The frequency of how often your company runs payroll may seem at first to be a hassle-free decision, but there are some important things to consider, such as Department of Labor regulations, employee preferences, taxes, benefits, and payroll costs, to name just a few. Additionally, the payroll frequency you choose will affect your company’s ability to draw in and maintain the very best workers.
In this article, we will take a closer look at the most important factors to think about when choosing how to pay your workers. We will cover the traditional pay schedule types and how to determine which is the best option for your company.
What Factors Should You Consider When Deciding on a Pay Schedule?
You will need to visit the website for the Department of Labor if you are in the U.S., to find out more about the specific payment requirements for the states your business operates in. For instance, there are some states that will not allow an employer to use a monthly pay frequency.
After you have determined your state’s regulations, you should speak with your accounting team or a payroll expert to find out which schedule would work best for your company.
They will ask about the following factors:
- Whether employees work hourly or if they are on a salary
- How many hours they work every week
- How much their pay varies from one week to the next
- Their overall income within a specific pay period
All of these factors can influence which pay schedule is chosen.
Your accountant/payroll expert will provide you with more information on taxes, the cost of employee benefits packages and process costs – all of which will have an impact on which schedule you choose.
In many cases, companies that pay their employees hourly prefer to make weekly payments. For small business owners, biweekly or semimonthly payrolls are ideal depending on the makeup of the workforce and the payroll taxes required for each employee. A monthly pay period is a good option for freelance or contract-based workers.
What are the Different Options for Employee Payment Schedules?
Determining your company’s pay schedule is a crucial part of preserving your workforce’s morale, motivation, and engagement. By learning more about the various payroll structures out there, you can make a well-informed decision regarding the frequency of pay and how it is delivered.
A weekly payroll schedule is suitable for either full time or part time hourly workers and some independent contractors. The hours worked are tracked and calculated using various physical or digital methods such as time clocks and smartphone apps.
The higher frequency of payment makes it possible for quick adjustments and corrections to be made. This is especially useful when there is overtime or bonus pay involved. Manual labor that involves lower wages can sometimes prompt the need to cater to workers who need a higher frequency of payouts to meet their financial needs.
Weekly pay is preferred by many employees and it is often provided in industries such as manufacturing, hospitality, construction, and the gig economy which includes ride-share and food delivery services. While it is often a desirable payroll option for employees, employers tend to disagree since weekly pay schedules will come with a higher processing cost. This is especially true if the employer has to print out paycheck stubs and mail them to their workers.
So, although there are many hourly workers who may prefer a weekly payout schedule, sometimes it’s not worthwhile for the company, especially if we’re talking about a new business that is just getting started, or a small business with limited HR resources.
If your employees are hourly members, a weekly pay schedule may be the best option – it can help them out the most financially which they will appreciate – and it can be affordable if you choose the right payroll service.
To save time and money, business owners can use a paystub generator as offered by Real Check Stubs. Our payroll and pay stub templates are free to use, and you can make check stubs online as well as customize them to suit your needs.
With a bi-weekly payment schedule, workers are usually paid twice a month, but not always – it depends on the month and what date payday lands on. They are always paid on the same day of the week, typically on a Friday – for example, the first and third Friday of every month. This is the ideal pay frequency for companies that have a mixture of hourly and salaried workers.
Bi-weekly payments are cheaper than weekly as payroll processing is required less often, and it can still help employees manage their money.
Regardless, it is a good idea to speak with a payroll expert to ensure that this is the right schedule for your company and to make sure it is suitable when taking into account taxes, benefits and so on.
The semi-monthly pay option is very similar to bi-weekly and many people think they are the same. However, with semi-monthly payments, instead of having two paydays that fall on the same day of the week i.e., the first and third Friday, a semi-monthly payment will always be on specific dates.
These payroll days typically fall on the 1st or 15th of the month, or the 15th and the 30th. If these dates are on the weekend, you will need to decide if your workers will receive their paychecks on either the Friday before or the Monday after their scheduled pay date.
Just like with bi-weekly payments, you will need to review all your employee benefit and tax costs as well as any state regulations before you make the decision to use this payment frequency.
Read more here to understand the difference: Biweekly vs. Semi-Monthly Payroll
A monthly payment schedule is the most affordable option for any business since workers are always paid at the end of the month. The payments are processed just 12 times each year, which can save a lot of money over time.
However, with such a large gap in between payments, this frequency is often for those who have high paying salaries and work for positions in financial sectors or in technology.
Monthly payment schedules are not always ideal for small businesses, even if they are the most affordable option. However, it is a good choice for freelance or contract-based employees.
Monthly payments are also more regulated than other forms of payment, so if you’re based in the U.S., it’s essential to check with your state to find out if you can legally use this method.
Is it Wise to Diversify Payment Options?
When in a highly competitive job market, employers should think about offering a diverse variety of payment options that will accentuate both convenience and transparency for their employees.
If your company is still mailing out paychecks on payday, it is time to rethink your options. Consider using direct deposit, or even mobile payments or pay cards. These are great options that will not only help you cut down on costs but also ensure that your workers are paid quickly, accurately, and on time each payday.
And when you need to provide proof of income, you can easily generate stubs with our check stub creator.
Final Thoughts on Choosing the Best Pay Schedule for Your Business
Having the right pay schedule in place for your company can help to eliminate friction and disruption with your employees. By maintaining consistency and transparency with your payments, you are doing your part to ensure the trust and loyalty of your workers. An inconsistent pay schedule will wreak havoc in your work environment while also causing financial issues for your workers and, potentially, legal issues for you.
Providing your employees with the most accommodating payment options will show that your company is highly supportive and encourages mutual benefits for all its employees.
It’s important to remember that the best pay schedule or frequency will depend on how many and the type of employees you have, as well as state regulations and tax obligations.
Be sure to speak with your accountant or a financial advisor about the different pay schedule options before making a decision.