Payroll: Pay Date: We are thinking about changing our pay day. What issues should we be concerned about before we decide to make the switch?

Before you decide to change, consider the following:

Your state wage payment provisions. Each state dictates wage payment frequency. Check state provisions through the state department of labor website to ensure compliance.

Overtime. How will the change and corresponding transition affect overtime? Fair Labor Standards Act (FLSA) regulations indicate that employees who have been classified as nonexempt are required to be paid overtime when they work more than 40 hours in a workweek. The regulations also define the workweek as “a fixed and regularly recurring period of 168 hours—seven consecutive 24-hour periods. It need not coincide with the calendar week but may begin on any day and at any hour of the day.” Verify that changing your payday does not have the unintended consequence of inadvertently placing your organization into an overtime situation. If so, will the temporary cost be worth it in the long term?

Direct deposits. If your organization offers direct deposit of employee paychecks, you will need to coordinate with the various financial institutions to ensure timely and accurate deposits, especially during the transition. Instituting a direct deposit program involves an employer establishing a direct deposit date similar to a “pay day” with both the employer’s financial institution or payroll service provider and employees’ financial institutions. This date is when funds from the employer’s financial institution need to be electronically deposited into employees’ accounts at the employees’ receiving financial institutions. Many direct deposits are done through a process known as Automated Clearing House, which allows for the secure transfer of funds approximately one to two days prior to the direct deposit date.

Pay day traditions. Pay day traditions such as providing free coffee and donuts, longer lunch hours for employees to deposit their paychecks, special office hours reserved for field personnel to collect their paychecks, or the CEO’s hand delivery of them, may have evolved in your organization. You may need to take into account how cherished traditions could be affected by a change in pay days.

Communication and education. Proactive and frequent communication throughout the organization is vitally important in any change initiative and especially when changing pay days. Do not limit your communication and educational efforts to displaying posters, sending e-mails or placing notices on organization bulletin boards and the intranet. Try new approaches such as hosting a new pay day fair. Invite your payroll processor or other vendors to participate. Use this fair as an opportunity to educate your employees about direct deposit or other alternative paycheck options, the organization’s 401(k), and other financial planning or credit counseling resources.


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