- There are a lot of things to consider when setting a pay schedule, including government regulations and laws, the needs of the business, the nature of the work and the needs of the staff.
- Pay schedules can be modified, but check applicable regulations to be sure the process is handled properly to avoid legal issues.
- Staff often prefer shorter pay periods, but those also tend to drive up overhead. If a weekly or biweekly payroll schedule isn’t strictly necessary, it’s usually best to choose a longer pay period.
Everyone loves a payday, but how do you decide how often those should happen for your business? Is it better to pay more frequently, making paychecks smaller in value individually? Or is it worth it to run payroll less frequently, to minimize the number of times it has to be processed in a year?
These are important questions, and ones without universal answers. But they’re questions that have to be addressed in some fashion, as no one likes working for free. So, let’s dive into what to consider when setting payroll schedules, the types of payroll schedules at your disposal and which schedules match your situation.
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What is a payroll schedule?
Without overcomplicating things, a payroll schedule is a recurring financial schedule for businesses, at the end of which, paychecks are calculated and issued for staff who worked for the company. It may happen monthly, weekly, or sometime in between.
To be more specific, payroll is for internal, on-staff employees (e.g. W-2 employees in the U.S.). This doesn’t typically include contractors and freelancers. These external contributors typically invoice the company as a vendor or business partner would, and issuing payment to them may or may not happen on a set schedule. Even when a freelance payment schedule is in place, it’s usually entirely separate from the payroll schedule.
In the past, businesses would quite literally write or print physical checks for employees to cash (hence the term “paycheck”). These days, payroll is usually handled electronically, with payroll software or some other solution issuing direct deposits at the end of each pay period.
So, how do businesses determine payroll schedules?
Well, that’s a fairly complex question, especially since this answer may be reaching readers in a wide variety of locations across time zones and political boundaries. But there are a few common concerns at play in nearly every case.
First and foremost, payroll should be administered in a way that maintains compliance with all applicable local laws. For example, most businesses have to reckon with income tax laws, and they shouldn’t pay cash to workers in an effort to keep things off the record.
As you might imagine, the specifics of laws can vary wildly, by locality, region and nation. It’s even more complex for businesses with a distributed workforce (a much more common occurrence these days), because payroll has to meet domestic, foreign and international regulations. And there’s a lot to cover.
Holiday and sick leave, overtime, minimum pay rates, commissions, bonuses, insurance, workplace injury insurance and unemployment insurance are a few examples of granular details laws might mandate. Needless to say, how often pay is calculated is heavily interrelated here.
The way payment rates are calculated is also an important consideration. An hourly employee arrangement comes with different assumptions and expectations than what comes with salary pay. Especially because most salary employees receive additional benefits that have to be deducted from or calculated with their regular pay, making the frequency and number of yearly payments a major factor.
Finally, there are the logistics involved with actually pushing out payments. As a general rule, moving money from one place to another costs money, in one way or another. That’s only more accurate as the value, frequency and quantity of transactions increase.
Labor from financial professionals, bank account and transaction costs and software subscription fees are all pieces of this particular puzzle, especially if businesses want payroll to be digital (let alone automated). In some cases, businesses may stand to save money if they run payroll 12 times a year as opposed to 24. So it’s all relevant to the central question.
What are the types of payroll schedules?
Ok, so what options are available, and how do they interact with the above-listed circumstances?
There are primarily four types of payroll schedules:
Here’s a quick overview of each of them.
As the name implies, monthly payroll happens once each month.
Monthly paychecks happen on the same date each month, typically the beginning, the mid-point or month’s end (usually that last one).
Total yearly pay periods
Because it happens once a month, monthly payroll will run a total of 12 times over the course of a full calendar or fiscal year. This schedule favors salaried employees, those with large commissions and recurring bonuses and even freelancers in some cases.
- Fewer transactions mean fewer payroll periods and fewer payroll calculations, possibly leading to lower payroll expenses.
- Team members never need to guess when the next paycheck will roll out, since it’s the same day each month.
- Additional calculations are easier to make (commissions, benefits deductions, etc.) because they don’t have to be spread over multiple pay periods.
- No one likes waiting for their paycheck, and depending on when a new team member joins up, monthly payroll may leave them waiting for a month or longer for their first check.
- This schedule is the one most frequently prohibited by laws and regulations, which often mandate more frequent payments to staff.
- For staff that are more financially sensitive to changes or errors, a minor glitch, error or missed payment could spell disaster if they have to wait another month for a fix.
Semimonthly is a very common schedule, consisting of two payments per month, with each roughly 15 days apart. This schedule benefits salaried employees, especially when the company offers a significant amount of noncompensatory benefits.
The recurring pair of pay dates vary by organization, but it’s usually one of the following:
- 1st and 15th.
- 5th and 20th.
- 10th and 25th.
- 15th and 30th.
Total yearly pay periods
With each month broken into two pay periods, companies will run payroll 24 times by year’s end.
- Employees never have to wonder about pay dates, as the dates are the same each month.
- Shorter pay periods mean new staff will see their first checks in as few as two weeks.
- Deductions, commission and bonus pay and other additional calculations are easy to make, as any monthly value is simply spread over two pay periods.
- Monthly dates don’t change, but day of the week for payroll does, making payroll a bit hard to predict both for employees and finance teams.
- Not all months have the same number of days, which can lead to some minor inconsistencies on paycheck amounts, pay dates, etc.
- Hourly employees will often have their work weeks split across multiple pay periods (especially when payroll runs in the middle of the week), complicating things such as overtime pay.
This payroll schedule runs every two weeks, irrespective of months or other calendar divisions. It offers greater benefit for teams with primarily hourly staff, who may need to calculate overtime regularly.
This payroll schedule is usually run so checks can be issued and pay deposited at the end of a pay week. This means that most biweekly payroll runs are every other Friday.
Total yearly pay periods
Since this payroll schedule is broken up into 14-day increments, rather than less consistent monthly cycles, it results in 26 pay periods.
- Overtime, holiday work pay and other pay considerations that factor heavily into hourly employee’s compensation are easier to track and calculate using a biweekly method.
- Makes it easy to put all staff on an identical pay schedule, minimizing accounting labor for different categories and pay scales of staff.
- More advantageous for workers with fluctuating or intermittent schedules.
- In two months of each year, employees get a “bonus” paycheck.
- Benefit calculations are more complex, especially for months with three pay dates.
- Having to run payroll three times in a month can be a difficult business expense to account for.
- Pay periods that stretch into the next month make calculating taxes, fees and month-specific details difficult.
Again, as the name would indicate, weekly pay schedules run every seven days. As the most immediate form of schedule, this approach is most beneficial for businesses and industries where work shifts are variable, labor is seasonal or work hours fluctuate dramatically.
Pay periods for weekly schedules usually start on Saturday, Sunday or Monday, with the week’s end usually happening on Friday. In other words, after your first week at a job with weekly payroll, every Friday is payday.
Total yearly pay periods
Since checks are cut every week, that means there are 52 checks issued to staff from January 1st to December 31st.
- Shift workers, hospitality staff, part-time crews and even freelancers all prefer weekly payment, rather than having to wait several weeks for compensation.
- As the most frequent schedule, weekly payroll minimizes the value, and thus the expense, of each run of paychecks.
- Any inconsistencies, errors or anomalies in hours, calculations or otherwise are only one week away from the appropriate adjustment with the next check.
- Calculating payroll is a job unto itself, and the more frequently it happens, the more labor is required over the year.
- If the number of transactions is a factor in the cost of using digital services to run payroll, this maximizes that cost by running the highest volume and frequency of payments.
- While weekly paychecks make cashflow more predictable and steady for staff, it doesn’t necessarily do the same for the business (i.e. if there’s ebb and flow to the business’s income, weekly paychecks may be difficult to cover during a drought).
Which pay schedule should you use?
This is a hard question to answer unless we’re discussing specific industries or services. However, there are a two general rules:
- The less stable or predictable the cashflow of the business, the more it benefits from longer pay periods.
- The less consistent the work schedule or paycheck value, the more beneficial shorter pay periods are for staff.
Frequently asked questions (FAQS)
What is the most common payroll schedule?
Far and away, biweekly and semimonthly are the most common pay schedules, with the former being more popular among hourly labor forces and the latter being more frequent among salaried workers.
What is the best payroll schedule for hourly employees?
Weekly and biweekly are better suited to hourly teams and crews, providing faster payment, easier accounting and more predictable expenses overall.
How does a payroll schedule work?
Regardless of the type of compensation, the variables involved or the local regulations, payroll for any given employee has to be defined by a set start and end point for the timeframe. Whatever calculations are involved in determining their pay is then applied within that timeframe, and the paycheck issued.
Payroll schedules are a predetermined format for setting the start and end date of these pay periods, so the business, the staff and the relevant governing bodies know what to expect.
How to change your payroll schedule in your payroll software?
Most apps will have a native process for setting, and changing, the payroll schedule, though the user interface steps for this will vary by vendor, app and software version. Be sure to keep in mind that making a change often requires that tax bureaus and governing bodies be notified in some way to avoid legal concerns.
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