Local Government and School Accountability
Module 2: Timing of Disbursements
Examine Your Payroll Schedule
Paying employees biweekly, instead of weekly, allows you to earn additional interest for 26 weeks or 182 days per year. First, check to be sure any changes are allowed in negotiated labor agreements.
If you are currently using a weekly payroll, you can estimate the savings that will be generated by switching to a biweekly payroll:
- Calculate your average weekly payroll for a one-year period.
- Review the interest rates available to your unit for short-term investing. These investments could include money market accounts, overnight repurchase agreements, or certificates of deposit. Please review your current investment policy (adopted pursuant to Section 39 of General Municipal Law) for permissable investments. In addition, contact your local bank representative for information on investment options available.
- The last step is to multiply your average weekly payroll payments by the best interest rate, multiply these results by 182 days and divide by 365 days. (Banks generally use a 365-day calendar for calculating interest earnings.)
The result is the potential interest earnings available to you for a year if you change the timing of your disbursements at the assumed interest rate.
Again, please keep in mind that potential interest earnings will vary from unit to unit due to the amount of weekly payments and available interest rates. The main objective, regardless of how much cash is available for investment purposes, is to make your money work for you and to maximize the efficiency of your disbursement system.
There may be other advantages to switching to a biweekly schedule. For example, employees responsible for processing checks would have more time to perform other accounting functions such as preparing cash flow projections, bank reconciliations, budget analyses, and financial statements.
Next: Use Direct Deposit and Electronic Funds Transfer