Expert: Shirley McAllister, CPP, PHR - 2/7/2009

Question
Hello Shirly,
My father's business is considering changing from 26 to 24 pay periods. He has both salaried and hourly employees. I read your response to a similar question which answered some of my questions, but I still want to know:
- If he wants to pay on the 1st and 15th each month, how do you establish pay period end dates? Is there a law which dictates limits on this?
- in 2009, is there any particular time-frame when making this change might be a smoother transition (for the employees) as opposed to others? His 26 wk sched is every other Friday and Feb pay dates are the 13th and 27th. He wants the 24 wk sched to pay on the 1st and 15th each month.

I appreciate any help you can give on this.

Thanks,

Aaron Helle
HR Representative
Cabela's - Rogers, MN  

Answer
The 24 pay periods is a nightmare for payroll for the hourly employees. The hourly employees must be paid overtime for any time in a week over 40 hours. It does not matter if the week is split between two pay periods. So if 3 days are one payperiod and two days are the next than payroll must keep records on all hourly employees on how many hours were worked the 3 days and then add the two days and figure overtime than subtract the time already paid for the week. I did it for years and I hated it. It cost the company lots of overtime for me because it takes so much time to do payroll for hourly in this manner.

That said, it can be done. What the government says is give the employees ample notice,and that the pay period cut off must be the same each paydate, it cannot change all the time. Once it is established that is what it stays.  I would say 30 days. Then maybe allow them to use PTO or vacation time if they would lose time that week that the pay period is changing.

Hourly employees are paid for all the time they work so if there are 2 1/2 weeks in a 24 pay period they are paid for 2 1/2 weeks. Salaried are paid 86.66 hours a pay period instead of 80  hours. So their annual salary is divided by 24 times a year instead of by 26.

July would be the easiest because there are 3 payrolls for the 26 pay periods. So you would only make 2 payperiods. the 1st and the 15th.  instead of the 3rd, 17th and 31st. Then you would pay on Aug 1st and 15th.

Just remember that the salaried must be paid their whole annual salary for the year. The person earning 50,000 would have been paid 1923.07 each pay period at 26 pay period and is paid 2083.33 for each pay period with 24 pay periods.

Now if you pay the two in July that is okay, You have to figure that they have been paid 12 pay periods Jan 2, Feb 2, Mar 2, April 2,May 2, June 2 (12).  Now the 50,000 person is paid 12 X 1923.07 or a total of 23,076.84.  You have to subtract from the annual salary of 50,000 the 23,076.84 which leaves 26, 923.16. You need to divide this by the remaining pay period in the year July 2, Aug 2, Sept 2, Oct 2, Nov 2, Dec 2. This is 12 pay periods. 26,923.16 divided by 12 is 2,243.59 is what the salaried exempt 50,000 employee would get until the end of 2009. Then in 2010 you would simply divide the annual wage by 26.

You need to be sure that hourly are paid for every hour they work and they must be paid overtime for all hours over 40.


Shirley