beginning of the calendar or fiscal year, making it easier for payroll and finance to start with a clean slate while ensuring everyone’s pay and ROEs are processed correctly.

Keep in mind that changing pay cycles is a three- to six-month process, so you will want to start working on it well ahead of implementing the change.

Another important factor is the organization’s relationship with unions. If employees are unionized, they will need to be given advance notice. And take into consideration the time it will take to bargain with unions, as some may not allow organizations to move unilaterally.

Most importantly, consider the impact the pay cycle change will have on employees’ lifestyles. If some employees have weekly mortgage payments that coincide with their pay, they may need to change their banking information and, in some cases, banks may charge a fee to change the payment frequency.

Changing the pay cycle may require additional administrative work to roll out, but the long-term time savings and cost benefits are well-warranted and will free up time internally for other tasks.

Steps involved

The most important step when changing pay cycles is to ensure full commitment from HR and payroll as they help build the business case to senior leadership, lead the charge on implementation, support employee communications and troubleshoot any challenges along the way.

In addition, if there are vendors involved, payroll and finance should notify them of the change as this may impact future payments. Statutory bodies such as the Canada Revenue Agency (CRA) should also be notified and HR reporting procedures should be re-assessed.

HR and payroll should work in tandem with various departments, including senior leadership, to ensure everyone is on board. When it comes to employee communication, HR and payroll should be mindful of
giving advanced notice while also providing solutions such as compensation for the pay delay, floating money for one week or offering advances for employees who may require it to ensure little to no hardship is suffered during the process and employees’ lives remain generally unaffected.

Overall, the key to ensuring a smooth transition during the pay cycle change process means, as HR and payroll professionals, being involved in every step from beginning to end.

This includes building the business case to the senior leadership team, spearheading the change, running the project, supporting employee communication and providing solutions to any challenges that may arise during the transition.

This process will not only re-emphasize the integral role that HR and payroll play in the organization — it will also help enable the change and ensure the overall success of the organization.

Janice MacLellan is vice-president of comprehensive outsourcing services at ADP Canada Employer Services in Toronto.