Payment in Arrears and What It Means for Payroll
Understanding payroll timing is crucial for HR professionals and small business owners. A clear payroll system not only ensures compliance but also builds employee trust.
Payment in arrears is basic in payroll. Though the term sounds complex, it simply means paying employees after the work period ends, not before.
Simply put, you pay the employees for the past work and not the future or current work. This payment method is quickly becoming popular because it reduces administrative errors, ensures accurate paychecks, requires no adjustments for sick leaves or last-minute changes, and gives the management time to look over finances.
Why is Payroll in Arrears Gaining Popularity?
It is a known fact that areas like Tampa, Florida, are tourist spots. This means seasonal businesses spring up during tourist season. Moreover, the industry relies heavily on hourly workers and employees who have fluctuating schedules. For instance, industries like construction, hospitality, and even healthcare boost a number of hourly staff. As a result, paying in arrears helps ease the payment process as the exact number of hours fluctuates for each employee.
5 Ways in Which Payment in Arrears Impacts Your Business
There are many ways in which payment in arrears impacts your business. The five main methods are discussed below.
1. Transparency Regarding Pay Period
Paying in arrears allows you to clearly define the start and end dates for a pay period. Defining the pay period is at the discretion of the employer. For example, the most common pay periods are bi-weekly, weekly, and semi-monthly.
Remember: A bi-weekly pay period can run from January 1st to January 14th. But the employee will get paid on January 21. This gap allows the HR team to collect and review the total time worked before the payment is made. Thus, ensuring total transparency and accuracy.
At Onyx Solutions, we help clients define a payroll calendar where both the employees and employers know what the hours worked are, when the payroll will be processed, and when the funds will be dispersed.
2. Flexible Window for Corrections
The gap between the end of the working period and the pay date allows the employer to review the working hours, verify the total amount to be paid again, and resolve any discrepancies if there are. All of this can be done before the payments are made.
Hence, paying in arrears allows for minimal errors and a reduced risk of reissued checks. Moreover, it also lets you stay compliant with the hour and wage laws.
3. Time Card Finalization
Unlike traditional payment methods, payment in arrears means that you account for the final pay of all sick times, commissions, bonuses, PTO, and tips. This allows accuracy in terms of numbers – all the paychecks are based on final calculations and not estimations and projections.
Onyx Solutions is a game-changer when it comes to integration. It has an employee tracking system that syncs with the payroll system. All data is collected in real-time, and errors are reduced while inputting data.
4. Employee Transparency and Consistency
When there is an arrears-based payroll system, the employees are paid for the time they have already worked, not the time they have to work. This helps build trust amongst the employees.
It finishes the element of uncertainty. Everyone knows exactly what they will be paid.
The key is to communicate with the employees. They should also be familiar with the payment arrears system. If they are on board from day one, any sort of misunderstanding or confusion can be avoided.
5. Improved Tax Accuracy and Payroll Reporting
As all the data is finalized before payment is made, there is less chance of error in tax filings, payroll reporting, and benefit deductions. This means that there are no under- or overpayments, incorrect filing, or costly amendments later.
Tips for Establishing the Arrears Payment Model
Following is a checklist for making the arrears model work for any company.
- Be transparent in setting pay schedules. Document and share clearly when the pay period starts, ends, and when paychecks will be issued.
- Provide proper training to the HR and employees alike. Everyone should be familiar with the payment system.
- Use tools that integrate with the payroll system. This will finish the need for manual data input and ensure automatic time tracking.
- Outsourcing payroll is the best option. For most small businesses, payroll management does get overwhelming and hectic. Therefore, partnering with a good Tampa-based payroll service like Onyx Solutions will ensure compliance and reduce administrative costs.
Conclusion
Adopting a payment in arrears model provides the business with multiple benefits, especially in a dynamic economic environment like Tampa. From better compliance to improved accuracy to higher employee motivation, this payroll approach will help streamline operations.
Onyx Solutions specializes in helping mid-sized and small businesses implement compliant and effective payroll systems that are tailored specifically to their needs. Contact us today to get a quote and your new payroll system!
