Choosing the best payroll schedule involves weighing the needs of both employers and employees. There are several different schedules when it comes to payroll, and none of them are necessarily better than the other. All options each have their own pros and cons for both the business and the employee/contractor. In this article, we’ll give you all the information you need to choose the best payroll schedule for your organization.
What is a Pay Period?
A pay period is the recurring timeframe in which a company pays its staff. Common pay period frequencies include weekly, biweekly, semimonthly, and monthly. During each pay period, employees track their hours worked or time accrued. At the end of the pay period, they receive compensation for that time.
Key Factors in Choosing a Payroll Schedule
Choosing a payroll schedule is an important part of establishing how payroll will be conducted. There are several different ways to tackle payroll schedules. None of these are better than the others. Your employee base and industry will dictate the best methods to use for your payroll schedule.
When selecting a pay period, consider:
- Employee payment preferences – Some staff may prefer weekly pay for consistent income. Others are fine with less frequent payments.
- Salaried vs. hourly staff – Hourly workers need pay periods that easily track hours and overtime. Salaried staff are paid predictable wages so pay frequency is less important.
- Processing costs – Weekly payroll has the highest transaction fees while monthly is cheapest. Biweekly and semimonthly are in the middle.
- State payroll laws – Ensure pay periods and standard paydays comply with labor regulations.
Weekly Payroll
Weekly payroll allows employees to receive their wages more frequently. This can improve employee satisfaction by providing consistent cash flow. Weekly pay periods make it easy to track hours and calculate overtime for hourly workers.
Fluctuating schedules and extra hours are captured in real time. Weekly payroll works well for businesses like construction that rely on hourly employees.
The frequent payroll cycles ensure employees are promptly compensated for all time worked.
Processing payroll each week can be more costly for the employer than less frequent options, however, the overhead is outweighed by the positive impact on employee morale and engagement.
- Best for hourly employees, especially in construction and trades
- Allows staff to receive frequent payments
- Fluctuating schedules and overtime are easy to track
- More costly to process than biweekly or monthly
Biweekly Payroll
Biweekly payroll occurs every two weeks, providing 26 pay periods per year. This balance between weekly and monthly payroll offers some processing cost savings for employers. Biweekly pay allows employees to receive wages regularly without the administrative burdens of weekly payroll.
The biweekly cycle works for both hourly and salaried employees across different industries. Overall, biweekly payroll provides the pay frequency that many workers prefer while optimizing efficiency and expenses for the business.
- Balances processing costs and employee payment frequency
- Works for both hourly and salaried staff
- Requires adjusting for months with 3 pay periods
Semimonthly Payroll
Semi-monthly payroll schedules offer employees the benefit of receiving their wages twice per month. Typically paydays fall on the 1st and 15th under this system. Having two scheduled paydays per month provides employees consistency that allows them to easily plan their personal finances around predictable pay cycles.
This type of payroll frequency works especially well for salaried staff who earn the same predictable wages each period. From an administrative standpoint, semi-monthly payroll also provides simplicity and natural alignment with calendar months for tracking and processing.
Overall, the twice-per-month pay schedule offers advantages both for employees seeking consistent pay and businesses seeking straightforward payroll management aligned to calendar schedules.
- Twice-monthly paydays on 1st and 15th
- Simpler for salaried employees with predictable wages
- Harder to calculate overtime for hourly workers
Monthly Payroll
Paying employees on a monthly schedule allows for efficient and low-cost payroll processing, with only 12 pay periods per year to manage.
Monthly payroll works well for businesses with salaried employees whose pay remains largely consistent from month to month. Standardizing on a single payday per month enables companies to easily align payroll with end-of-month accounting, reporting, and reconciliation workflows.
While less frequent than biweekly or semimonthly pay, monthly payroll provides administrative savings that benefit the business, provided employees can budget effectively with once-per-month income.
- Lowest processing costs with just 12 pay cycles per year
- Easy to coordinate with month-end reporting
- Difficult budgeting for employees relying on frequent income
Making Payroll Schedule Changes
When transitioning pay periods:
- Communicate timelines and details early
- Confirm uninterrupted direct deposits
- Maintain employee morale and engagement
Carefully weigh all factors when choosing a payroll schedule for your business. Consider both cost and employee impact to find the best fit.
Changing Your Payroll Schedules
Transitioning to a new payroll schedule requires careful consideration and planning to avoid disrupting your business operations or employees. While changing pay periods may better align with your company’s needs, take steps to ensure it goes smoothly.
First, notify your staff about the upcoming change as early as possible. Communicate the exact timeline for implementing the new payroll schedule, including details on how paydays and pay frequency may shift. Providing ample notice and transparency around the transition will help limit any confusion or frustration for employees who count on their pay being available on a predictable schedule.
You’ll also want to take steps to maintain direct deposits throughout the transition. Confirm the new pay dates with any banks or financial institutions involved. Schedule direct deposit transfers to occur 1-2 days before the newly established paydays. And test the direct deposits before that first payday under the new system to identify any potential issues.
Consider how the pay period transition may impact any payday traditions your company has, like allowing extended lunch breaks on paydays, offering special check pick-up hours for remote employees, or having the CEO personally hand out checks. Evaluate whether these practices should be adjusted or discontinued to align with the new schedule.
Boosting communication across the transition is key. Increase your outreach through multiple channels like emails, bulletin board postings, team meetings or all-hands updates. You may also consider hosting a payday fair to educate employees on direct deposit, 401k, and other financial planning options now available. Distributing surveys can help monitor employee reactions and quickly address any concerns.
Finally, carefully review your state’s payroll laws to ensure the desired pay period complies with labor regulations dictating pay frequency, standard paydays, and other requirements. Thoroughly researching these laws through the Department of Labor can prevent any missteps.
With proper planning centered on clear communication and seamless direct deposit transitions, changing payroll schedules can go much more smoothly for both the business and its employees. Let me know if you need any clarification or have additional questions!
What About Overtime Pay?
Managing overtime is a key payroll consideration that can significantly impact costs. Under the Fair Labor Standards Act (FLSA), non-exempt employees must receive overtime pay for hours worked beyond 40 per workweek at 1.5 times their regular rates. Tracking and calculating overtime for eligible staff is time-intensive but essential for compliance.
When evaluating payroll schedules, choose options that simplify overtime processing. Weekly or biweekly pay periods make it easier to monitor hourly employees’ fluctuating schedules and extra hours. This prevents unpaid overtime wages which can lead to lawsuits or Department of Labor audits. Consider using integrated time tracking and payroll software to automatically record overtime hours across pay periods. The software generates updated reports showing overtime accumulated by each employee for streamlined processing.
Also factor in how pay periods impact the defined workweek. Per FLSA, a workweek is a fixed, consecutive 168 hour period starting on any day and hour. Consider aligning workweeks and pay periods to minimize overtime hours. For example, a Monday-Sunday workweek paired with a biweekly Friday pay period limits overtime from weekend work. Review state laws which may dictate workweek parameters and restrict pay period options further.
Strategic pay period selection along with automated time tracking optimizes overtime management. Accurate overtime calculation at each pay period ensures employees are fairly compensated while controlling costs. Structure schedules and leverage technology to make overtime processing efficient, compliant and aligned with your payroll budget.
Summary – Payroll Schedule Selection
When choosing a payroll schedule, assess employee payment preferences, hourly versus salaried staff needs, and processing costs.
Compare state laws on pay frequency and standard paydays to ensure compliance. Consider overtime tracking implications to minimize administrative burdens.
Weigh benefits like employee morale versus overhead expenses for the business. Selecting the right payroll schedule requires balancing multiple factors from both the employer and employee perspective.
