How often you choose to pay your employees matters. If you don’t pay employees often enough, they can struggle with budgeting between paychecks. Pay them too often, and you might run into additional payroll processing costs. Choosing a payroll schedule might seem like a simple decision, but there are important factors to consider.
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What is a payroll schedule?
A payroll schedule determines the length of your pay period and how often you pay your employees. The most common payroll schedules are weekly, biweekly, semimonthly, and monthly. Your payroll schedule is dependent upon a few factors, including state laws and regulations. Many states have pay schedule frequency requirements that you’ll need to meet.
On top of state laws, your pay schedule should also fit the needs of your employees and your business. If you employ mostly hourly workers, your pay schedule may look different from a business with mostly salaried employees. Your state, your industry, and the types of workers you employ all impact your payroll schedule.
Types of pay schedules
There are four commonly used pay schedules:
Some pay schedules are more common than others. Let’s take a closer look at each type.
A weekly payroll schedule requires that you pay employees once per week, or 52 times per year. A typical weekly pay period is 40 hours. This pay frequency works well for businesses with mostly hourly employees.
Pros of weekly payroll
- Employees enjoy getting paid every week. After all, many employees say that payday makes them feel better than Christmas, according to a 2018 study conducted by QuickBooks Payroll.*
- If you have freelance workers or independent contractors, weekly payroll ensures they’re paid quickly for their work.
- Hourly employees with irregular schedules are paid nearly immediately for the time they put in each week. If they need extra cash, they can try to work extra hours to make up the difference quickly—especially if you offer direct deposit.
- Weekly payroll makes it easy to calculate weekly overtime for employees.
Cons of weekly payroll
- Weekly payroll requires you to run payroll 52 times per year. Many payroll vendors and payroll service providers charge a small fee each time you run payroll. Those costs can add up quickly when you run payroll on a weekly basis.
- Depending on your payroll system, running payroll each week can be a heavy lift for you or your payroll administrator.
A biweekly payroll schedule requires you to pay employees every other week, or once every two weeks. Biweekly payroll equates to 26 paydays per year—sometimes 27. Biweekly pay periods are typically 80 hours. This schedule can sometimes lead to employees getting paid three times in one month.
Pros of biweekly payroll
- Biweekly payroll can help regulate erratic schedules for hourly employees. Even if they work more or less hours in a certain week, their paychecks should be fairly consistent.
- Biweekly payroll makes it easy to calculate employee overtime, because overtime is calculated on a weekly basis.
Cons of biweekly payroll
- Because payout happens every other week, you’ll need to make sure your costs and payouts are aligned based on the months the pay stubs were issued.
- You’ll need to pay closer attention to voluntary paycheck deductions, like health insurance. Health benefits are typically calculated on a monthly basis. Months with three paychecks, or years with 27 paydays, may cause complications.
Semimonthly payroll is similar to biweekly payroll, but with a few important differences. Rather than paying employees every other week, you’re paying employees twice per month, on specific pay dates. Usually, these are the 1st and 15th or the 15th and 30th, though pay dates can vary. This payroll schedule requires you to pay employees consistently 24 times per year. Semimonthly pay periods are typically 87 hours.
Pros of semimonthly payroll
- Pay dates and pay periods are consistent each month. Because pay periods align with the end of the month, running monthly reports is easier for your accounting department.
- Semimonthly payroll works especially well for salaried employees who aren’t earning overtime. Simply divide their yearly salary by 24.
- Paydays always align perfectly with other monthly costs like healthcare deductions.
- Payroll processing costs and time for semimonthly payroll schedules are lower than weekly or biweekly schedules.
Cons of semimonthly payroll
- Semimonthly payroll may not work well for hourly employees who earn overtime or have irregular hours each week.
- Because payout happens consistently on certain dates each month, paydays may land on a weekend or holiday.
A monthly pay schedule requires you to pay employees once per month, usually at the end of the month, or 12 times per year. It’s important to note that some states require employers to pay employees more frequently.
Pros of monthly payroll
- Because you have to process payroll only 12 times per year, monthly payroll has the lowest processing costs of all the payroll schedules.
- Monthly paycheck deductions, like health insurance, are easy to calculate.
Cons of monthly payroll
- Monthly payroll is employees’ least preferred payroll schedule. When employees are paid only one time per month, they find it harder to manage their money and stay on top of their bills.
- When a new employee starts, it can take at least one month for them to receive their first paycheck.
- Your state may not allow monthly payroll schedules. If you have remote employees working across state lines, the state they work in may require you to pay them more frequently.
State payday requirements
Many states have payroll schedule requirements that all businesses are required to follow. In Arizona and Maine, paydays can’t be more than 16 days apart. In California and Michigan, the frequency of payday depends on an employee’s occupation. In Minnesota and Wisconsin, different payroll schedules are required for different industries.
Before you choose a payroll schedule, make sure it abides by state laws. Remember, employees working in another state are protected by that state’s labor laws. For a detailed list of payday requirements by state, visit the Department of Labor’s website.
How to decide what pay schedule is best for your business
When it comes to choosing a payroll schedule for your business, there are a few things to keep in mind:
- Types of employees. If you employ mostly hourly workers, a weekly or biweekly payroll schedule might work best. If you employ mostly salaried employees, a semimonthly payroll schedule may be preferred.
- Employee needs. Failing to take your employees’ needs into consideration while building your payroll calendar can result in low employee morale and a high turnover rate. How often an employee is paid can be just as important as how much.
- Cash flow. Just one late paycheck can cause employees to quit, according to the QuickBooks Payroll survey. If you’re a new small business or a business with irregular cash flow, think about how often you can realistically pay employees. When it comes right down to it, getting paid correctly and on time is better than getting paid incorrectly on a more frequent schedule.
- State requirements. Many states have specific payroll schedule requirements that business owners are required to meet. These requirements vary by industry and occupation. It’s always a good idea to check with an expert for compliance before making any hard-and-fast decisions about your payroll calendar.
- Time and effort. How much time and money can you dedicate to running payroll? If you don’t have a payroll service provider or an automated payroll system in place, choosing a weekly payroll schedule may be overwhelming. If you have hourly employees, be sure to factor in the time it takes to collect and decipher employee timesheets.
In the end, you need to decide what’s best for your employees and your business. There’s no right or wrong answer, and your choice isn’t set in stone. If your payroll schedule isn’t optimal for your business, you can change it. But you should avoid making changes more than once as it can cause uncertainty and confusion.
Remember, as much as we’d like to think employees work for the sheer love of the job, most of them work to get paid. Paying employees consistently, correctly, and on time is the key to pay schedule success.
Original source: Mediafeed.org