Payroll Business Case Study Analysis

In July 2014, XXX Chocolate's opened its doors for business and is a specialty chocolate confection manufacturer that produces various chocolates for mass market and local retailers on the island of Maui.They are based out of California and have a total staff of 15 in which 5 are non-exempt management staff and 10 are production staff.All production staff is hourly employees and paid on a weekly payroll frequency, which occurs on Thursdays.The five management staff is paid on a bi-weekly payroll frequency which occurs on Thursdays.Their work week runs from Sunday (first day of the week) through Saturday (last day of the week).Of the five management staff, 2 of their employment offer letters are stated in terms of an annual salary, while the other three are stated in terms of a bi-weekly per pay period amount.

On June 14, 2015, Jane Doe, the Business Office Manager was inputting bi-weekly payroll, balancing the books, and preparing financial reports for the General Manager.To her surprise, as she was preparing cash flow projection reports and labor reports for the rest of the year, her forecast shows that she will be "over budget" by the time December 31, 2015 rolls around.Upon discovering this, she dug through her work papers to verify that she in fact accounted correctly for 26 bi-weekly payroll periods and 52 weekly pay periods. As an added measure she also traced through the 2015 calendar from the first payroll period of January 1, 2015that Started on Thursday and counted forward to the end of the year December 31, 2015.To her surprise there are 27 bi-weekly payroll periods, and 53 weekly payroll-periods.

Jane brought this issue up to the President/CEO's attention, as they are not a fully profitable company yet, and the effect of an additional $14,000 of payroll period expense puts them in a slight cash flow crunch at the end of the year.The CEO inquired on how this could have happened?Jane Doe admitted that it was oversight on her part because she blindly assumed there is always 26 payroll periods and 52 weekly payroll periods, and isn't fully seasoned in payroll operations.

Because their annual operating budget for 2015 operating year was already set in late 2014, the President/CEO has asked Jane to come up with feasible solutions to help manage the payroll impact at the end of the year.One possible solution she came up with was to spread out the salaries of the employees over the remaining payroll periods of the year, which results in effectively spreading them over 27 instead of 26 pay periods. Another possibility she came up with was to issue a memo to employees letting them know that they are only paid for 26 payroll periods a year instead of 27.

1. Of the two solutions that Jane Doe came up with, what are the implications of her two solutions and how it impacts the business, for the employees? For example, if the company spreads out the remaining payroll into 27 payroll periods instead of 26, are there any legal issues for salaried and/or hourly employees?

(a), what do you think the proper course of action should be that's in the best interests of the company and the employee's?