How to Choose a Payroll Schedule That Works For Your Business
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Are you deciding which payroll schedule makes sense for your business?
Payroll schedule is the frequency with which your employees get paid. The correct schedule depends on your cash flow rhythm, labor market expectations, and state and national regulations. Finding a consistent payroll schedule creates a predictable income and makes it easier to manage business finances.
Weekly, biweekly, semimonthly, and monthly pay schedules are all common options, each with pros and cons. Remember, your payroll schedule differs from your pay period, which describes the time frame of a payment, or the length of time employees accrue hours on a single paycheck before counting toward the next paycheck.
In this guide, we’ll explain the pros and cons of each payroll schedule option to get you one step closer to choosing the best suited for your business.
Four types of payroll schedules
Your payroll schedule determines how often and when employees can expect to get paid. It’s important to get it right from the beginning to avoid disruption.
Even if you are the only employee, get into a payroll routine from the start, picking from the following types of pay schedules.
Employees are paid a specific day of the week, every week, throughout the year. For example, your employees get paid every Friday of the year, totaling 52 paychecks per year.
A biweekly payroll schedule involves paying employees on the same day of the week every two weeks. For example, employees get paid every other Friday, totaling 26 paychecks per year. With 36.5% of private businesses in the United States paying their employees every two weeks, bi-weekly pay periods are the most common.
A semi-monthly payroll involves sending payouts twice a month, totaling 24 paychecks a year. In most instances, a business will make payments at the beginning or end of the month, with the second paycheck going out on the 15th of the month.
You make payouts once a month on a monthly payroll schedule, usually on the last day of the month. Due to state regulations, monthly payroll schedules usually only apply when you’re the only employee (or one of the business owners) and running small business payroll.
Weekly payroll: pros and cons
Weekly payroll is a popular option for employees paid an hourly rate for irregular schedules. It is not very efficient for salaried employees.
Pros of weekly payroll
Weekly payroll is an efficient option for hourly employees who accumulate several hours of overtime or workers with irregular schedules. Employees get paid on time for their work and don’t need to wait for long periods to receive overtime compensation.
Cons of weekly payroll
Weekly payroll schedules have the most pay periods and therefore have a high processing cost, increasing the company’s time and money spent on payroll. Calculating the number of hours on the timesheets and including all necessary information on the pay stub every week requires time and effort from your human resources or payroll administrators.
Bi-weekly payroll: pros and cons
Bi-weekly payroll schedules are a common option for hourly and salaried employees, helping employees regulate their cash flow and have consistent accessibility to funds.
Pros of bi-weekly payroll
Often paid every other Friday, bi-weekly payroll schedules are an easy option to calculate overtime for hourly employees.
It also helps hourly employees manage their cash flow. For example, an employee who loses one week’s worth of wages due to sick leave can make up the hours in the following week.
Cons of bi-weekly payroll
The bi-weekly payroll calendar is more difficult to calculate benefit deductions, which normally occur on a monthly basis.
Another major consideration is that the bi-weekly pay schedule means that two of the 12 months in the year will have three pay periods, which is the major differentiator between bi-weekly and semi-monthly pay schedules. This might be a pro for employees–an “extra” pay period twice a year feels like a bonus–but it means additional irregular work for your payroll administrator.
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Semi-monthly payroll: pros and cons
Paying employees twice a month has two variations for making payment–one paycheck in the middle of the month, and another either at the beginning or the end of the month.
Pros of semi-monthly payroll
Semi-monthly payroll schedules are effective for managing benefit deductions as many benefits, such as insurance, are charged on a monthly basis.
Semi-monthly payroll requires less time (and cost) per pay period, and the regularity of the schedule makes it easy for accounting teams to manage.
Salaried employees also benefit from a semi-monthly payroll schedule as it helps them align their largest expenses with their pay date.
Cons of semi-monthly payroll
Semi-monthly payroll is not as effective for hourly employees as it complicates time tracking for overtime. It can also be challenging to align cash requirements when paying hourly employees on a semi-monthly basis since you’ll have to make such large payouts on the same day.
Monthly payroll: pros and cons
Occurring once a month on a specific date, monthly payroll schedules are an appropriate option in a few circumstances. Monthly payroll is most applicable when you’re the only employee or pay employees on a commission-based model.
Pros of monthly payroll
The biggest advantage of a monthly payroll solution is the low processing costs. With the fewest pay periods (12 per year), monthly payroll schedules demand the least amount of time and cost involved in processing.
It’s also easier to manage benefit deductions, which payroll administrators typically charge every month. Issuing a 13th-month payment is easier to manage as well.
Cons of monthly payroll
Monthly payroll schedules are the least preferred option for employees and businesses as it presents more of a challenge to manage personal expenses with only 12 paychecks a year. Only 4.7% of businesses choose this method.
New employees may become frustrated by a delay in receiving their first paycheck as they work out the first pay period and wait for benefits enrollment.
Finally, some states, such as Vermont, mandate more frequent payroll schedules and virtually eliminate the option of monthly payroll.
5 Considerations on how to choose a payroll schedule
Payroll schedule is not one size fits all. Employee preferences, payroll costs, and payroll laws are all factors to consider when choosing the best payroll schedule for your business.
Preferences and industry norms impact the payroll schedule. Your employees may be resistant to accept an irregular schedule if it goes against market standards or a previous employer’s schedule.
For example, a weekly payroll schedule is popular in retail stores, restaurants, and businesses that rely on manual labor. Wages are typically calculated at an hourly rate and paid on a weekly basis. Employees may be disgruntled–or scared away altogether–by monthly payroll. Look into your industry’s standard to ensure you don’t defy a norm.
State payroll laws
State laws dictate a minimum pay period which directly impacts the payroll schedule. These laws vary from one state to another, and businesses must comply with local state laws.
The U.S. Department of Labor has outlined state payday requirements that local businesses must follow. These laws can differ vastly in each state, meaning that it’s important to stay up to date on local payroll laws.
For example, Alabama and South Carolina have no regulations, and payroll is not specified. In contrast, Arizona demands that payday occurs two or more days in a month, not more than 16 days apart. The frequency in other states, such as California and Michigan, is determined by the occupation.
Failure to comply with these state laws can lead to fines, back pay, and even criminal punishment.
International payroll laws
The globalization of the workforce and the rise in remote teams have increased the focus on international payroll processes. International payroll laws impact the payroll schedule and should be considered if you have employees from multiple countries.
Consider the following examples to highlight different payroll laws around the world.
If your team hires staff in France, you need to pay your employee once a month in the euro (EUR). French labor law dictates it’s not permitted to pay wages exceeding EUR 1,500 per month in cash. The alternative is direct deposit.
In Mexico, white-collar employees should receive pay every two weeks in Mexican pesos, while blue-collar workers get paid weekly in the same currency. These laws constantly change, such as the recent U.S-Mexico-Canada Agreement (USMCA), which has enforced Mexican labor laws against U.S. companies.
The Netherlands requires the employment contract to dictate the payroll schedule, giving employers the option to pay either monthly or weekly, in EUR. Weekly payments should not be made later than one month after due, while monthly payments must be paid within three months after due.
Familiarizing yourself with the intricacies of global payroll will help you make the best decision for the business and your employees.
Payroll processing costs
Each payroll cycle costs the business money, which you should consider before determining the best payroll schedule for you. The payroll schedule will also impact the total cost of an employee.
These costs should align with your business’s cash flow rhythm. Payroll is typically one of a business’s highest expenses, so cash must be available to cover the payroll processing costs and the final payment.
Overtime and other benefits
Overtime and employee benefits can complicate the payroll process, taking extra time to calculate. Global employee benefits, such as social security, health insurance, or retirement plans, also take time to administer correctly during the payroll process.
For example, any deductions for health insurance benefits need to be confirmed between employer and employee to avoid any cash flow issues.
Top tip: Investing in an automated payroll system and financial apps can streamline the process and save both time and money during payroll.
How many pay periods are in 2022?
The pay period, also known as the payroll period or payroll frequency, refers to the time period when an employee's hours get tracked and paid. Pay periods are typically fixed and recur on a weekly, bi-weekly, semi-monthly, or monthly basis.
Some of these pay periods may differ depending on whether or not there is a leap year. In 2022, the number of pay periods are:
- Weekly payroll: 52 pay periods
- Bi-weekly payroll: 26 pay periods
- Semi-monthly payroll: 24 pay periods
Monthly pay period: 12 pay periods
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