Off-Cycle Payroll: Everything Your Business Needs to Know

In the course of a workweek, anything can happen. A last-minute meeting or surprise computer update can throw off usual routines. Sometimes, those disruptions extend to payroll, forcing an unscheduled payday to ensure employees are paid accurately and on time. 

But processing an off-cycle payroll isn’t as simple as cutting a check or sending a direct deposit to an employee’s bank account. They require care and transparency to ensure that employees are made whole and the employer stays on top of compliance requirements. Here’s what to know about off-cycle payroll runs — what triggers them, how to manage them, and how to communicate them to your employees. 

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What is an off-cycle payroll run?

An off-cycle payroll run is the process of issuing employee payments on a date that falls outside the regular payroll schedule. 

Typically, during a regular payroll run, employee pay is issued on a predetermined cycle, often either biweekly or semimonthly. For HR departments, these regular pay cycles usually operate like clockwork, ensuring employees are paid without disruption. 

But, sometimes, outside the normal payroll cycle, employers may need to process an off-cycle payday to manage an unexpected complication or give their employees a benefit or bonus.

Common Scenarios Requiring an Off-Cycle Payroll Run

Ad hoc payroll runs can be unplanned or planned, depending on the circumstance. Unplanned runs are often a response to mistakes or oversights, while planned runs accommodate anticipated but unscheduled payments. 

Unplanned Off-Cycle Payroll Runs 

Missed or late payroll payments, timesheet mix-ups, and other payroll corrections and adjustments can trigger an unexpected off-cycle payroll run. Expense reimbursements and payments can also fall into this category. 

Timesheet errors can take place when nonexempt workers accidentally forget to log all their hours or a manager doesn’t approve a timesheet on time. Often, it’s an unintentional mistake. A worker, for example, might be clocked out for lunch, only to get interrupted by a work-related issue on their way back to clock in. If their manager doesn't adjust their time card, their check might not reflect the actual length of the break, said Sarah Ruszkowski, director of HR shared services for Dometic, an outdoor living company. An off-cycle payroll payment might be warranted.

“Humans are humans,” said Chad Cole, president and “chief payroll nerd” for Coeur Workforce Solutions, a human capital management firm. Mistakes are bound to happen. What’s most important, Cole said, is that employers respond promptly and accurately with a solution. 

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Planned Off-Cycle Payroll Runs 

Sometimes expected reasons can prompt an off-cycle payroll. Final paychecks for workers who resign with notice or termination pay for those let go aren’t always part of the regular payroll cycle, but they can be planned in advance. 

Some companies may also process a separate payroll at the end of the quarter or year to pay supplemental payments like bonuses or commissions. Particularly for large payouts, a finance executive may initiate an off-cycle payroll to prevent the data from being widely known within the workplace, explained David Lewis, national managing director of HR and organizational effectiveness consulting at Gallagher, an insurance brokerage and consulting firm.

“The significant numbers that are being paid, and the desire to maintain some level of confidentiality runs into this idea that we'll just run this separate payroll for that purpose,” Lewis said. 

5 Common Reasons For Off-Cycle Payroll Runs 

• Missed or late payroll payments
• Commissions, incentive payments, and one-time bonuses
• Expense reimbursements and payments
• Termination pay and final paychecks
• Payroll corrections and adjustments

Challenges and Compliance Considerations

As employers process an off-cycle payroll, they should be careful not to flout labor laws and trigger compliance issues. Here are three factors to consider when handling off-cycle payrolls. 

1. Tax Withholdings and Wage Garnishments 

Employers must ensure that any payroll — whether regular or off-cycle — complies fully with the law. Regardless of the reason for processing an off-cycle payroll, standard payroll tax withholding rates and court-ordered wage garnishments, such as child support payments, should apply.

Payroll professionals should exercise extreme caution with requests for any exemptions, Cole advised. It’s not uncommon for employees receiving a large bonus or commission to ask for adjustments to their tax withholding. 

Similarly, employers should never rely solely on an employee’s word that they’ve satisfied a court-ordered garnishment. A garnishment can only be stopped with official documentation from the authority that issued it, he said.

“Employers have to really be careful, because ultimately, in the regulations, employers are responsible for collecting and remitting employee taxes,” Cole said. “They have to be very careful in what they do and do not allow from those requests.”

2. Compliance With Federal and State Payroll Laws

Across the country, payroll laws can vary widely. And, in some circumstances, rules may require that employers process off-cycle pay. Brittany L. Truszkowski, chief operating officer of Grand Canyon Law Group, a criminal defense firm, knows it all too well. “The number one thing with me is always the compliance with local laws,” she said.

She’s worked in both California and Arizona, for example, where the laws for last paychecks differ. In California, when an employer terminates an individual, the final paycheck is due at the time of termination. But in nearby Arizona, employers have longer to pay — within seven working days or the end of the next regular pay period, whichever is earlier. Employers will need to be sure that their processes for payroll and off-cycle payrolls take into account the various laws in the states where they have employees.

To stay on top of payroll laws applicable to your industry, connect with other local HR professionals and attend local employee law seminars, Truszkowski recommended. “The laws are always changing.” 

3. Deductions Related to Company Benefits 

Regular pay cycles usually include deductions for company benefits, such as health insurance premiums, retirement contributions, and flexible spending accounts. Payroll providers typically apply the same deductions in off-cycle payrolls as in regular pay periods.

But, in some cases, employers might be able to offer some flexibility. If an employee receives a $5,000 bonus, their employer may give them the option to contribute more, less, or the same amount to their 401(k), Lewis said. 

Regardless of what an employer offers, however, off-cycle payrolls require extra attention to detail to ensure that benefits and deductions are properly handled, Ruszkowski explained. “We do have multiple people who check,” she said, including the payroll and accounting teams. 

4 Best Practices for Managing Off-Cycle Payroll

Running off-cycle payrolls can be costly and time-consuming. Some payroll services charge extra for off-cycle runs. Processing them can also take up valuable time for internal HR and payroll teams. 

When managing an off-cycle payroll, here are four best practices to ensure they run swiftly, seamlessly, and only when needed.

1. Establish clear policies for off-cycle payroll processing.

Set standards for why an off-cycle payroll should be run, how employees can request one, and how managers can approve it. Make request forms and other resources easily accessible to employees in the employee handbook, HRIS, or learning management system. 

“You should have clear policies and procedures for everything in your firm or your company as a whole,” Truszkowski advised. “It just provides clarity for everyone's role. They can always reference it if they need to.”

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2. Ensure accurate recordkeeping and reporting.

Detailed records and reporting are critical for any payment processes to avoid errors, stay in compliance with state and federal regulations, and ensure benefits are being administered properly. “Recordkeeping is essential to any company for so many reasons,” Truszkowski said.

Luckily, most people aren’t manually writing out checks or keeping paper logs of payroll anymore. Payroll or HRIS software can automate most recordkeeping functions, making it easier to ensure data about withholdings, deductions, and garnishments are up-to-date.

Still, Truszkowski advises staying on top of every step. “If we run an off-cycle payroll or any bonuses or anything like that, everyone gets an email,” she said. “There's a memo. It’s uploaded into their employee file as well. We keep track of everything.” 

3. Communicate with employees about off-cycle payments.

Payroll errors are rarely interpreted as a human error or mistake, Lewis said. Even a single missed paycheck can cause financial hardship for an employee. If off-cycle payments aren’t handled appropriately, they can trigger distrust in company leadership, anxiety about job security or the company’s financial stability, and employee worries about how they’ll pay their bills.

When payroll errors do happen, a swift and transparent response about how and when the situation will be resolved is critical. “You have to be mindful that once this happens, what you do in reaction and response to that moment is being watched by all of those impacted and [those] adjacent to them,” he said. 

4. Review practices if off-cycle payrolls become regular.

Off-cycle payrolls should not be the norm, Truszkowski said. If you find yourself regularly running off-cycle payrolls, take a step back and look at your processes, she advised. What are the root causes that are triggering these nonstandard cycles? Are managers not approving timesheets in a timely manner? Are the same groups of employees not logging their hours correctly?

If so, it might be time for some education and updated policies to reduce the mistakes and missteps, Truszkowski said. “The goal is to avoid them as much as possible because they can cause more confusion.” 

How Lattice Payroll Simplifies Off-Cycle Payroll Processing

Luckily, running any kind of payroll is far easier today with the help of payroll solutions that automate the processes and create a real-time log of what has transpired. Payroll software like Lattice Payroll, in particular, can significantly improve efficiency and ensure compliance for businesses.

The solution offers automated payroll adjustments and tax calculations, ensuring accuracy while reducing the potential for human error. It tracks compliance to help businesses avoid fines and penalties. It can integrate seamlessly with HR and accounting systems to streamline operations. Additionally, it provides employees with agency — allowing for a self-service option where workers can easily access their payroll information and resolve inquiries on their own. 

Lattice also allows companies to run off-cycle pay runs as needed without charging an extra fee. Mistakes happen, after all. Free off-cycle runs allow HR and payroll teams to work swiftly to allow for timely payments and limit disruptions for their employees so they can focus on key tasks that will drive the business forward. 

Ready to supercharge your payroll processes? Schedule a demo of Lattice Payroll to see how it simplifies off-cycle payroll processing and ensures compliance.

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