Co-Authored with Danielle Feiger
You’d almost be surprised that an employer would recognize the value in tracking accurate time (it saves a lot of money on payroll costs) and then, at the end of every pay period, estimate the hours for the last few days.
But it’s actually a fairly common practice, though not a very good one.
It’s like a timing yourself with a stop watch because you want to-the-second results and then stopping it briefly a few times during the activity. In the end, you’ve got something pretty close to accurate time but not the precise time you were looking for.
So, what’s the reason for it? Well, I don’t know why you’d stop your stopwatch a bunch of times, but you might be inclined to estimate your payroll because you think it will make your employees happy.
Or maybe it’s that you don’t understand exactly how payroll works, which is fine; you’re a business person, not an HR expert.
So I am here to tell you why you shouldn’t do it and how you can rectify it if you do.
Estimating on payroll is an unnecessary and bad practice. Here is a laundry list of reasons why:
- As a small business owner, every dollar counts. If you pay employees in advance of them working, you might overpay them and lose money each week on excessive payroll costs.
- Employees can take advantage of being paid in advance and walk off the job with extra, unearned pay. This is especially the case when the boss isn’t on site. They might think, “he’s not here, he doesn’t see me, and I already got paid for it anyway. I’m outta here.”
- You could end up underpaying your employees. If a customer or project made them stay late one night, their timesheet would not reflect it. Another manual entry would need to be made for this overage.
- By adding time manually to an employee’s timecard, without a signature, the employee could complain that the time is inaccurate and say that he or she never agreed on that time.
- Employees are not machines. The likelihood that they will go over or under the predicted hours is high.
- It creates a bad environment for the employee. It can show the employee that their employer is wishy-washy, unreliable, or irresponsible.
- It’s inconvenient. Depending on the number of employees that the employer is adjusting time for, it could take 30 minutes or more to add time for three days for a whole workforce.
- There is too much room for error. The point of the clock in button and an automated system in general is that humans make mistakes when it comes to data entry. Our time tracking system is designed to reduce that as much as possible.
How to Switch Your Payroll Dates
If you don’t want to switch because you don’t want to offend your employees, you should explain the advantages and explain that estimating hurts everyone. They may argue but employees know that the boss has the final say on pay dates. Even if they don’t like the change, they do have to accept it because you’re the boss.
In order to change your pay period dates to resolve this issue, I would advise:
- Communication with your employees regarding changes to their pay (since you do not know their personal finances and do not want to create hostility).
- Pick new pay period dates that work well for you and your employees. If your employees prefer to get paid on Friday, you can still do that, but the pay period would now run from Wednesday to Wednesday and not from Friday to Friday.
- Give advance notice so your employees can budget for a difference in their take home pay. Only one paycheck will be slightly reduced during the adjustment. And when they quit or retire, they will have a larger last paycheck.
What Is the Best Time to Close Payroll
That all depends. Some payroll companies require three days to prepare and cut checks. If it’s done in house it may be longer or shorter. Some companies close payroll a week or two weeks in advance of writing the check. When this is the case, the employee’s first check will be delayed a week or two.
There are rules for exactly how long you are allowed to postpone payment (check here for more information). Some states require that it is no longer than two weeks, others one month, but other than that choosing a payroll schedule is flexible.
If you really wanted to, you could stay late after everyone has gone home on Friday to calculate payroll. You could then make checks available on Friday night, say at 10pm. Your payroll would be accurate, your employees would get their way, but it would interfere with your own work-life balance, so I wouldn’t recommend it.
If you do payroll yourself, just do it on Wednesday or Thursday, running the hours through the day before, to get your employees paid by Friday.
Thank you for sharing some reasons why estimating on payroll is a bad idea. You gave some great options for how to switch the dates.
You’re welcome! I am glad it came in handy!
[…] hours a day or two before the close of payroll is a long one. You can read all about them here. You are likely to either overpay or underpay your employees and the records are no longer accurate […]
If you over pay because you project, is it legal to deduct that amount from the next payroll, i.e. take back pay because the employer made a mistake? Thanks
I don’t think this is necessarily a legal question. Overpaying doesn’t mean you automatically lose money. But you do have a human issue. You would want to ensure you’re not creating a problem for one of your people by deducting money when rent is due.