Payroll Frequencies: What Makes The Most Sense For YOUR Business.

One of the most common questions we get from new clients just starting to hire employees is “How often should I pay my employees?” The answer to this question depends on several factors that are specific to YOUR business. Every business operates differently and the frequency with which you choose to pay your employees is no exception. This choice can be made easier when you know the advantages and disadvantages to each pay schedule.

A Monthly pay schedule is often very attractive to business owners and accountants. The once-a-month approach to payroll often will coincide to the end of month accounting proceedings and make your payroll entries very easy to reconcile. Since voluntary benefits and healthcare plans also function on a monthly basis, the monthly pay frequency simplifies the reconciling of these accounts as well. However, a monthly pay schedule is not allowed in all states and is the least attractive option for employees. With this pay schedule the possibility of your employees needing funds between paydays greatly increases. This could lead to an employee seeking alternative employment to avoid the long wait between paydays.

A Semi-Monthly pay schedule is also attractive to business owners and accountants but makes budgeting somewhat easier for your employees. If you select to pay your employees twice per month (usually on set days like the 5^th and 20^th or 1^st and 15^th), you receive some of the same accounting simplicity regarding month end and voluntary benefits reconciliations as a monthly payroll frequency but are also catering more to your employee’s needs as well. Since most salary employees are exempt from collecting overtime but your hourly employees are not, the overtime calculation can become tricky for a semi-monthly pay schedule due to inconsistent weekly work schedules. For example, if an employee has overtime in one work week but those hours happen to fall between two sperate pay periods, the adjustment you will have to make for these extra hours can become perplexing. Frustrations over confusing miscalculations are quite possible if you choose a semi-monthly frequency for your hourly workforce.

A Bi-Weekly pay schedule makes weekly wage calculations very simple, eases budgeting for your employees and is the most popular pay schedule. If you select this option, your employees will receive their paychecks every other week on a day of the week you specify (every other Friday). This consistency is more likely to appeal to your employees than a monthly or semi-monthly cycle. However, two months out of the year your employees will have three paydays that fall within one calendar month. If your employees have voluntary benefit or healthcare deductions, you will need to decide how to handle these deductions on that third pay cycle in these months. Most commonly, all benefit deductions are made on the first two pay cycles and cease for the third one. Handling, the deductions this way ensures the proper amount of funds are withheld for the benefit premiums each month and your employees get a little “extra” on that third check of the month. These months with three pay periods will also impact your Balance Sheet and Profit and Loss Statements for that month. While it ends up balancing at year end, these months’ financial statements can appear inconsistent at first.

A Weekly pay schedule is by far the most attractive option for employees but is not very common outside of the trades (construction, plumbing, electrical, etc) industry. Having a payroll every week makes hourly calculations very simple and your employees are far less likely to need funds between payrolls. However, this option means you will end up spending a lot more time on payroll instead of focusing on the other parts of your business. Weekly payroll will also result in at least four months out of the year where you will have five payrolls in one calendar month instead of four. Just like with the bi-weekly scenario, you will have to determine how to handle this “extra” payroll regarding deductions.

When your business needs to start hiring employees, you will need to begin weighing the advantages and disadvantages to you and your employees regarding each pay frequency. This task can be daunting if you are going at it alone! Instead of spinning your wheels, call the professionals at PayCheck Connection and let us help you make the decision that will best appease your needs and the needs of your employees. Our focus is always on helping you achieve the goals you have set for your business!