Here's a quick summary of what we did at my company. Keep in mind however, we are a defense contractor and have to comply with DCAA auditors and F.A.R. requirements. Reconcillations cannot realistically take place in real time, so we decided to move to a "two week in the hole" scenario. We started by letting new folks coming in have a two week lag before getting paid. This aalary bank allows for covering any separation costs when they do leave (company equipment, cell phones, laptops, advanced leave, etc.) if we have problems collecting those items. Also, allows our accountant to reconcile books in a good timeframe.
Acutual Payroll Conversion
Here is what we did:
In our case we pay on the 1st and 15th----Keep whatever schedule you have the same.
Payroll pay dates remain as is: 1st and 15th of each month.
Step 1: Employee signs a Promissory Note to pay back two weeks (one payroll cycle) of net pay with the following options (keep the notes in personnel file):
· Option 1—No net pay in one payroll cycle
· Option 2 – Repay two weeks worth of net pay over 4 pay periods
· Option 3- Repay two weeks worth net pay over 6 pay periods
Step 2: Human Resources executes the selected option starting with the X date payroll. Provide at least 45 to 60 day notice and education on this process.
Step 3: Accounting books the adjustments accordingly, now showing the affected employees
· No advances to employees from Company (Preserves cashflow)
· No confusing timing and cycling issues
· Employee selects a repayment plan that is comfortable for them during the cycle selected
· Offers employees an option to suspend their 401K deduction contribution temporarily (for the period of repayment selected) so that there is little to no net effect to their regular net pay
Special notes: You will have to work with your payroll company to ensure whether your accountant wants to set this up a a taxable event on payroll, etc. You are essentially making a regular payment for the net amount the employee would receive on thier current paycheck, but it's considered a company advance of pay, which is repayable back over the schedule the employee has selected in advance. You may need to set up a special payroll category to capture this payment and track it for EOY purposes on the affected employees. We converted about 50% of the workforce to fall in line and in synch.
Good luck and hope this helps.