When thinking about pay frequency, you should understand pay frequency laws and how the laws may impact your business. You should also draft a plan for implementing and communicating the selected pay frequency to employees. Here are some factors and guidelines to consider when drafting such a plan.
Pay frequency and timing laws
By way of background, pay frequency refers to the payroll schedule applied to employees (e.g., weekly, bi-weekly, semi-monthly). Pay timing refers to the time that can elapse between when wages are earned and when those wages are paid to employees.
While federal law doesn’t specifically address how often and how soon wages must be paid to employees, most states have pay frequency and timing laws detailing such requirements. Some states have different requirements based on industry or employee classification (exempt or non-exempt). Employers are generally permitted to pay wages more frequently or earlier than required by law.
New York law demonstrates why careful attention to these requirements is important. For example, if you have employees working in New York then you need to review the following.
- Do you have manual workers? If so, these workers must be paid weekly with a pay date not later than seven calendar days after the end of the pay period.
- Do you have railroad workers? If so, these employees must be paid on or before Thursday of each week for wages earned during the seven-day period ending on the Tuesday of the preceding week.
- Do you have commissioned salespersons? If so, these employees may be paid monthly.
- Do you have employees classified as “exempt” / not eligible for overtime under the executive, administrative, or professional exemption earning greater than $1,300 per week? If so, these employees are not subject to New York’s pay frequency requirements.
- All other employees must be paid at least semi-monthly.
Review more information from the New York Department of Labor here, including the definition of manual workers, railroad workers, commissioned salespersons, exempt employees and the process to apply for permission to pay manual workers less frequently than weekly.
A general overview of pay frequency and timing requirements by state is available here.
Semi-monthly pay frequency
Consider paying nonexempt employees (those employees who are overtime eligible; including salaried nonexempt employees) either weekly or biweekly where permitted by law. This is the best practice because federal and state laws require overtime to be calculated on a workweek basis. A semi-monthly pay frequency will most often result in pay periods that do not align with workweeks.
Garnishments, accruals and benefits
If the employer has employees whose wages are garnished, the employer should ensure the correct amount in garnishments is deducted from their pay under the chosen pay frequency. This includes consulting the garnishment order itself.
If an employer provides paid time off that accrues on a per-day basis or a per-pay basis, they should also ensure that those calculations align with the selected pay frequency.
Similarly, any benefit-related deductions (for example, retirement plan or health savings account) or other per-pay deductions should be reviewed and updated to reflect the selected pay frequency.
Pay frequency changes
Timing
Many employers find that the beginning of the year or quarter is the easiest time to implement a change in pay frequency. However, there may be certain other times of the year when the current and new frequencies are more closely aligned.
As such, employers should evaluate all of their options to determine which one best meets their business needs and has the least impact on employees.
When transitioning from one pay frequency to another, employers must continue to comply with applicable pay frequency and timing laws. This may mean providing extra payments to employees to bridge changing pay frequencies.
Employee Notice
Employers should give employees as much advance notice as possible, so employees can adjust their personal budgets and the timing of payments such as rent, mortgage, car loans and leases, insurance, child support, tuition, and utilities. State law or a collective bargaining agreement may even dictate a certain amount of advance notice.
Employers should retain all records demonstrating advance notice was provided to employees.
Communication
Employers should develop a communication plan that addresses the following questions:
- Who are the key stakeholders to notify of the planned change first?
- What's changing, why, and what do employees need to know/do?
- How will the employer address employee questions and concerns?
- How can the employer help ensure employees are aware of the change, supported, and have the tools they need?
When communicating with employees, employers should use as little jargon as possible and avoid technical terms that may be confusing, such as "bi-weekly in arrears.” Be particularly mindful that employees may mistakenly see the change as a reduction in pay when pay frequency is increased (while employees see a smaller paycheck in such cases, they will receive more paychecks over the span of the year).
Conclusion
When considering your pay frequency, ensure that you are in compliance with applicable law and plan any changes to pay frequency carefully. Early notification and effective communication with employees about pay frequency changes can help make the transition to a new pay frequency smoother.
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