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outsourcing payroll paid semi-monthly creates accounting issue
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outsourcing payroll paid semi-monthly creates accounting issue
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We previously did our payroll in house and were paid semi-monthly on the 1st and 15th of the month. However, we have now outsourced our payroll and their system pays on the 15th and end of the month.
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outsourcing payroll paid semi-monthly creates accounting issue
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outsourcing payroll paid semi-monthly creates accounting issue
posted at 4/19/2011 7:05 PM EDT
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Posts: 7
First: 4/19/2011 Last: 5/4/2011 |
We previously did our payroll in house and were paid semi-monthly on the 1st and 15th of the month. However, we have now outsourced our payroll and their system pays on the 15th and end of the month. This has created a bit of an issue on paper as we received 3 paychecks in one month (1st, 15th and 31st) and then we resume the semi-monthly payments.
Even though the difference is only a day, it screws up our year end records as it shows 25 pay periods for the year. One approach that was discussed was to eliminate the last paycheck of the year which would create the proper amount of 24 paychecks for the year and of course the next year will also show 24 paychecks. However there is some concern that this approach may actually be equivalent to docking every person a half months pay. We are looking for some guidance on how to handle this situation so that the year end records are correct but not at the expense of losing a half months pay (if indeed that is the case.) The company that we have outsourced our payroll to is inflexible in regards to when they cut the paychecks so having them make the change back to our old timetable is not an option. |
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outsourcing payroll paid semi-monthly creates accounting issue
posted at 4/20/2011 3:01 AM EDT
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Posts: 1103
First: 3/16/2007 Last: 8/19/2011 |
Sounds to me as if the process used to outsource wasn't handled very well nor was any change communication considered.
I would either change the venddor now (if that is even possible) or simply go with 25 pay periods this year. The cash/accounting side should still balance. |
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outsourcing payroll paid semi-monthly creates accounting issue
posted at 4/20/2011 6:41 AM EDT
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Posts: 2442
First: 2/12/2000 Last: 9/14/2011 |
I everyone will receive the same pay they would have by December 31st then no one will care about the number of paydays.
W-2s will report the correct earned wages so you should be fine. Yes you will have three payments in one month but its not like anyone received something they shouldn't have nor has anyone been shorted any amount. |
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outsourcing payroll paid semi-monthly creates accounting issue
posted at 4/20/2011 8:01 AM EDT
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Posts: 7
First: 4/19/2011 Last: 5/4/2011 |
The W2's will show the correct amount for the year if we skip the final year-end payment. Next years will also show the same. But that still does not resolve the half a month without a paycheck which will affect everyone's ability to pay their bills. |
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outsourcing payroll paid semi-monthly creates accounting issue
posted at 4/20/2011 8:19 AM EDT
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Posts: 2442
First: 2/12/2000 Last: 9/14/2011 |
if they received three payments in one month rather than two(one of them one day early) no one is short. The first of the following month payment was paid one day early so how is there a problem in the subsequent month? |
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outsourcing payroll paid semi-monthly creates accounting issue
posted at 4/20/2011 8:42 AM EDT
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Posts: 7
First: 4/19/2011 Last: 5/4/2011 |
Here is the confusion:
We are paid semi-monthly which means 24 payments a year. If we receive 25 payments for the year, then when the year is closed out, the books show the company overpaid everyone by a paycheck. If the final paycheck is skipped then everyone receives 24 paychecks and the books are happy, and when you look to the next year, everyone still receives 24 paychecks and it appears that everything is even. The W2's will also show that you received your proper wages for both this year and next year. On the other hand, from the perspective of the wage earner, there is one half month without a paycheck at the end of the year and that money is not made up anywhere. The difference between paychecks (receiving it 1 day early one month) translates into being docked a half months pay at the end of the year. For instance, lets assume that the wage earner pays 2 bills each month, one on the 1st and the other on the 15th and each bill is $1000 with a $50 late fee. Let's also assume that their semi-monthly paycheck is $1000 and their initial bank balance is $0. We will also assume that the change of paycheck payments happen in October: August 1: pay check $1000, credit card payment $1000 Bank Balance $0 August 15: pay check $1000, credit card payment $1000 Bank Balance $0 September 1: pay check $1000, credit card payment $1000 Bank Balance $0 September 15: pay check $1000, credit card payment $1000 Bank Balance $0 October 1: pay check $1000, credit card payment $1000 Bank Balance $0 October 15: pay check $1000, credit card payment $1000 Bank Balance $0 Halloween: pay check $1000, credit card payment $0 Bank Balance $1000 November 1: pay check $0, credit card payment $1000 Bank Balance $0 November 15: pay check $1000, credit card payment $1000 Bank Balance $0 November 30: pay check $1000, credit card payment $0 Bank Balance $1000 December 1: pay check $0, credit card payment $1000 Bank Balance $0 December 15: pay check $1000, credit card payment $1000 Bank Balance $0 December 31: pay check $0, credit card payment $0 Bank Balance $0 January 1: pay check $0, credit card payment $1000 Bank Balance $-1050 (late charge) January 15: pay check $1000, credit card payment $1000 Bank Balance $-1100 (late charge) January 31: pay check $1000, credit card payment $1000 Bank Balance $-100 February 1: pay check $0, credit card payment $1000 Bank Balance $-1150 (late charge) ------- So how do we resolve this discrepancy? |
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outsourcing payroll paid semi-monthly creates accounting issue
posted at 4/20/2011 8:51 AM EDT
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Posts: 2442
First: 2/12/2000 Last: 9/14/2011 |
You either make the December 31st payment and live with the consequences of extra pay in the calendar year against employees going without wages for 30 days or
you intentially delay this payment by one day...... I vote for the former and set that as you new company practice each year. |
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outsourcing payroll paid semi-monthly creates accounting issue
posted at 4/20/2011 11:14 AM EDT
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Posts: 2146
First: 2/15/2006 Last: 9/14/2011 |
Maybe I am making this way too simple, but why would you not just delay the payment by one day at the end of the year? Check with your state wage laws to make sure it is allowable first though (that you are paying the in the time frame allowed).
And communicate it NOW to employees...that is one check was paid one day too early and so to offset that, you are paying one day too late so that both years will have the 24 pay periods. I suspect most will be happy to have annual wages match their annual salary....and what they expected to pay taxes on. (We are biweekly and last year had the year with 27 checks and it was basically just a communication issue.) |
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outsourcing payroll paid semi-monthly creates accounting issue
posted at 4/20/2011 11:43 AM EDT
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Posts: 7
First: 4/19/2011 Last: 5/4/2011 |
Unfortunately, there is no flexibility with the outsourced payroll company. The biggest issue I have is that the current thought is that if the company paid the final payment at the end of the year, then it would be an extra payment, akin to a Christmas bonus that they are "considering" paying if there is enough money. Even sending the payment chart I included in this discussion has not yet made it clear to them. BTW, they are not attempting to pull anything as their pay would also be affected. They are just stuck on needing to pay only 24 payments in a year.
I mentioned as a possible solution to close the books on Dec 30th and then run the fiscal year from Dec 31st, 2011 to Dec 30th 2012 for next year and beyond, but it was not addressed in the reply I received. I was really hoping that an accountant would be able to chime in with a convincing explanation that I could forward.... |
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