University will provide advance to ease January pay transition

Harvard employees currently paid on a semimonthly basis will find something extra in their first paychecks when they switch to biweekly pay in January – an advance equal to nine days’ pay without taxes or deductions.

The affected administrative/professional and clerical/technical staff will also shift from being paid partially in advance to being paid for time already worked or taken as paid time off. As a result of these two changes, their Jan. 10 paychecks will reflect pay for only three or four days (Jan. 1 through Jan. 4), depending on their work schedules. Since the paycheck will be very small, and may not cover the new, and in most cases larger, 2003 benefits deductions, the University will provide a mandatory advance in the first 2003 paycheck. Employees will repay the advance by automatic payroll deductions over the remaining 25 pay periods in the calendar year.

“We first notified employees last June that the University would provide an interest-free loan equal to nine days’ net pay in their first January checks. We provided examples of how this loan and the subsequent payback to the University would affect their pay during the year, and have continued to remind them of the need to prepare for this,” said Bill Hoyt, director of procurement.

“Later,” Hoyt explained, “when the new 2003 benefits and tax rates became available and we were able to run the numbers for some sample employees, we became concerned that for some people the first check would be unacceptably small even with the loan.”

With this new information in mind, leaders in human resources and financial administration, in consultation with financial deans, decided to increase the amount of the advance from nine days’ net pay to nine days’ gross pay.

Gross Annual Salary 12/26/02
Final semimonthly paycheck, net 1/10/03
Net pay 1/10/03
Advance – 9 days’ gross pay 1/10/03
First biweekly paycheck, net pay plus advance 1/24/03
and remaining 2003 paychecks $34,423a $1,084.62 $302.22 $1,226.18 $1,528.40 $954.62 $71,647b $1,968.77 $437.07 $2,480.45 $2,917.52 $1,558.39

aEmployee is single and overtime-eligible; has deductions for Harvard Pilgrim HMO, Delta Dental, long-term disability, pooled parking, and HUCTW dues; and has two federal tax allowances and one state allowance.

bEmployee is single and overtime-exempt; has deductions for Harvard Pilgrim HMO, Delta Dental, long-term disability, $250 for TDA, contributory life insurance, and auto and home loans; and has no tax allowances.

According to Michael Barricelli, University controller, the change in pay scheduling is a necessary step to ensure Harvard’s compliance with state employment law. “It is also a best practice to pay in arrears, and is consistent with how our faculty and hourly employees are currently paid. We delayed this transition until our new systems could support it, and we chose the timing so that the financial impact to employees could be absorbed over the full year.”

Polly Price, associate vice president for human resources, urged affected employees to heed the advice to prepare for these changes. “For months we have suggested that employees review the estimates we have provided to get a sense of what their own checks would look like in 2003. This is especially important for employees with automatic bank payments for student loans, car loans, or other obligations.”

“While the increase in the amount added to the Jan. 10 paycheck will ease the initial transition,” said Price, “it will also mean a larger deduction from each check during the rest of the year. Employees can calculate their personal biweekly deduction by dividing nine days’ gross pay by 25.”

The examples in the accompanying chart show the impact of the change at different salary levels. They are based on employees with standard ranges of deductions and taxes. More examples showing the effect of the larger advance are available online at www.atwork.harvard.edu under HR Project.

Price added that the advance will not affect anyone’s credit rating. “Since this transaction is entirely between Harvard and its employees, the University will not be reporting it to any of the credit-rating agencies. The advance is not subject to taxes because it will be repaid during the calendar year.”

More paychecks per year, slightly less in each check

Under the new schedule, employees will be paid more frequently – 26 times each year rather than the current 24. However, because annual salaries will be divided into more parts, the amount in each biweekly check will be slightly less than it would be in a semimonthly check.

Deductions for health and dental coverage, disability and life insurance, and contributions to tax-deferred accounts and flexible spending accounts will be divided over 26 pay periods, as will union dues and contributions to the United Way. The amount deducted from each paycheck for parking will not change, meaning the annual fees will be paid in full sooner.

For employees who are paying back loans from the Harvard University Employees Credit Union, the amount deducted from each paycheck for these loans will not change. Loan payments will continue to be transferred from the employee’s Credit Union account on the same schedule as at present. There may be more deductions per year, but the number of payments applied to the loan will not change.

Shift to pay for time already worked

With this new pay schedule, employees will be paid for time that has already been worked or taken as paid time off.

This is a significant change from the current pay schedule, which pays these employees partly for time already worked and partly for time yet to be worked. Under the current system, the paycheck issued on the 12th of each month covers work performed from the 1st through the 15th and the paycheck issued on the 26th is for work performed through the end of the month.

Under the new every-other-Friday pay schedule, there will be 14 days between each check. Paychecks will cover the two-week period ending the previous Friday. For example, a paycheck issued on the 21st of the month would cover time worked from the 1st through the 14th.

Transition will mean lag in pay for 2003

Although the advance will cover the lag in pay at the beginning of January, by the end of 2003 this advance will be recouped by the University, leaving employees with somewhat less pay for the year compared to the previous year. Earnings for the period of Dec. 14 – 27, 2003, will be paid on Jan. 2, 2004, and earnings for Dec. 28, 2003, through Jan. 10, 2004, will be paid on Jan. 16, 2004. When an employee leaves the University, the last paycheck will include pay for all days worked.

Those who leave the University during 2003 must repay loan

When employees terminate their Harvard service, Financial Administration goes through a final paycheck reconciliation process that takes into account active general deductions, vacation balances, and final pay amounts. As part of that process during 2003, any remaining portion of the advance that has not been paid back will be deducted from an employee’s last check.