What is it?
The illustration below shows how a payment in arrears pay cycle works. The important thing to know is that everyone will be paid for all the hours they have worked. In a payroll "lag" system reconciliation is on the last day of employment.
- Employee is hired.
- The employee works during the first pay period.
- The first payday arrives, but the employee does not receive a paycheck because this payday is for a pay period prior to the employee’s hire date.
- The employee works during the second pay period.
- Payday 2 arrives and the employee is paid for the work done in pay period 1.
- The employee has now established a payroll lag, and continues to receive paychecks on each subsequent payday. Each paycheck represents payment for work done in the pay period immediately prior to the one just ending. This pattern continues until the employee separates from employment.
- The employee separates from employment, in this case on a payday, and receives payment for the prior pay period, as normal, and also for work done in the pay period that just ended. The lag established in their first pay period has now been reconciled.