Pay as you go? The future of agile pay methods in payroll

What are agile payment methods?

Agile payments are when an employer allows employees to select their preferred frequency of pay by offering weekly, biweekly, bimonthly or monthly payment options.

Jonathan Carter, Chartered Professional Accountant, Certified Management Accountant, Certified Professional Bookkeeper, and founder and principal accountant at KATA Accounting Solutions Professional Corporation, spoke to HCM Dialogue about the pros and cons. Carter highlights that agile payments offer the potential for increased frequency of pay, helping those who have difficulty managing their finances, and says, "Receiving pay monthly requires the employee to budget and allocate their funds throughout the month to prevent running out of money before the next paycheque. Receiving pay weekly or biweekly means they won't have to go too long without funds should they spend their entire paycheque." He notes that those who have strong budgeting skills may not face the same challenges but may be able to utilize an increased frequency pay cycle to contribute more regularly to investments, such as an RRSP, theoretically allowing them to gain more return over their lifetime.

From theory to practice

ADP's 2024 global payroll survey revealed that a top priority among organizations is improved employee experience. However, their study also shows that the driving factors of payroll transformation over the next two to three years include cost efficiencies and operational/productivity efficiencies. Striving toward these objectives through agile payment methods may be counterproductive.

Differing payroll cycles add a significant administrative burden to payroll professionals and increase costs to the overall business in terms of payroll fees, accounting fees and staff time. The more often you pay employees, the more costly the payroll function is – not to mention the increased compliance costs.

Carter believes that "Paying different employees with different frequencies will create many problems for organizations. In a perfect world, people are paid on time in the same manner every time. Keeping payments [on multiple timetables] adhering to internal policies by the payroll/accounting department would be time-consuming and an absolute dealbreaker for most small companies."

While small business owners may be more likely to make a different payroll frequency accommodation for select staff as requested, they may be unaware of the associated administrative and financial burden. They would be more susceptible to cash shortfalls due to agile payment methods.

Carter asserts that an organization must have robust and predictive cash-flow models and a solid financial reserve to implement agile payment methods. They would also need to budget for the additional payroll fees, labour and accounting costs they would incur.

How agile payment methods impact payroll reporting

Depending on the business, agile payment methods could have many different implications for payroll reporting. Carter notes the following as potential areas to consider:

A need to group employees together by pay frequency under different payroll accounts with the Canada Revenue Agency (CRA) and manage and pay the source deductions by the deadline

Submission of Records of Employment to update the payroll frequency of employees

Increased pressure to collect payroll data (hours) to submit in a timely manner

The potential for increased scrutiny of the business from CRA

Meeting employees halfway

While the ADP research reported that nearly one-third of global businesses plan to offer new ways to pay their staff in the next two to three years, the CIPD's Pay, Performance and Transparency report, supported by ADP, found that "only 15 percent of U.K. human resources, reward, and senior decision-makers felt their company would give employees the option to select their own pay date over the next five years. And only 13 percent believed their company would pay people more frequently, such as weekly or semi-monthly."

Carter echoes the sentiments of the U.K. senior decision-makers, saying, "Generally speaking, no large company would change payroll frequencies for a single employee, nor should they."

Since employees make businesses run, it is understandable that management wants to take care of them. Surveying staff on the best payroll frequency to meet their needs can allow for a one-time adjustment to the payroll cycle that will meet most staff needs. Carter emphasizes the benefits of selecting one payroll frequency and sticking with it, in addition to developing cash-flow models for the business to help create an appropriate reserve for slow times to ensure that you can meet payroll and source deduction remittance requirements on time.

Financial literacy is key

Carter and other financial education experts agree that paying employees more frequently will not solve any problems for those who are financially irresponsible. Efforts may be better spent on providing staff financial literacy training and resources instead of paying people at differing frequencies.

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