Switching to less-frequent payroll periods can save time and money on payroll processing costs, but to navigate the change successfully, you need to recalculate payments, make changes to your accounting software, and communicate with your employees about the change.
Weekly to Biweekly Conversions
If you’re changing from a weekly to a biweekly pay period, the math is easy. With hourly employees, you continue to pay them for time worked, and for salaried employees, you simply double the amount of their weekly paycheque. Then, you double insurance premiums or any other regular deductions you may withhold from your employees’ paycheques. As Canada Pension Plan premiums and Employment Insurance is calculated as a percentage of earnings, you don’t have to worry about any special conversions. Similarly, if your employees accrue holiday pay as a percentage of time worked, you also don’t have to worry about converting these values either.
Biweekly to Semimonthly
With biweekly pay periods, you pay employees every two weeks, but with semimonthly periods, you pay employees twice a month. As a result, with a biweekly schedule, employees receive 26 paycheques per year, but with a semimonthly schedule, they receive 24.
To convert the new payment amount for salaried employees, multiply their biweekly salary by 26 and divide the result by 24. Alternatively, start with the annual salary and divide by 24. For example, if your employee’s biweekly paycheques are $2,000, he or she earns $52,000. When divided by 26, this results in semimonthly payments of $2,166.67.
You may also calculate regular deductions in the same way. For instance, if your employee currently pays $100 per biweekly paycheque for private health insurance, that equates to $2,600 per year. When you switch to semimonthly paycheques, you need to make that amount $108.33.
For hourly employees, you should simply continue to pay them by the hour, but you may need to convert some deductions as explained above. However, paying hourly employees semimonthly can be confusing as the pay period can end in the middle of the week, and that makes it hard to calculate overtime accurately. Because of that, this payroll schedule tends to work better for salaried employees.
Most payroll software has a spot to enter pay periods, and you need to alter the information in this field when you change pay periods. For example, if you use QuickBooks Desktop, you can open an existing payroll schedule, hit edit, and then change the pay period. This program has a drop-down box with several options.
If you are switching from a weekly or biweekly to a semimonthly or monthly schedule, you also have to note the days of the month on which your pay periods fall. For instance, you may select the first and 15th of every month.
Ideally, you should not spring a shift in payroll periods on your employees. Instead, notify employees at least a month in advance, and let them know exactly how the change will affect them. For example, when switching from biweekly to semimonthly, explain that employees will receive larger paycheques but will receive two fewer cheques per year.