AGENDA #7
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TO: |
Roger L. Stancil, Town Manager |
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FROM: |
Kay Johnson, Finance Director |
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SUBJECT: |
Request to Implement Payroll Improvements that Include Consolidation of the Town’s Payrolls into One Bi-Weekly Payroll |
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DATE: |
April 18, 2007 |
The purpose of this proposal is to request that the Town implement several payroll system changes to improve the accuracy and efficiency of preparing payroll for the Town.
The Town of Chapel Hill processes three separate payroll cycles:
No other local government in the area has multiple cycles beginning and ending on different days of the week and none has a weekly payroll cycle. The Town currently pays approximately three-fourths of the employees on a bi-weekly basis and one-quarter on a weekly basis. Because of the multiple cycles, the Town does the equivalent amount of work for payroll as an entity twice the size of Chapel Hill. In addition, the brief turnaround time between the end of the payroll cycles and the bank system requirement that a Friday payroll be submitted by mid-day on Wednesday severely limits our ability to ensure the accuracy of the payments. Our payroll processing procedures have not kept pace with either other local government practices or with the growth in the number of Town employees.
In order to address issues related to the timing and accuracy of payroll, the Payroll Committee was established as a directive at a senior staff meeting. The Committee consists of Anissa Graham-Davis, Interim Director of Human Resources, Lance Norris, Director of Inspections, Marcia Margotta, Administrative Analyst from Transit, Maggie Burnett, Office Manager from Public Works and Rhonda Sommer, Accounting Services Manager. In addition, briefings were held with Brian Curran, Interim Police Chief and Dan Jones, Fire Chief, to discuss the proposals and to address specific issues that may affect Police or Fire. The draft proposal was also presented to the payroll and benefits representatives from each department at their regular meeting on April 4, 2007.
Should the Council wish to consider the Committee’s proposals, we would coordinate meetings for all departments and would provide classes on money management through the State Employees Credit Union on-site to further help employees with the proposed transition.
The Payroll Committee makes the following proposals:
As explained in the background section of this working paper, the Town currently has three payroll cycles. The two major cycles end on different days of the week. We propose bringing all employees onto the same pay cycle. Currently the weekly employees’ pay cycle ends on a Friday and the bi-weekly employees’ pay cycle ends on a Monday. We would like to improve the workflow efficiency for payroll processing and propose to move the pay period end dates for all payrolls to Thursday. This change would allow the departments all day Friday to process the payroll and have it ready to submit to Finance on Monday morning. Finance should then be able to process the payroll and get the direct deposit file submitted to the bank on Wednesday as required. This method provides both the departments and Finance with sufficient processing time so that no department would need to estimate their payrolls, as is currently being done.
The impact would be a more efficient and accurate payroll, which would benefit employees, supervisors and the citizens of the Town.
The proposal to change all pay periods to a Thursday end date would result in initial pay periods for the two groups (weekly and bi-weekly) of a differing number of work days. We propose to preserve the expected pay for each employee. Employees would be paid for the actual days that fall within the abbreviated work period and advanced the pay necessary to make up the remainder of their former work period. The advanced amount would be recorded in the records of the Town as a receivable for the actual amount advanced. The advanced amount would be deducted from the final pay when the employee leaves the Town’s employ if the employee has not elected to repay it previously by use of vacation, compensated absences or other means. We would propose putting this change into effect for the August 17, 2007 payroll.
We propose changing the way we take employee deductions for insurance. The total amount taken for deductions annually would remain as it is now. However, we propose to take payroll deductions over 24 bi-weekly pay periods, so that every month the deductions match the amount paid to the insurance companies. In the months that have three bi-weekly payrolls, no insurance deductions would be taken on the “extra” check. Payroll deductions for insurance bills are currently calculated over 52 and 26 pay periods for weekly and bi-weekly payrolls, respectively. Therefore, none of the deductions ever coincide with the actual amounts of the monthly bills that must be processed for payment. The system is confusing to employees and causes the Town to have mismatches on amounts paid for insurance and owed for insurance when an employee leaves the Town.
We propose putting the change into effect beginning in August, since that is when deduction amounts change based on new a new contract with our medical insurance provider. August has three bi-weekly pay periods, so employees would receive a check in August with no insurance deductions. The impact of the change in insurance deductions from 26 to 24 pay periods per year would be reflected on the August 17, 2007 pay check under the proposal to both change deductions and to consolidate to a bi-weekly payroll.
While most employees receive direct deposit, approximately 20 percent continue to receive paper checks. Most local governments in North Carolina require direct deposit because of the improved efficiency of having a single system that delivers pay and does not require manual check preparation and distribution. It would improve the efficiency of the payroll processing to have employees migrate to direct deposit. In order to start this process, we suggest requiring direct deposit for all new employees effective July 1, 2007. The Town currently maintains a banking relationship with SunTrust Bank and with the Local Government Credit Union, among others. Both these institutions could assist Town employees who do not already have a bank account. Many cost free banking options are available to Town employees.
Two years ago, we began requiring that all new employees begin on a bi-weekly payroll cycle. As a result, we have employees working in the same positions, side by side, with one paid weekly on a cycle that ends on a Friday and one paid bi-weekly on a cycle that ends on a Monday. The system is difficult to administer and requires additional staff time to continue with the two different payroll cycles. We understand moving to a bi-weekly payroll could be a financial challenge for some employees currently receiving their pay on a weekly basis. However, we believe that the Town can serve its employees and citizens better by offering a single, consistent and accurate means of paying employees.
After much consideration, we are proposing that the Town consolidate its payroll processing into a single payroll that is bi-weekly. The transition could be done with the maximum convenience of the employees by making the transition in a month with three bi-weekly pay periods. In addition, the Town would offer money management training classes at department work sites and would offer a savings plan in the months before the transition so that all employees make the transition to a bi-weekly payroll in a satisfactory way.
The month of August 2007 presents a good opportunity for making the transition. August has three bi-weekly pay periods and is a month where overtime is less of an issue before the transit system is in full service and before there is additional overtime for staff related to events and the University of North Carolina. We would like to propose making the transition with the August 17, 2007 payroll. Under this proposal, weekly employees would continue to receive a weekly paycheck through the August 3, 2007 payroll. There would be no scheduled payroll for August 10, 2007 and then on August 17, 2007, all active Town employees would be paid on a bi-weekly basis.
To assist weekly employees in transitioning to a bi-weekly pay schedule, weekly employees would be offered the opportunity to set money aside each pay period through a payroll deduction up until August 3, 2007. The funds set aside by the employee would be returned to the employee via accounts payable check on August 10, 2007. There are 16 pay periods between April 20th and August 3rd. At the rate of $10 a pay period, the employee would have sufficient time to set aside $160; at the rate of $15 a pay period, the employee could accumulate $240 and at $20, the employee could save $320. These funds would help tide the employee over until August 17, 2007 when they would receive their first full bi-weekly check.
If the Council authorized the Town to proceed with the proposal to make all employees bi-weekly and to change the insurance deductions to only twice a month, we could alter the deduction schedule in August to make the August 17th payroll the one with no insurance deductions, so that the first bi-weekly pay for employees previously paid weekly would have a larger take-home amount. In future months, the check with no insurance deductions would recur on the third payroll in a month with three bi-weekly payrolls.
The Committee requests that the Council consider all four of the proposals, since the proposals work well together as a package. However, each of the proposals could be implemented separately.