Accounting Best Practices, Fifth Edition

17–25. Minimize Payroll Cycles

Many payroll departments are fully occupied with processing some kind of payroll every week and possibly even several times in one week. This situation arises when different groups of employees are paid for different time periods. For example, hourly employees may be paid every week, whereas salaried employees may be paid twice a month. In addition, the employees of acquired companies may be paid in accordance with the pay periods that were in existence prior to their acquisition. Processing multiple payroll cycles eats up most of the free time of the payroll staff, leaving it with little room for cleaning up paperwork or researching improvements to its basic operations.

An excellent solution is to consolidate the payroll cycles into a single, companywide cycle. By doing so, the payroll staff no longer have to spend extra time on additional payroll processing, nor do they have to worry about the different pay rules that may apply to each processing period—everyone is treated exactly the same. To make payroll processing even more efficient, it is useful to lengthen the payroll cycles. For example, a payroll department that processes weekly payrolls must run the payroll 52 times a year, whereas one that processes monthly payrolls only does so 12 times a year, which eliminates 75 percent of the processing that the first department must handle. These changes ...