Off-cycle payroll: definition, reasons & how to manage it

Paying employees is usually a pre-scheduled task, but there are times when you’ll need to process payroll outside of the regular pay period: 94% of organizations processed off-cycle payments in 2020 — up from just 74% in 2018.* These ad hoc expenses, known as off-cycle payments or off-cycle payroll, address unexpected or infrequent payments.

Providing timeline compensation for one-off cycles shows your commitment to recognizing and respecting employees and may even be necessary to comply with specific labor laws. Doing so is becoming especially important as the labor market becomes more competitive and worker protections strengthen worldwide.

In this guide, we’ll review how off-cycle payments work, when they’re necessary, and how to craft a winning payroll process for ad hoc payments.
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‍*Deloitte

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What is off-cycle payroll?

Your company is likely following a set pay schedule — weekly, biweekly, semi-monthly, or monthly. But occasionally, you’ll need to make payments outside of these regular cycles. That’s where off-cycle payroll comes in.

‍Off-cycle payroll refers to the process of paying employees outside of your regular schedule. You’ll need to trigger off-cycle payments when an unforeseen or one-time circumstance arises — such as payroll corrections, reimbursements, or one-time bonuses.

Off-cycle payments are part of most organizations’ payroll processes, and companies carry out an average of 0.23 off-cycle payments per employee every year globally (and 0.3 per worker/year in the United States). That’s why it’s essential to devise a way to compensate team members outside of the regular cycle to keep your operations running smoothly.
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Most common reasons for off-cycle payroll

There are many circumstances where your organization may need to carry out off-cycle payments. Here are some of the most common possibilities:

• Missed or erroneous payments — Sometimes, payroll errors (typically resulting from manual work) result in underpayments, overpayments, or missed payments. Retroactive off-cycle payments allow you to correct these issues swiftly and ensure employees are accurately compensated in a timely manner.
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• Bonuses, commissions, or incentives — While some companies may include bonuses and commissions in regular paychecks, others prefer one-time, off-cycle payments. Prompt processing of bonuses reinforces a positive employee experience and recognizes outstanding performance.
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• Expense reimbursements — If a team member incurs work-related expenses, such as travel, you may need to issue off-cycle payroll to cover reimbursements. This process also applies if your company provides stipends for wellness or remote work, for example.
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• ‍Terminations or resignations — These are some of the most common reasons behind off-cycle payroll. If an employee leaves mid-cycle, processing their remaining pay promptly helps ensure compliance with labor regulations.

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How to manage off-cycle payroll

Processing payroll is a core HR process that significantly impacts the employee experience. By following the steps below, you’ll streamline how you handle irregular payments and sidestep some of the common challenges associated with the process.

1. Establish a clear off-cycle payroll policy

Managing off-cycle payroll should start with a well-defined policy. Begin by clearly outlining what qualifies for an off-cycle payment, using our list in the previous section as a jumping-off point.

Then, create a standard operating procedure (SOP) for approving irregular payments. Distribute it to all HR team members and payroll providers, ensuring they understand when and how off-cycle payments should be processed. Finally, inform all your employees about the policies that are relevant to them.

Creating and explicitly communicating these guidelines ensures everyone has the correct information and knows where to direct questions.
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2. Calculate earnings and deductions

Thorough payroll preparation is crucial for off-cycle payments, especially considering that they’re irregular by definition and may require a different process from usual. Meticulous attention to time-tracking records and other payroll documents is invaluable.

Depending on your existing process, taking care of off-cycle payments may require coordinating with a third-party provider and payroll software — handling calculations and deductions manually can be extremely tricky and cause errors.
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3. Review compliance and tax implications

Off-cycle payments may have unique tax and compliance requirements. Ensure correct deductions and adherence to applicable labor laws, consulting a legal advisor as needed.
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4. Keep detailed documents and records

Documentation is essential for transparency and audit readiness. Maintain thorough records for each off-cycle payment, including payment reasons and approval details. With an HR platform like Leapsome’s HRIS, you can securely manage employee data like payroll history and documentation.
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5. Monitor and analyze over time

So, you’ve implemented a winning off-cycle payroll process. That’s great! But keep in mind that periodically reviewing your off-cycle payroll process is essential — it will help you identify patterns and areas for improvement.

‍During this process, you may discover that your regular payroll cycle could benefit from automation. Payroll automation simplifies the routine logistics of payroll preparation and payslip distribution, so your HR team can focus their efforts on high-level goals like employee satisfaction and retention.
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Solid processes can make off-cycle payments effortless

Your off-cycle payroll process will feel less familiar than your regular payroll process by default. But it’s an essential component of modern compensation management, especially as employee satisfaction becomes a cornerstone of HR success and organizational performance. And when you pay team members timely and fairly, you make them feel valued.

Figuring out and establishing payroll processes may seem challenging at first. Luckily, with the right tools, it can be much less daunting. For instance, Leapsome’s HRIS addresses frequent payroll pain points, from payroll preparation to payslip distribution to record-keeping (and lots more!). This enables your team to focus on strategic, people-first initiatives, improving results organization-wide.

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