Payroll frequency - Nick Butler

In this article we look at the frequency of payroll – is it best run weekly, 4 weekly, or monthly, and what do most employers do, and is it difficult to change an established pay frequency?

First JCHR’s payroll chief Nick Butler, looks at the options. 

“JCHR’s payroll team look after 800 payrolls, amounting to over £2 billion in pay every year, and mostly we’re asked to provide weekly or monthly pay, with monthly being the most common. We do get the occasional request to process a 4-weekly (lunar) payroll.

Weekly pay tends to be the preserve of our clients employing variable hours workers, common in manufacturing, hospitality and care sectors. Pay in these sectors can vary wildly week to week, and turnover tends to be quite high, with seasonal peaks often impacting these  industries.

Monthly pay by contrast is normally most suitable for employers whose labour model is reasonably constant, and while monthly pay may still vary from one month to another, in many cases salaried employees will receive the same pay from month to month. Whereas weekly pay requires our team to make 52 transmissions a year, monthly pay requires only 12, and is therefore the most economical solution for employers.

4 weekly pay, less common than monthly, provides a uniformity across the year, and irons out the differential in net pay caused by longer and shorter months. It can be more challenging for employees however, as direct debits & standing orders are frequently scheduled to take place on a particular date in a calendar month, and if that doesn’t coincide with payday, that could cause problems. Whereas monthly pay requires 12 transmissions, 4 weekly pay has 13, and this additional cost from a processing stance should be considered.”

Once established, can pay frequencies be changed?  We ask JCHR’s HR lead, Bill Larke.

“Changing pay frequency, usually from weekly to monthly, has advantages to employers who will have less frequent payroll administration and lower processing costs, but it can be disruptive to employees.

Weekly pay is undoubtedly more ‘traditional’ and we see weekly pay cycles most commonly in hospitality, agriculture, care sector and traditional manufacturing. Most employers no longer pay employees in cash, though a few still do.

Weekly paid employees will have set their household budgeting to match the pay frequency, and a switch to monthly pay will always result in weeks that previously would have been paid, going unpaid. This can cause problems for workers, who may not be able to afford to pay weekly bills, particularly those with pre-paid utilities.

So a gap of, potentially 4 weeks, could be catastrophic to low paid workers, who may risk penalties for missing scheduled payments, and may not be in a position to pay for their weekly shop.

This of course assumes that employers are paying in arrears – the vast majority do.

For these reasons it will nearly always be necessary to provide employees with the option of a loan to tide the gap between their last weekly pay and their first monthly pay, and the loan is normally paid back via deductions from wages over at least a few months.

Providing loans to employees always carries a risk of an employee leaving and defaulting on future repayments, although this can be mitigated to an extent by a suitable loan repayment agreement, which can be used as evidence of entitlement in future recovery proceedings. It’s also a good idea to check deduction clauses in employment contracts cover loan default, and ideally employers should have a deductions from wages policy in place.

JCHR’s HR team’s experience, however, is that employee’s defaulting on loans is a very rare occurrence.”

Fortunately, all of JCHR’s HR and payroll packages come with a bank of HR support hours for providing advice and guidance to employers contemplating changing their payroll frequency. JCHR can also draft the necessary letters and communications, and of course the all-important loan repayment agreement.

If you’re thinking of outsourcing your HR and payroll why not contact JCHR’s HR team at myHRdept? Call us on +44 (0)1635 553250 or email us at info@jcpayroll.co.uk to discuss your requirements.