Expert: Mike Wellman - 10/5/2007

Question
Employees are paid bi-monthly. Around this time last year we ran into this problem, looking at paying the employees for 2007 weeks well into 2008.  They turn-in a timesheet every two weeks and then get paid for that timesheet in about a month and half after they turn it in.  Just looking for help on how not to pay way into 2008???

Answer
First, it does not make sense that they turn in a timesheet every two weeks but get paid every other month. The simplest thing is to go to a semi-monthly pay period since that is how timesheets are done.

From a payroll accounting standpoint, it does not matter. 941's and payroll deposits are done on a cash basis. It does not matter when the work was done or what period the check is actually paying for. If they get a check in February 2008 for work done in December, it applies to 2008 and will be on the first quarter 2008 941 and the tax deposit will be due depending on the size of your payroll liability - in Feb or March 2008.

From a financial accounting (GAAP) standpoint, you would accrue the wages earned in 2007 as well as the accompanying liabilities. In 2008, you reverse that entry. This will properly match wage expense with revenues. Of course you may have to accrue them also.

All that said, assuming your payroll is roughly the same period to period, it may not make a material difference at least as far as annual reporting is concerned. Presumably at the start of 2007, you had wages paid that were earned in 2006. This "offsets" the wages earned in 2007 but not paid until 2008. If wages vary greatly from one period to the next or if you are in a fast growth mode, it may be a little distorted.

I will be honest, I have never heard of a company paying wages every two months. I am not even sure it is legal in many states. I would strongly advise you to go to at least monthly pay periods.