What is off-cycle payroll?

What is off-cycle payroll?

Off-cycle payroll refers to any payroll process that occurs outside your company’s regular, scheduled payroll runs. Its main purpose is to provide timely payments in situations that require immediate attention, such as urgent payments, corrections, or one-off payments.

Reasons for initiating off-cycle payroll can include:

• Payroll errors: Correcting mistakes from a previous payroll, such as underpayments or overpayments.
• Final paychecks: Issuing final pay to employees who have left the company before the next regular payroll date.
• Bonuses and commissions: Distributing performance bonuses, commissions, or other incentive payments outside the regular payroll schedule.
• Reimbursements: Processing expense reimbursements that need to be paid urgently.
• Adjustments: Making adjustments for missed hours, retroactive pay increases, or other discrepancies.

How does off-cycle payroll usually work?

The process can differ by company, but it generally follows these steps:

1. Initiation. The process is typically initiated by your HR or payroll department upon identifying the need for an off-cycle run.
2. Approval. Off-cycle runs often require managerial approval to ensure the necessity of the payment.
3. Calculation. Your payroll team should calculate the exact amount to be paid, including taxes and deductions (similar to regular payroll).
4. Distribution. You should issue the payment through your chosen method, such as payroll partner, direct deposit, check, or payroll card.

What are the pros and cons of off-cycle payroll?

For a business, initiating an off-cycle payroll run is not ideal. Unless you work with a payroll partner that provides flexibility, you may create several issues, including:

• Increased administrative workload (and complexity)
• Additional processing fees and potential banking fees
• Potential compliance issues, especially if you have employees in different locations with different employment laws

However, the benefits can outweigh the negatives. If you resolve payment issues promptly and accurately, you can significantly enhance your affected employees’ morale and trust, and avoid potential problems with your team.

Best practices for off-cycle payroll

To ensure you handle any off-cycle payroll runs effectively and efficiently, consider the following:

• Document. Maintaining detailed records of all off-cycle payroll transactions for auditing and compliance purposes.
• Communicate. Be open with employees about the reasons and timing of off-cycle payments to manage expectations and reduce confusion.
• Clarify. Establish clear policies and procedures for handling off-cycle payrolls to ensure consistency and compliance.