Sometimes a group will decide to change pay frequencies mid-year: Monthly to weekly, bi-weekly to bi-monthly, etc. If a group needs to change their payroll group mid-year, there are some things to be aware. We've outlined the steps and best practices for updating the payroll frequency.
What information do you need?
Who is changing pay frequencies?
Are all employees changing pay frequencies or just a particular class? Find out who is being impacted by the payroll change so that you know what information you will need to gather before hand.
When is the payroll change occurring?
You'll want to find out when the group is changing pay frequencies. We are not able to future date a payroll change effective date. Let's say it's October and the group tells you that there are changing their payroll from 26 deductions to 24 deductions effective 12/1. You will need to wait until 12/1 or after to update the payroll for the group.
What data is needed?
Before you make the change, we would recommend pulling a payroll deduction report. If anything happens during the payroll change and you need to refer back to what their original deductions were, you will have them readily available.
More importantly, HSA/HRA/cafeteria enrollments will not be updated automatically when a payroll change is made. You will want to pull a Cafeteria and/or HSA report with the employee's annual elections so that you can re-enroll the employees after payroll has been updated.
Are there any plan enrollments that we should take into special consideration prior to changing the pay frequency?
Yes. HSA, FSA, LPFSA, Dependent Care, Parking and Transit (and possibly HRA) enrollments may have an issue and if you are connected to the cafeteria data exchange or integrated payroll it is even more important to consider if changing mid-year is worthwhile.
The system does not capture a payroll change effective date. This means that the system cannot apply the old frequency for X amount of months and the new frequency for X amount of months. Since the system cannot do this, we DO NOT & CAN NOT recalculate employees per pay.
The only thing that could be done is to go to the employees benefit in modify and re-save which overwrites the prior enrollment, including the prior per pay. Not even using "adjust FSA" after changing the pay frequency will work as the system will look at the new calendar and ignore the prior calendar which means the calculation will not use the dates you are expecting.
What this means for these benefits:
Example: If an employee elected $5,000 for dependent care and they were semi-monthly, their per pay is $5,000 divided by 24 = $208.33. That amount has most likely been withheld from their paycheck each pay period.
The goal with any of these benefits is to make sure that the amount withheld equals the elected annual election.
The group decides to change to bi-weekly 26 effective 8/1.
The employees benefit is re-saved in modify and the system takes the annual election of $5,000 and divides by 26 which = $192.30. (refer to underlined statement above)
IF the employee now has $192.30 coming out of their check for the remainder of the year, they are going to contribute MORE than the IRS limit. Why?
The employee had 14 pay periods from 1/1 to 7/31 and the amount that was actually taken from their check in that time period was $208.33 * 14 = $2,916.62. Now the new per pay for the remaining months will be $192.30 * 11 = 2115.30. The combined total is $5,031.92. The employee has over-contributed.
Note! This issue may not be relevant in every case as there could be the same number of pay periods after the change. Check the calendars and do the math to verify.
In any case, if you are connected to the data exchange you will want to discuss this with the vendor prior to making any change. It is nearly a guarantee that this will cause issues with the data exchange. You may also want to verify impact with integrated payroll.
One more thing to consider - the system will not reflect what was actually withheld from the employees paycheck at the 1st part of the year since re-saving the benefit clears out anything prior. This may be confusing to the employee.
What are the steps?
Create the new payroll group with the new pay frequency. For instructions on creating a payroll group, please see Payroll Setup.
Create an import template. An import is the quickest way to update the payroll group for employees. You can use a Row Based report to create an import template. Just pull SSN, First Name, Last Name, and Payroll Group as your fields. You can then just update the Payroll Group column with the name of the new Payroll Group and import.
Import the payroll change file. From the company's Home tab, select Import Employees and Enrollments under Helpful Tools & Information. You will then be able to start a new import. The file should be imported as an employee census. As long as the file only includes these 4 columns, no other data will be impacted.
Deductions will not automatically be recalculated when the employee is assigned to the new payroll group. You will need to manually recalculate the payroll calendar to reflect the correct deductions based on the new pay frequency. To do this, simply add a date to the payroll calendar and save, then go back in and remove the date and save. This will prompt a recalculation at the top of your screen. Just click "Resolve" until you see a button that says "Run". This should now reflect the correct per pay deductions for the employees.
Step 5: (Only applies to groups with HSA/HRA/Cafeteria Plans)
*If the group does not offer HSA, HRA or cafeteria plans, you can skip to Step 6.
PLEASE READ "Are there any plan enrollments that we should take into special consideration prior to changing the pay frequency" above before doing step 5.
As we mentioned before, HSA/HRA and cafeteria enrollments will not be updated automatically when a payroll change is made, nor will it be corrected by a manual recalculation. You will need to re-enroll the employee into the HSA/HRA/cafeteria plan to show the correct contribution amounts based on the new pay frequency. You can do this in modify or you can use use the Cafeteria import template to import the enrollments back into the system but the effective date would have to be the employees original effective date in the plan.
After you are finished with your imports and recalculations, you will want to audit your data. Make sure all employees' deductions have been updated to reflect the correct number of deduction dates.