My company changed payroll from bi-weekly to semi-monthly mid year The last bi-weekly pay period before conversion ended on 9/7/2014. The first semi-monthly pay period started on 9/16. A pay check was issued on 9/15 that was supposed to address the gap, but their math seems wrong. Here is how HR explains the calculation:
Consider your pay on an annual basis. If you make $120,000 a year: • Your biweekly (26 pay period per year) pay is: $4615 per pay period (gross) • Your semi-monthly (24 pay periods per year) pay is $5000 per pay period (gross) We have had 18 Biweekly pay periods this year (through 9/7/14), so you’ve already received: $83,070 ($4615 X 18 pays) We will have 7 remaining semi-monthly periods this year (starting 9/30/14), so you will receive $35,000 ($5000 X 7 pays) The total of those two is $118,070 That leaves a gap in your annual pay of $120,000 - $118,070 = $1930. The pay on the 15th is that $1930 gap. This makes you whole for the whole year.
I don't agree with their reasoning. If we had never switched to semi-monthly pay period, the final pay in 2014 would include the days worked until 12/28/14. We would have earned our annual salary for work done between 12/30/2013 and 12/28/2014. To make us whole through 12/31/14, pay must include what we would have expected to get using the previous bi-weekly amount for the year (which is through 12/28/14) AND the 3 remaining days in December. THEN, the next payroll year starts on 1/1/15 under the new system. The attached example does not take into account the 3 remaining days of the year (12/29 – 12/31).
This is the example I sent to HR, and I have not heard back yet:
Let’s say that the conversion from bi-weekly to semi-monthly happened after the last bi-weekly paycheck of this calendar year. The last bi-weekly paycheck would include pay through 12/28/14. The next pay period is semi-monthly and would be from 1/1/15 to 1/15/15. The “gap” here is much easier to see. Employees get their annual salary through 12/28/14, but the new annual salary starting date becomes 1/1/15. The work performed to get to the annual salary amount includes a year of working hours from 12/30/2013 through 12/28/2014. Notice this includes days from 2013. Again, the three day gap can be seen until the new pay period is started in 2015. What is the correct way to do this conversion?