What Employers Need to Know About Payroll Frequency

If you’re a business owner or manage payroll for your organization, one of the first decisions you will make prior to setting up your payroll system is how often to pay employees.

People love to get paid so the fact that you are paying them is, well, awesome! One thing that employees seem to agree on across industries, is the more frequently they get paid, the better. However while weekly paychecks might be an employee satisfier, it might not be the smartest business decision.

What are your payroll options?

Generally when it comes to paying your employees you have four options, all of which have their benefits and drawbacks:

Frequency
Schedule
Number of Annual Paychecks
Weekly
Same day every week
52
Bi-weekly
Payment every two weeks (Some months have two check dates.)
26 (27 on some leap years.)
Semimonthly
Twice a month on predetermined days such as the 1st and 15th of the month
24
Monthly
Typically the first or last day of month
12

What is legal?

Before you start believing you have total discretion in determining your pay schedule, you should know that some states have requirements for the minimum pay frequency. The U.S. Department of Labor has a useful chart for state payday requirements or you can consult with your state labor office.

What is everyone else doing?

The Bureau of Labor Statistics reports that the most common pay period among U.S. private businesses is two weeks, with 36.5% paying their employees on a biweekly basis.

Bureau of Labor Statistics

Weekly pay periods are almost as common at 32.4%, followed by semi-monthly, and then monthly pay periods.

If you’re new to this there are also some trends across industries that might be helpful. Construction, for example, is unique in that one survey shows more than 70% of construction businesses pay their employees weekly, which many Government contracts require. Restaurants typically pay on a bi-weekly frequency, normally covering a pay period of Monday to Sunday. Other industries have much less consistency in terms of how frequently they pay their employees.

What makes business sense?

The more frequently you run payroll, the more it typically costs and the more time it will take. Also the best option for your business may depend on whether your employees are hourly or salaried. Let’s take a closer look at the options.

Frequency
Pros
Cons
Weekly
Employees like this!
Weekly is likely your most costly and time-consuming option depending on the number of employees you have.
Bi-weekly
– Most common frequency so employees are often accustomed to it.
– Good option for businesses with hourly employees since time sheets are always due on the same day.
Months with three pay periods can create confusion when doing monthly budgeting.
Semimonthly
– Good option for businesses with a large number of salaried employees as expenses as predictable.
-Checks are slightly larger for employees as there are more hours than in the bi-weekly option.
– Can be confusing when paydays fall on weekends and holidays.
– Because the date changes extra attention-to-detail may be required.
Monthly
Much less administrative burden when you’re running payroll less frequently.
– Makes financial planning challenging for employees and not a crowd pleaser.
– Not an option in many states with minimum pay frequency laws.

Can I change my payroll frequency?

For legitimate business reasons and with a proper rollout to your employees that gives them a length of time to prepare, yes. The Fair Labor and Standards Act prohibits you from changing your payroll frequency for an unethical business reason like delaying payment to your employees. Changing your timetable can also mess up your tax withholdings.

Sometimes there are legitimate reasons you need to make the change, especially if the initial option you chose just isn’t working for you. Just make sure your new pay period complies with state law.

In Your Corner

A payroll partner can come alongside you and help you determine the best payroll frequency for your business. We can handle all of the details so you have more time and fewer worries– and your employees never miss a paycheck.

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