What’s the Best Payroll Schedule for Your Business?
Back when you were an employee, you probably received paychecks twice per month. But now, as a small business owner, you might be wondering if you can pay less frequently to save time and perhaps money. You can, but should you? This guide will help you choose the right payroll schedule for your company.
What is a payroll schedule?
Your payroll schedule describes the frequency with which you pay your employees. For example, if you pay your employees twice per month, your payroll schedule is semimonthly (sometimes called “bimonthly,” though this is a misnomer when it comes to payroll, as it means “every other month”).
Your payroll schedule forms the basis of your payroll timeline and operations, and it can affect your payroll expenses and your employees’ cash flow. Additionally, businesses in certain sectors or of certain sizes may prefer one type of payroll schedule over the others.
What are the types of payroll schedules?
There are four primary types of payroll schedules: weekly, biweekly, semimonthly and monthly.
Weekly: On a weekly payroll schedule, you’ll pay your employees every week, typically on the same day of the week every time. You’ll process payroll 52 times per year and issue each employee 52 paychecks over the year. Biweekly: When you opt for a biweekly payroll schedule, you issue employee paychecks every two weeks. You’ll issue your paychecks on the same day of the week every other week. Employees whom you pay biweekly will receive 26 paychecks from you per year. Semimonthly: On a semimonthly schedule, you’ll pay your employees twice per month. The same is often true for biweekly pay, so these payroll schedules are often falsely conflated. Semimonthly pay results in two paychecks per month and 24 employee paychecks per year, whereas biweekly pay sometimes results in three paychecks per month. Semimonthly paychecks are thus larger than biweekly paychecks. Monthly: A monthly pay schedule means you’ll pay your employees once per month, resulting in a total of 12 payroll runs per year. You’ll likely issue monthly paychecks on the same day of the month, perhaps the first Friday of the month. You could also issue monthly wages on the first of the month.
As of February 2020, data from the U.S. Bureau of Labor Statistics (BLS) shows that biweekly pay is the most popular payroll schedule. The BLS has found that 43% of businesses use biweekly pay schedules, with weekly schedules taking second place at 33.3%. Semimonthly pay ranks third at 19%, and monthly comes in last at 4.7%.
Biweekly pay schedules are the most common, followed by weekly, semimonthly and monthly.
What are the pros and cons of each payroll schedule?
There are four pay schedules because no single option works perfectly for every business. To help you decide which option is best for your business, we’ve listed each schedule’s advantages and disadvantages below.
As you get to know the ins and out of each type, know that it’s entirely possible to run more than one pay schedule. For example, some businesses pay hourly employees weekly and salaried employees biweekly. More than one of the below payroll schedules may suit your needs, and you can use as many as you need.
Weekly payroll schedule pros and cons
These are some of the advantages of weekly payroll schedules.
Greater cash flow for your employees: The more frequently you pay your employees, the more quickly they’ll have access to the wages they’ve earned. The result, by definition, is greater cash flow and thus more financial stability for your employees. This notion is especially true for lower-wage employees, for whom even small sums of cash may be vital. Easier overtime calculations: Let’s say your employees are nonexempt from the Fair Labor Standards Act and occasionally work overtime. In that case, you’ll need to pay these employees time and a half for all their overtime hours. Adding these overtime wages to your paychecks is much easier on a weekly pay schedule. Since you’ll likely track overtime weekly, you’ll just multiply the week’s overtime hours by your overtime wage rate and add the result to your paychecks.
These are some drawbacks of weekly payroll schedules.
Higher payroll fees: With some payroll services, you’ll have a cap on how many times you can run payroll without extra fees. Weekly pay, at 52 payroll runs per year, is the schedule most likely to take you past this cap. As such, weekly pay schedules may have an outsize effect on your payroll expenses. However, if you search for options that don’t charge for extra payroll runs when you choose your payroll service provider, you can avoid this issue. Higher mailing costs: If you print paychecks for your employees, weekly pay schedules can become more expensive. That’s because each of the 52 payroll runs you execute per year requires check stock, magnetic ink or toner, envelopes, and stamps. You’ll expend these resources considerably more rapidly than on other schedules, increasing your restocking costs.Biweekly payroll schedule pros and cons
These are some reasons that biweekly is the most popular schedule.
Predictable pay cycles: With biweekly pay, you know you need to process payroll every 14 days. Plus, your checks will probably be issued on the same day of the week each time, so your payroll deadlines will be crystal clear. Your employees will also know exactly when to expect their paychecks, resulting in easier personal accounting and budgeting. Easier overtime calculations: Like weekly pay, biweekly schedules streamline overtime accounting. Biweekly schedules make overtime much easier to calculate and pay than with semimonthly or monthly options. That’s because semimonthly and monthly pay periods often split workweeks between pay cycles, making overtime calculations more challenging.
Although a biweekly pay schedule is highly popular, it does have some drawbacks.
Variable pay dates: Although you’ll know that your paychecks will go out every other Friday, you won’t immediately know the dates for these paychecks. You’ll need to check the calendar instead. You might wish your pay dates were the same every month. Greater payroll costs: Yes, a biweekly payroll schedule may roughly halve your weekly payroll expense. However, since they result in more paychecks than semimonthly and monthly payroll schedules, they too can quickly become pricey. Again, though, if you choose a payroll service provider that allows unlimited payroll runs, this will not be an issue.Semimonthly payroll schedule pros and cons
Here are some reasons why a semimonthly payroll schedule might suit your business.
Consistent paydays: With a semimonthly schedule, you’ll always pay your employees on the 15th and 30th of the month. Yes, you’ll have to make minor adjustments for bank holidays and weekends, but you can easily do so through your payroll software. Easy withholding calculations: Since you’ll always issue two employee paychecks per month on a semimonthly schedule, you’ll withhold the exact same amount of deductions per paycheck. This structure makes properly collecting employee taxes and paying benefit premiums much easier. It also makes incorporating the costs of new benefits into future paychecks a much simpler process.
Some businesses, on the other hand, might want to avoid semimonthly payroll schedules for the following reasons.
Challenging overtime calculations: Workweeks that start in one month and end in another are inevitable. They also make overtime calculations much tougher, as overtime hours from the same workweek can land in two different months. This separation can confuse employees checking to see whether they’ve been paid accurately. It can also confuse you in calculating correct payments. Overall high number of payroll runs: While semimonthly payroll schedules result in not even half the number of payroll runs as weekly schedules, they lead to twice as many runs compared to a monthly schedule. This could make semimonthly payroll schedules too expensive for some small business owners.Monthly payroll schedule pros and cons
Though fewer than 5% of businesses use monthly payroll schedules, they do bring some benefits to the table.
Low payroll costs: A monthly payroll schedule means you’ll process payroll 12 times per year. That means fewer instances on which you’ll incur any extra costs associated with payroll runs. Extremely easy deduction calculations: With just one check per month, you won’t have to divide benefit premiums across several paychecks. You’ll reduce the potential for human error and save yourself some tedious work. Less work overall: The fewer times you run payroll, the less work you must undertake to execute the task. And with monthly payroll schedules, you run payroll at most half as often as with other schedules.
Monthly payroll certainly has its drawbacks too, which is why it’s used infrequently.
Employee unhappiness: How would you feel waiting a full month to be paid for your work? How would you feel planning a whole month of expenses with just one paycheck? Your answers might be “bad” and “bad.” No matter how much work and money monthly payroll saves you, do you really want to have that effect on your employees?Infeasibility for hourly employees: Between overtime concerns and the lower wages often associated with hourly work, monthly payroll schedules are a no-go for hourly employees. Workweeks split into months can be problematic for calculating monthly overtime pay. Also, low-wage employees can’t often wait a full month to receive their pay. Potential legal concerns: Some states have laws banning monthly payroll schedules in many or all circumstances. It’s paramount to consult an expert on the matter so that you don’t find yourself in hot water.Which types of businesses benefit from each payroll schedule?
BLS data on the prevalence of payroll schedule by sector hint at the types of businesses that benefit from each payroll schedule. The BLS has found that weekly pay is common in construction, manufacturing and trade. These industries hire many hourly, lower-wage workers, which explains the prevalence of weekly payroll schedules in these sectors.
Semimonthly pay is common in mining, information, finance and professional services. However, all of these industries even more commonly use biweekly pay schedules.
No industry uses monthly pay particularly often. If anything, business size correlates more strongly with the prevalence of monthly payroll schedules. The BLS has found that 8.9% of companies with fewer than 10 employees use monthly payroll schedules. That figure is much higher than in companies with 10 or more employees.
In general, biweekly pay increases in prevalence as business size increases, though it’s common for all business sizes. A notable exception is that companies with nine employees at most use semimonthly payroll schedules slightly more often (34.9%) than biweekly pay (33.7%).
Weekly pay is common in the construction, manufacturing, and trade sectors, while semimonthly pay is often used in mining, information, finance, and professional services.
How to change your payroll schedule in your payroll software
If you’re convinced a payroll schedule change is in order, you can easily make the shift if you use payroll software. (If you don’t, but want to get started, visit our reviews of the best payroll services to find the right fit.) You’ll log in to your account, look for a “payroll” menu in the top or left-side navigation panel, and change your payroll frequency there. In some cases, you can also set different payroll schedules for different groups of employees.
You can easily change your payroll schedule with payroll software.
A concrete example should illustrate just how easy this process can be. Here’s how to change your payroll schedule in the Intuit QuickBooks payroll software:
Choose “Payroll Settings” from the gear icon, then “Pay Schedules” from the “Payroll and Services” tab. Click “Create” and add the pay period and pay date. Choose “Employees” from your “Payroll” menu and click on an employee’s name.Select the “How often do you pay?” dropdown, link your pay schedule, and voila, your pay schedule has been changed. It really is that simple.
