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There are four types of payroll schedules – weekly, bi-weekly, semi-monthly, and monthly. It's up to you and the state laws to choose the one for your company.

How to Choose a Payroll Schedule

Egon Tiderman
March 08, 2020

When you're starting a new business, one significant decision you'll have to make is the payroll schedule. It might seem like a straightforward choice, but only at first glance.

There are several crucial considerations in this process, and you might not get it right the first time. However, implementing a payroll schedule that works to benefit you and your employees is relevant in many ways. The payroll schedule you choose can even impact company morale. Here's everything you need to know about the payroll schedule for your business.

What Is a Payroll Schedule?

The frequency at which employees are paid is called a payroll schedule. It's a combination pay period and pay date. The employer determines the number of pay periods per year based on the payroll schedule. The pay date is a specific date when the employees receive their wages.

Employers can choose between weekly, bi-weekly, semi-monthly, and monthly payroll schedules. Each comes with a set of advantages and disadvantages that we'll cover.

Factors to Consider When Choosing a Payroll Schedule

Employees used to get paid on the first of every month, but those days are long gone. Small business owners have the freedom to choose a schedule that fits their company's needs and employees.

But it can be somewhat daunting to choose the correct schedule. Here are a few factors and guidelines to consider before you make a decision.

State Laws

Some states don't have any payroll laws, and others have quite specific requirements. For example, Rhode Island requires that childcare providers must have the option to receive bi-weekly pay. Another example is New York, where manual workers must receive weekly payments, and clerks must be paid semi-monthly. In Maine and Arizona, the state law mandates that employers pay their employees every 16 days or sooner.

The bottom line is that states have particular requirements regarding the frequency of pay. As a business owner, you must ensure that you comply with all regulations.

Processing Cost

Most business owners know that processing payroll can be expensive. In your business plan, consider what fits into the company budget and make specific accommodations. The goal is to ensure the most seamless process and the fewest budgeting errors.

Time and Effort

Unless you have a designated payroll department, how much time can you set aside to process the payroll? The same applies if you don't rely on automated payroll software.

If you're the one who has to do all the work, a weekly payroll schedule can quickly become overwhelming. Similarly, if you're employing hourly workers, interpreting every timesheet can be incredibly time-consuming.

Cash Flow

One late paycheck can create a plethora of problems for both the employer and the employee. It might even persuade some of the employees to quit if they highly depend on timely payments. Irregular cash flow is not something to be taken lightly.

That's why it's essential to be realistic when considering how often you pay your employees. You might prefer one payroll schedule over another, but it's vital to make sure it fits into your plans.

Employee Needs

When you're building your business, a high turnover rate can cause many problems. Neglecting the needs of your employees in terms of payroll schedule is ill-advised. To many employees, the frequency of pay is as important as the amount they receive. If you're unsure, create a survey and gauge the sentiment. 

4 Types of Payroll Schedule

Before choosing one payroll schedule and sticking to it, make sure you have all the facts about each type. There isn't a right or wrong approach, as no two businesses are the same.

Weekly Payroll Schedule

If you choose to pay your employees once per week, that means you issue payments 52 times per year. Many businesses that rely on hourly employees use this payment model.

There are several significant advantages of weekly payroll. Namely, the employees usually enjoy getting paid every week. It's something to look forward to. For freelance workers and independent contractors, weekly payrolls provide a sense of security that they are indeed getting paid. 

This method is often used in trade work as it's easy to calculate overtime. The downside of weekly payroll is that you have to process it 52 times per year, which is costly and time-consuming.

Bi-Weekly Payroll Schedule

Some employers choose to process payroll every two weeks. Annually, that's 26 or 27 paydays, depending on the calendar. This could even work out that employees get three paychecks per month on rare occasions. 

The upside of bi-weekly payroll is that it can regulate payments for hourly workers. It's also still easy to calculate any overtime for the employees.

A problem with bi-weekly payroll might arise around voluntary deductions, such as life insurance or health coverage. These benefits are usually calculated monthly, which can cause some complications in the payroll process.

Semi-Monthly Payroll Schedule

A semi-monthly payroll schedule is often confused with bi-weekly, as both generally issue paychecks twice a month. But where bi-weekly pays workers every two weeks (for example, every other Friday), semi-monthly pays workers on two specific dates each month, usually the 1st and 15th.

This schedule amounts to 24 pay dates per year and covers 87 hours of work. The benefits of this payroll schedule are the consistency and the fact it often aligns with some deductions.

It's also an excellent system for salaried employees that don't have any overtime. The processing cost is lower, and less time is necessary for bi-monthly payroll. However, semi-monthly payroll might not be the best option for hourly workers. It might also be inconvenient when the pay date falls on the weekend or a national holiday.

Monthly Payroll Schedule

This type of payroll schedule requires employers to pay their workers once every month. It's usually at the end of the month, but dates can vary.

Monthly payroll is the least labor-intensive, as you only have to process payments 12 times per year. It also makes all the taxes and deductions much easier to calculate.

On the other hand, most employees dislike the monthly payroll system. When they receive payment once a month, it's sometimes harder to manage the money and cover all the bills regularly. Another downside is that when an employee first starts a job, they'll have to wait quite some time before getting their first paycheck.

When to Change Your Payroll Schedule?

Some business owners might have selected one payroll schedule that doesn't quite work in the long run. The good news is that you can always implement another system, as long as you have a good reason to do so.

If you're spending way too much time and money on payroll, perhaps that's an excellent indicator to switch to another method. The same goes when there's a need to improve business cash flow.

Ultimately, if the employees have expressed the desire to change to a different payroll schedule, that's something every employer should take seriously.

Spend Less Time on Payroll

There is a lot to consider when you're making a business plan for the first time. But if you want to simplify your payroll process, consider using an online pay stub creator like Paystub Engine. Paystub Engine is an easy way to create paystubs and document pay, letting you focus your time and attention on other aspects of your business. Click here to try it out today.