One of the many choices a company must make when starting out is how often to run payroll. Which pay schedule a company chooses depends on a few factors like which state they live in, whether employees earn overtime, and who does their payroll and what it costs. With that in mind, there are four most commonly used payroll schedules in the U.S to choose from.
- Weekly (52 periods per year)
- Every Two Weeks (26 periods per year)
- Twice Monthly (24 periods per year)
- Monthly (12 periods per year)
Most states have set payday frequency requirements. It is usually fine to pay employees more often than required by the state but not less often.
So which one should you use? The following information should help you choose.
Weekly Payroll
Drawbacks
Weekly payroll is a popular option for trades like construction, plumbing, etc. However, there’s a reason more sectors don’t use weekly payroll. This pay schedule can be cost-prohibitive and time-consuming for accountants. Most payroll companies charge to run payroll each time. Even if payroll is done in-house, this gives the in-house accountant more work to do, which is also expensive. Running payroll is a big job. The accountant has to calculate payroll taxes, overtime, accruals, etc.
Benefits
Some employees like getting weekly payroll checks, though, because it helps them manage their money better. This is especially true if they are living paycheck to paycheck, which most employees are, according to a survey. Additionally, it’s easier for employees to see any overtime they’ve earned on weekly paychecks.
Monthly Payroll
Drawbacks
Not surprisingly, the monthly pay schedule is not a popular option for employees. Employees have to be great with budgeting to make this work since expenses come up throughout the month.
Benefits
For businesses, however, it is the cheapest route and for the accountant it’s the easiest. The accountant runs reports at the end of the month and also makes deductions at the end of the month. Running payroll at that time coincides with those reports and deductions, which makes payroll quicker and easier.
Semi-Monthly vs. Biweekly Payroll
Semi-monthly and biweekly payroll both offer employees more paychecks but they each have their own benefits and drawbacks.
Bi-weekly pay periods
With bi-weekly payroll, since a month is not exactly four weeks, two months out of the year will have three pay periods instead of two.
Drawbacks
Again, this is inconvenient for the accountant because of reporting and deductions. Bi-weekly pay periods might also be inconvenient for employees because paychecks will come on different days of each month. They have to check a payroll calendar just to know when they’ll get paid and, since paychecks don’t come on the same day of every month, paying bills can be a little tricky.
Benefits
However, for employees who earn overtime, bi-weekly paychecks are ideal. This pay schedule makes it easy to see how much overtime they earn each week.
Semi-monthly pay periods
Benefits
The semi-monthly pay schedule is probably the most convenient for salaried employees. They don’t earn overtime so they aren’t concerned with those calculations. And it’s easier to pay bills when checks come on certain days of the month. It’s fairly simple for the accountant too since the end of the second period coincides with reporting and deductions.
Drawbacks
For hourly employees who make overtime regularly, though, this pay schedule might be confusing. Understanding overtime calculations with monthly and semi-monthly pay periods is a challenge because of the workweek (check out this article to learn more). Employees might have to ask managers for clarification when they think their paychecks are incorrect. For this reason, many companies choose another one of the weekly schedules for employees who earn overtime.
Choose Your Pay Schedule and Stick to It
Once you’ve decided on a pay schedule, you need to stick to it. While businesses can switch their pay frequency if necessary, you should try to avoid it. If you do need to switch, do it carefully. It can disrupt an employee’s payday rhythm and might seriously complicate their finances. When switching, just try to make sure that employees don’t end up without a paycheck for a long stretch of time.
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