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Semi Monthly Payroll with varying Period Dates

We are trying to centralize our company onto a single payroll system. However, one company we recently acquired uses a customized payroll system with really unusual payroll periods and this has been our stumbling block. They say they have semi monthly payroll periods, but the only thing semi monthly about them is that their employees are paid on the 15th and the end of the month (or on the Friday before if those days fall on a weekend or holiday).

Their payroll calendar for the periods paid on the 15th might be anywhere from 13 to 19 days in length. There is no consistency whatsoever between periods. It isn't like the first period is 15 days long (e.g. 1st to 15th) and the next period varies (e.g. 16th to end of the month). In this case every period is different than the one before.

Have any of you found a payroll system (less than 4000 employees) where this type of calendar could be configured out of the box? I've talked to some companies that will customize their calendars for us but I'm concerned that this will lock us in to a specific vendor for years to come.

They are already in this situation today (difficult to get tax updates) because of their customizations and we'd like to avoid this same problem going forward.

Any ideas. suggestions, recommendations would be greatly appreciated.

Comments

  • Would it not be easier to do a one time change of payweeks/periods/checkdates ?

    Because I suspect you will continue to experience issues and will never be able to totally get past customization
    Garnishee
  • I completely agree with rrupert. With proper planning and excellent communication converting to a more standard payroll cycle will be better for everyone in the long term. The pay periods should be consistent with only the pay dates affected by the occasional bank holiday. I managed a conversion of both monthly and semi-monthly cycles, paid current, to bi-weekly with a 6 day lag between period end date and pay date some years ago. It worked quite well, but constant communication with the employees was very critical.

    rrupertGarnishee
  • This should not be that difficult to convert - I can see two possibilities for what they are doing that may fall within the range you indicate that could cause the fluctuations you are seeing. One is that they are paying on a semi-monthly schedule, but are including either two or three full workweeks within the payroll period. The other is that they are paying semi-monthly, but including the dates trailing the payment date in the following period. For example, October 1 through 15 would be paid on the 13th (13 days) while the second period would include the 14th - the 31st (18 days). A holiday in the mix might give 19 days.

    In the latter case, the daily or miscellaneous pay period should be used, however that is likely to under withhold on an annual basis because non-work days are included in the computations and the rates are based on a 260 day year while the withholding will be average over 365 days. That is, the withholding allowances and tax brackets are based on a 260 day year while the method applies the allowances and bracket bases to an additional 105 days. At $15.60 per day for each allowance, this reduces the withholding by at least $1,638 for each allowance over the course of the year when compared to the annual table.

    If they are using a two week/three week method there is a potential compliance issue because semi-monthly will under withhold for a three week period and over withhold for a two week period. This method may actually be allowed, but it would have to qualify under the "other methods" alternative under Internal Revenue Code section 3402(h)(4) and the related regulation 31.3402(h)(4)-1.

    Use of an "other method" requires that the employer designed withholding method withhold essentially the same amount as the percentage or wage bracket methods over the course of the year. The regulation requires that any deviation over the course of the year fall withing the maximum allowable deviations and that the method not consistently withhold less than the amount computed as the amount required to be withheld. The easy measure for the amount required to be withheld is the amount computed by applying the appropriate annual withholding table to the employee's actual annual compensation.

    I don;t think changing from either method to a true semi-monthly method should cause a significant shortfall for the employees unless the subsidiary is using a two week/three week method and the change over month has a three week period.

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