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You may need to run an off-cycle pay run for several reasons, such as paying out a referral bonus to an employee who successfully referred a new hire or issuing a prorated salary on an employee's last day.
Regardless, conducting an off-cycle pay run outside of your company’s regular payroll schedule requires careful attention to ensure compliance with your organization’s payroll policies.
But what is an off-cycle pay run, and why is it important?
Keep reading to learn more about off-cycle pay runs, their importance in business operations, and how you can simplify the process using Gusto.
What are Off-Cycle Pay Runs?
Off-cycle pay runs are payroll processes conducted outside the regular payroll schedule.
Unlike regular payroll cycles, which follow a predictable schedule (like weekly, bi-weekly, or monthly), off-cycle pay runs are used to address specific situations that require immediate or unscheduled payments to employees.
Common reasons for off-cycle pay runs include:
- Bonuses: Companies usually reward employees with bonuses for exceptional performance, meeting targets, or during festive seasons. These bonuses are usually processed through off-cycle pay runs to ensure they are disbursed on time.
- Payroll Errors: Off-cycle pay runs are used to promptly correct errors in payroll calculations (such as overpayment or underpayment), thereby ensuring employees receive the correct amount.
- Termination Pay: When an employee leaves the company, either voluntarily or involuntarily, they are usually entitled to a final paycheck. This may include outstanding wages, accrued vacation pay, and other benefits. All these require an off-cycle pay run.
- Adjustments for Missed Payments: Sometimes, payments for overtime, commissions, or other compensations are missed during the regular payroll cycle. Off-cycle pay runs are used to rectify these without delay.
- Special Circumstances: Any other payments that need to be expedited, such as reimbursements for business expenses, advances, or settlements.
Potential Consequences of Errors in Off-Cycle Pay Runs
Errors in off-cycle pay runs can affect both employers and employees alike. Some potential consequences of these errors include:
Financial Discrepancies
Inaccurate pay calculations or missing deductions can lead to discrepancies in employees' paychecks. Overpayments or underpayments can financially stress employees and affect their trust in the employer.
Legal Compliance Issues
Errors in off-cycle pay runs may lead to non-compliance with labor laws and regulations. Failing to accurately calculate overtime, withholdings, or taxes can result in penalties and fines from regulatory authorities.
Employee Dissatisfaction
Apart from frustrating employees, incorrect pay can also lead to frustration among employees. Disgruntled employees may become demotivated, thereby affecting their productivity in the workplace.
Trust and Reputation Damage
Employees rely on their employers to pay them accurately and on time. Repeated errors in off-cycle pay runs can damage the employer's reputation and erode trust among employees, potentially leading to high turnover rates.
Financial Impact on the Business
Inaccurate pay runs can have financial implications for the business. Overpayments result in increased expenses, while underpayments may lead to liabilities and legal costs to rectify the errors.
Differences Between Regular and Off-Cycle Pay Runs
Regular pay runs and off-cycle pay runs serve different purposes and are managed differently within payroll systems like Gusto. Here's a breakdown of the main differences:
Timing and Frequency
Regular pay runs are processed on a fixed schedule, such as weekly, bi-weekly, semi-monthly, or monthly. Employees expect their paychecks at these regular intervals, which helps in budgeting and financial planning.
Off-cycle pay runs, on the other hand, occur outside the normal payroll schedule. They are used to address specific needs that arise unexpectedly. These pay runs can happen at any time, depending on the circumstances that necessitate them.
Purpose and Use Cases
Regular pay runs handle the usual compensation for hours worked during a specific pay period. They include regular deductions such as taxes, benefits, and retirement contributions.
Off-cycle pay runs are used for issuing bonuses, commissions, or other incentive payments that were not included in the regular pay cycle. They address payroll errors from previous pay runs, such as underpayments or overpayments.
Processing Complexity
Regular pay runs are largely automated, with payroll software handling calculations and deductions based on preset configurations. The process is streamlined with regular checks and balances to ensure accuracy.
On the other hand, off-cycle pay runs may require more manual input and adjustments, as they are used for situations that are not covered by the automated regular payroll settings.
Off-cycle pay runs usually require a more detailed review to ensure that all elements, such as tax withholdings and special deductions, are correctly applied.
Impact on Payroll Administration
Payroll administrators can use regular pay runs to plan their work around the regular payroll schedule, with predictable deadlines and tasks. They contribute to standard financial and payroll reports, making it easier to track overall payroll expenses.
Off-cycle pay runs require additional time and effort from payroll administrators to set up and process correctly. They have to be addressed quickly to meet the immediate needs of the business and employees, which can disrupt normal workflows.
Benefits of Using Gusto for Off-Cycle Pay Runs
Running off-cycle pay runs can be a complex and time-consuming task, but Gusto can help you simplify the process. Here are some benefits of using Gusto for managing off-cycle pay runs:
User-Friendly Interface
Gusto is designed with users in mind. It is intuitive and easy to navigate. The platform’s clean, straightforward interface ensures that setting up and managing off-cycle pay runs is hassle-free.
The step-by-step guidance the platform provides reduces the likelihood of errors and streamlines the entire process from start to finish.
Automated Calculations and Tax Compliance
Gusto can handle complex calculations automatically. When you process off-cycle pay runs, Gusto ensures that all tax withholdings, deductions, and contributions are accurately calculated in compliance with federal, state, and local regulations.
This automation not only saves time but also reduces the risk of costly compliance errors that could land you in legal issues.
Integration with Other HR and Accounting Tools
Gusto easily integrates with different HR and accounting tools. Its integrations allow for smooth data transfer and synchronization with accounting software (like QuickBooks or Xero) and HR tools (like BambooHR).
This ensures that your payroll data is always up-to-date and accessible across different platforms, thereby reducing redundancy and manual data entry.
Real-Time Updates and Reporting Features
Gusto provides real-time updates and robust reporting features, giving you full visibility into your payroll processes.
As you run off-cycle payrolls, you can easily generate reports to track payments, review tax filings, and analyze payroll trends. You can export these reports in various formats, making them easier to share with stakeholders or use for internal audits.
Real-time updates ensure that you are always working with the most current data, enhancing decision-making and strategic planning.
How to Set Up Off-Cycle Pay Runs in Gusto
Running off-cycle pay runs in Gusto is designed to accommodate different payroll needs beyond the regular schedule.
Gusto's intuitive interface simplifies the process of issuing a bonus, correcting a payroll error, or handling termination pay. Follow the step-by-step guide below to ensure a smooth and accurate off-cycle pay run:
- Go to Payroll: Click on the Payroll section and select "Run payroll."
- Select Off-Cycle Payroll: From the options on the right-hand side, click "Off-cycle payroll."
- Choose Employees: On the next page, select the employee(s) for the Off-cycle payroll.
- Employees can be selected via the search bar, filtered by department/job titles, or directly through the checkbox.
- Proceed to Step 1: Click "Continue" to enter Step 1 of the Off-cycle payroll.
- If you need to modify the employee list, select "Edit Employees."
- Enter Work Period: Specify the timeframe during which the employee worked to earn this payment.
- If the timeframe includes requested time off, the off-cycle payroll will include and payout that time off.
- Set Payment Date: Choose the payment date.
- For payrolls with a check date in the past, check this guide on recording past payrolls.
- Select Bank Account: If multiple bank accounts are set up, choose the account for processing payroll.
- If this option is unavailable, check this guide for more information.
- Deductions and Contributions: Decide if you want to include deductions and contributions.
- Block all deductions and contributions: No benefit deductions or contributions will be made (excluding 401(k) due to plan requirements).
- Make all regular deductions and contributions: All standard benefit deductions and contributions will be applied.
- For Gusto-managed benefits, standard benefits will not apply unless specifically included.
- Review Tax Withholding Rates: If you want to make changes, click "Edit rates" under the Tax Withholding Rates section.
- Enter Payment Details: Provide details such as hours, earnings, and payment method for each employee.
- Regular Hours/Overtime: For hourly employees, click "Enter hours," add worked hours, and save.
- Gross Earnings: The total amount before taxes and deductions.
- Net Earnings: The take-home amount after all deductions.
- Other Earnings: Add any commissions, bonuses, paycheck tips, or cash tips.
- Reimbursement: Include any expense reimbursements, which are not taxed or reported as regular wages.
- Change Payment Method: Click "Direct Deposit" or "Check" to update the payment method for this payroll.
- If only the check option is available, the employee has not set up a bank account for direct deposit.
- Save and Continue: Click "Save & continue."
- Add Time Off or Sick Hours: Include any applicable time off or sick hours for the selected employee(s).
- Review and Submit: Click "Save & Continue," review the payroll details, and when ready, click "Submit payroll."
- If you need to make changes, click "Go back."
- View Payroll Summary: On the next screen, you’ll see a payroll summary.
- Options include returning to the Home page, viewing a full summary with a downloadable PDF report, or canceling the payroll.
- Note: All active employees will be listed in the report, but only those with entered payments will be paid.
- Confirmation: A confirmation email will be sent, indicating that the off-cycle payroll has been processed. To make any edits, cancel the payroll and rerun it.
How to Ensure Accuracy and Avoid Common Mistakes
Running off-cycle pay runs requires accuracy for your employees to be compensated correctly (while complying with regulation standards). The tips below will help you maintain accuracy and avoid common mistakes:
Review Employee Information
Before you start an off-cycle pay run, double-check employee information such as names, employee IDs, and pay rates. Ensure all details are accurate and up to date to prevent errors in payment calculations.
Thoroughly Review Payment Details
Take the time to carefully review all payment details before you finalize the off-cycle pay run. Verify that you correctly entered the hours worked, bonuses, or any other additional payments to avoid errors in employee compensation.
Stay Updated on Tax Regulations
Tax laws and regulations can change, thereby impacting payroll calculations. Stay updated on tax rates or compliance requirements to ensure accurate withholding and reporting. Gusto's automated tax compliance feature can help in this regard.
Document Changes and Corrections
Maintain detailed records of any changes or corrections made during off-cycle pay runs. Documenting adjustments ensures transparency and provides a reference in case of audits or inquiries.
Regularly Audit Payroll Records
Conduct regular audits of payroll records to identify and rectify any inaccuracies. Reviewing payroll records maintains the integrity of your payroll system and ensures compliance with legal and regulatory standards.
Seek Professional Assistance When Needed
If you encounter complex payroll issues or regulatory concerns, seek help from payroll experts or legal advisors. Gusto offers support resources and expert guidance to help resolve any challenges you may encounter.
Best Practices for Managing Off-Cycle Pay Runs
Here are some best practices to help you manage off-cycle pay runs efficiently using Gusto:
Alt: best practices for managing off-cycle pay runs in Gusto
Establish Clear Policies for Off-Cycle Payments
One of the most important steps in managing off-cycle pay runs is to establish clear and comprehensive policies. These policies ensure consistency and transparency, thereby reducing errors and misunderstandings.
The policies should outline:
- Eligibility Criteria: Define who qualifies for off-cycle payments and under what circumstances (e.g., bonuses, correcting payroll errors, or termination pay).
- Approval Process: Specify the approval workflow, including who needs to authorize the off-cycle payments and any documentation required.
- Timing and Frequency: Set guidelines on how quickly off-cycle payments should be processed and any limits on the number of off-cycle runs allowed within a specific period.
Communicate Effectively with Employees About Off-Cycle Payments
Here’s how you can effectively communicate with employees when processing off-cycle pay runs:
- Notify employees as soon as an off-cycle payment is scheduled, including the reason for the payment, the amount, and the expected deposit date.
- Ensure that employees understand the breakdown of their off-cycle payments, such as any deductions or taxes applied.
- Answer any questions employees may have regarding their off-cycle payments. Gusto’s communication tools can facilitate these interactions by providing easy access to payroll information.
Regularly Review Payroll Procedures and Update as Necessary
Regularly review your payroll procedures to maintain accuracy and compliance. The tips below can help you do this:
- Periodically audit payroll records to identify and correct discrepancies. This prevents errors in off-cycle pay runs.
- Ensure that your payroll policies are up-to-date with current laws and regulations. This includes staying informed about changes in tax laws that could affect payroll processing.
- Provide ongoing training for payroll staff on the latest procedures and tools. Keeping your team informed about Gusto’s new features and updates ensures they can use the system effectively.
Use Gusto’s Support Resources for Troubleshooting
Gusto offers several support resources that can be helpful when managing off-cycle pay runs:
- Use the Gusto Help Center for step-by-step guides, FAQs, and detailed articles on managing payroll and off-cycle pay runs.
- Contact Gusto’s customer support for personalized assistance. Their support team can provide expert guidance when you encounter a technical issue or need advice on complex payroll issues.
Conclusion
Efficient off-cycle pay runs play a key role in managing payroll for any business. Timely and accurate payments will help you maintain employee satisfaction and compliance with regulatory requirements.
Throughout this article, we have discussed all you need to know about running off-cycle pay runs using Gusto.
From understanding the importance of off-cycle pay runs to using Gusto's user-friendly interface and features, we've considered how Gusto simplifies the entire payroll management process.
The platform's intuitive design, automated calculations, and seamless integration with other HR and accounting tools make it a valuable tool for off-cycle pay runs.
FAQs
How do I run an off-cycle payroll with Gusto?
Select “Run payroll” and then choose “Off-cycle.” Add the employees you wish to pay, whether it's one individual or a group. Enter the payment amount and review the tax and benefit options.
What is the off-cycle run for payroll?
Off-cycle payroll is the process of issuing paychecks to employees outside of the regular payroll schedule.
Unlike regular payroll cycles, which follow a predetermined schedule for recurring payments, off-cycle payroll is used as needed to ensure timely and accurate compensation during unexpected events.
Does Gusto charge for off-cycle payroll?
Running an off-cycle payroll incurs no extra fees, and it doesn't interfere with your regular payroll processing. Off-cycle payrolls automatically apply the same withholding rates, deductions, and contributions as regular payrolls.
What is the difference between on-cycle and off-cycle payroll?
On-cycle payroll (also known as regular payroll processes payroll at fixed intervals. Off-cycle payroll allows you to perform specific payroll activities (such as paying bonuses and incentives that are not part of the regular payroll structure) for each employee on any day.
