You might think that setting up a regular payroll would be easy. You know, put in names and start paying the employees. But stop right there, you’re going to have to first determine when you’re going to pay them, and I’m not talking about what day of the week. Of course, it’s much more complex than that. You have to consider the hold back. What’s that? Well, it’s certainly something you have to consider.
Most employers are on a one-week hold back. That means you get paid for two weeks (of work) after working for three. The reason for running your payroll on that basis is that you are paying on actual time worked and calculate benefits (like PTO, vacation and other benefit days, perks and expenses) as an accrual and actual numbers rather than projecting in the future and then having to adjust in the future.
The changes in rules relating to overtime pay from the U.S. Department of Labor is another reason to be able to calculate employees’ wages in “real time.” Determining who is exempt and which of the rules apply to each employee based on their income level further complicates payroll.
Making adjustments for actual payroll in future pay periods just doesn’t work any more
For example, the town of Watonga, OK was paying for two weeks of work BEFORE the employee worked it. Then if the employee took time off for any reason or worked other than the regular 80 hours adjustments were made on the next payroll to reflect the actual payroll figures. In addition, if an employee left or was released, they actually might owe a refund to the City. Collecting a return of wages for 20 hours was difficult at best.
Processing payroll with a one-week hold back means that employees will have a paycheck due them after they leave employment, no matter if they quit or are released. That allows employers to complete a final audit and make adjustments for benefit pay that might be due them such as unused vacation, PTO or expenses.
Get help from professionals
Small business owners want to work within the general guidelines of the marketplace, but are able to determine how and when they will pay employees. The Payroll Department has had years of experience helping small businesses set up their payroll process as well as adjust it if it is changed midstream.
For instance, the town noted above figured out that they had to go to a hold back routine, but didn’t want to penalize employees with a period of several weeks without a paycheck. What they did was hold back four hours per paycheck until they worked up to the standard one-week hold back. It took 10 pay periods.
Payroll processing seems to get more and more complex with every passing year. Of course, small business owners want to pay fair wages and on a timely basis, so setting up the routine early on will help. Outsourcing your payroll to a payroll service takes the headaches and details off your plate and ensures it will be done fairly and accurately – and, most importantly, following the laws and regulations of federal, state and local agencies.
-Elaine of The Payroll Department Blog Team