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we've all been there payroll can be
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frustrating for many reasons and in many
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small to mid-sized businesses it's hr's
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responsibility no one pays attention
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when you get payroll right period after
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period but one mistake can make or break
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hr's reputation within your organization
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of course you must also stay compliant
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with laws governing pay and stay on top
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of deductions too it's no wonder so many
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hr pros stick with the payroll practices
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and schedule they inherited from their
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predecessor but i want to make this
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clear your payroll practices should be
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intentional not inherited especially
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when it comes to your pay schedule in
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today's episode we're going to cover the
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factors that influence pay schedules and
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your available options by the end you'll
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understand why bi-weekly is best and how
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to make the potentially difficult
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transition
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today we'll discuss the four factors
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affecting pay schedules
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the four types of pay schedules
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and why you should pay bi-weekly and how
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to transition
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let's get going
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the four factors affecting pay schedules
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most states have laws regulating pay
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periods i'll explain more in a minute
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but it's likely your organization has
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more discretion in determining the pay
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schedule than you realize but choosing
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the right pay schedule is much easier
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said than done so i'm going to explain
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the four factors small to mid-size
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businesses should consider
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first state laws
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most states require a minimum pay period
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or the minimum frequency that
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organizations must pay employees but of
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course it varies from state to state the
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most common minimum pay period is
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semi-monthly
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weekly pay for at least some industries
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is required in nine states california
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connecticut iowa massachusetts michigan
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new hampshire new york rhode island and
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vermont
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six states however have no minimum pay
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regulations
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those are alabama montana nebraska north
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carolina pennsylvania south carolina
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another consideration is processing cost
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running payroll each period costs money
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which means that organizations should
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take these costs into account when
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selecting a pay schedule usually the
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more pay periods per year the more
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costly running payroll will be the next
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factor to consider is overtime
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implications
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there are five states that require the
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calculation of overtime on a daily basis
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alaska california colorado nevada and
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oregon the other 45 states which do not
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have specific overtime laws defer to
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federal law the fair labor standard act
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or flsa requires overtime to be paid at
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1.5 times the regular wage whenever a
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worker exceeds 40 hours in a work week
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which it defines as a consecutive period
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of 7 days
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employers have some discretion in
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determining what day begins their work
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week but generally they cannot change
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those parameters once set
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if you have a semi-monthly pay schedule
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you still need to consider the weekly
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overtime implications of non-exempt or
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hourly employees when running payroll
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be on the lookout for next week's
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episode of hr faq where i'll cover
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overtime calculations in more depth
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finally hr should factor in benefit
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deductions consider how often benefit
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deductions will be calculated per pay
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period
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now that we've covered the four factors
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affecting pay schedules let's use them
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to weigh the pros and cons of the four
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most common types of pay schedules
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the four types of pay schedules
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as i mentioned earlier you likely have
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more discretion in choosing a pay
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schedule than you thought
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every organization needs to determine
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which pay schedule is right for it
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doing so can impact company culture
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employee satisfaction and even
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recruitment and retention for example if
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your business operates in one of the six
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states with no minimum pay period you
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could legally pay your employees only
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once a year but realistically how many
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workers would be willing to apply for or
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stay in a position at your organization
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if that were the case
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not many so the four most common types
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of pay schedules are monthly
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semi-monthly bi-weekly and weekly
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let's look at each one more closely
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first a monthly pay schedule means that
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there are 12 pay periods per year with
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specific recurring pay dates usually at
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the end of the month
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they are roughly 173 hours per monthly
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pay period
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according to the most recent data
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available from the bureau of labor
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statistics bls
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monthly is the least common pay schedule
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some pros since health insurance
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premiums are usually charged on a
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monthly basis payroll deductions are
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easier with a monthly or semi-monthly
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schedule
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also since processing costs are often
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charged each time payroll is run a
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monthly pay schedule means less time and
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lower costs for employers throughout the
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year
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some cons employees rarely prefer a
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monthly pay schedule since it makes it
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more difficult to manage their personal
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expenses
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it can also be a bit daunting for a new
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hire who may need to wait over a month
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before receiving their first paycheck
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especially if the company pays in
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arrears
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next a semi-monthly pay schedule means
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two pay periods per month or 24 per year
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typically pay dates are either the 1st
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and 15th of each month or the 15th and
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30th or 31st each pay period has about
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87 hours
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some pros
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as with a monthly pay schedule
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semi-monthly makes it easier to
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calculate benefit deductions and there
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are relatively few pay periods than
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bi-weekly or weekly
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reducing the time and cost of running
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payroll
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accounting teams prefer this method
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because the last paycheck often occurs
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at the end of each month
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cons a semi-monthly schedule makes
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calculating overtime and commission
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payouts much more difficult
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semi-monthly pay periods begin and end
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on fixed dates of the month which means
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that pay dates will land on different
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days of the week each period
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since the slsa requires a work week to
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begin and end on fixed days of the week
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a semi-monthly schedule greatly
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complicates calculating overtime
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especially as overtime hours could be
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split between two different pay periods
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every other week the internet is filled
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with complicated formulas for how to
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calculate overtime on a semi-monthly pay
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schedule the last thing hr payroll
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admins need is much more math equations
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a bi-weekly pay schedule means 26 pay
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periods a year with pay dates occurring
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every other week on a specific day of
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the week usually fridays
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there are exactly 80 hours per pay
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period
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according to the bls bi-weekly is the
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most common pay schedule and rightfully
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so in my opinion i'll explain more in
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just a moment
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here are some pros a bi-weekly schedule
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makes it easy to calculate overtime for
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hourly employees since the overtime
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earned in one week will occur in the
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same pay period
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some cons
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two of the 12 months in a bi-weekly
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schedule will have three pay periods
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because insurance premiums are charged
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on a monthly basis benefit deductions
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will not always coincide with or neatly
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divide into pay periods but i'll explain
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how to handle that later in the episode
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and finally a weekly pay schedule means
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52 pay periods a year with pay dates
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occurring once a week on a specific day
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of the week usually fridays there are
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exactly 40 hours per pay period pros
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weekly payroll is best for hourly
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employees who often generate a lot of
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overtime hours because they don't need
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to wait weeks before receiving overtime
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pay
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it's also helpful for employees with a
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regular schedule so they can quickly be
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paid for their time
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cons since weekly pay schedule leads to
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the most pay periods per year they are
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the most costly option also payroll
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administrators need to run payroll at
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least four times a month rather than
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once or twice
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again when weighing pay schedule options
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it's important to take into account the
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kinds of employees you have
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state and federal laws and the resources
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you have to manage payroll
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but as i mentioned before i believe
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biweekly is the best for most
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organizations
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here's why
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why you should pay bi-weekly and how to
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transition
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many organizations with a mix of exempt
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and non-exempt employees are already on
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a monthly or semi-monthly pay schedule
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because that's the way it's always been
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in hr that's never a good reason to keep
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doing difficult things or after some
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consideration a semi-monthly schedule
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may have seemed easier for calculating
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benefit deductions
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that's a better reason but the division
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of deductions on a bi-weekly schedule is
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not as complicated as it may seem
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you can either divide your employer
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annual premium by 26 and deduct that
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from each bi-weekly paycheck
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or
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divide monthly premiums in half and
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deduct that from each bi-weekly paycheck
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except for the extra check for those two
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months with three paydays
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clearly this minor inconvenience is not
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comparable to the major headache of
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calculating overtime on a semi-monthly
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schedule
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more to that point
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compliance must always be a factor in
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any hr decision you make and choosing a
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pay schedule is no exception remember if
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you have any non-exempt or hourly
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employees your organization must
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calculate overtime at least weekly
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according to flsa
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and as i've explained given the federal
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requirements it's much easier to
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calculate overtime on a bi-weekly pay
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schedule
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you simply align the beginning and
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ending of your pay periods with the
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beginning and ending of your work weeks
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of course you can do the same with a
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weekly pay schedule as well however
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since a bi-weekly schedule means running
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payroll half as often as weekly i
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recommend bi-weekly as the more
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affordable way to go
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i should also mention that this is a
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retention issue too
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employees appreciate the ability to
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budget with the predictability of
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bi-weekly paychecks
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although all of the pay schedule we've
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covered offer regularity semi-monthly
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and monthly pay periods make it more
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difficult for non-exempt employees to
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budget when they've worked irregular
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hours of overtime pay
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if transparency boosts retention as i
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explained in a recent episode
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compensation confusion is not a good
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look on the other hand employees always
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appreciate the extra checks for those
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two months with three pay dates
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especially if you opt to not deduct
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benefits from them by now you may be
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tempted by the relative ease of paying
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bi-weekly but you're worried about the
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difficulty of transitioning from
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semi-monthly we've been there at bernie
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portal a few years ago we made the
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decision to transition from semi-monthly
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to bi-weekly because we recognize the
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benefits we communicated the change as
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early and as often as possible so our
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employees could plan ahead
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many employees were understandably upset
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about getting a check for half of what
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they were expecting during the month we
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made the switch
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and exempt workers saw their salary
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divide over 26 paychecks instead of 24
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but we reminded everyone that the new
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bi-weekly pay schedule meant they would
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get an extra paycheck without benefit
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deductions in two of the months of the
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following year
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it was not easy
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but i can tell you that the actual pain
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of transitioning to bi-weekly was worth
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avoiding the chronic pain of saying
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semi-monthly for us
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based on our experience at bernie portal
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here's how i would recommend approaching
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a change in payroll schedules
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first analyze the current pay schedule
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to see if any pay periods line up and
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choose the best point in time to adopt
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the new schedule
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re-evaluate near the end of the fiscal
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year or end of the quarter
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next communicate the change to employees
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especially if you intend to decrease the
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frequency of pay as it will impact their
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budgets
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if your budget allows you could offer
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advances to employees who will miss a
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full check during the transition
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however remind them that the advance is
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not a bonus and will be deducted from
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their subsequent paychecks
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be prepared for the accounting
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complications that will come with giving
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workers this option
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don't deduct benefits from the extra pay
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dates that will occur in two months of
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every year
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it will be easier for payroll to
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calculate and employees will enjoy the
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occasional bump in net pay
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and last but not least
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use bernie portal's time and attendance
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feature to help track non-exempt workers
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hours
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bernie portal's all-in-one hr is also
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includes a benefits administration
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feature
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and major payroll processors such as adp
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pay core and proliant integrate with
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bernie portal
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i can't promise that a bi-weekly pay
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schedule will make payroll your favorite
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pastime but it will certainly make it
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less painful
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for more information check out our
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bernie portal resources in the
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description
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as always remember your role is as
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strategic as you make it
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that's all the time we have for this
14:13
episode don't forget to subscribe to our
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14:19
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14:22
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bye