As a business owner, you value your employees and are happy to compensate them for a job well done.
But let’s face it, nobody likes running payroll.
You started your business to provide value to your customers and provide for your family, not crunch numbers and worry about payroll taxes. And you aren’t the only one. It’s no surprise that 40% of small business owners say the worst part of running a business is bookkeeping and administrative work.
Much of this is due to the fact that there is a lot to learn when it comes to managing the financial aspects of employee compensation. You'll have to deal with payroll taxes, ensure that you are meeting all overtime requirements, and choose the best payroll schedule for your business.
Most people focus on the first two items but neglect the third. You’re probably already familiar with the terms bi-weekly or semi-monthly pay.
But what do they actually mean and how does the payroll schedule affect your business?
What is a Pay Schedule?
Payroll schedules determine when and how often employees are compensated. Even if you're your company's only employee, setting up a payroll plan for yourself can help you have a more predictable income and keep your business's bank account from becoming a personal line of credit.
What are the Different Pay Schedules?
There are four main pay schedules: weekly, bi-weekly, semi-monthly, and monthly.
Weekly Pay Schedule
The weekly pay schedule is one of the most popular options among employers. In fact, 32.4% of businesses opt to use a weekly pay schedule. This is a popular choice due to its simplicity. A weekly pay schedule means your employee will be paid on the same day every week.
A weekly pay schedule is a lot easier to manage. You can easily avoid prorating your employees' first checks by using a weekly pay schedule. Employees may also prefer the weekly schedule because they get paid more frequently compared to other payroll schedules.
Pros of Weekly Payroll
Employers prefer this payroll schedule for its simplicity and ease of tracking. Employees also report being happier at work and having an increase in job satisfaction due to getting paid every week. Employers that deal with hourly employees or independent contractors mostly use weekly pay schedules since their hours can easily change.
Having a weekly pay schedule keeps the payroll processing constant and gets your employees into the habit of handling their paychecks every week.
Cons of Weekly Payroll
Running a weekly payroll could cost more time and money since it is occurring every week. From an accounting standpoint, the end of the month could get tricky since any given week could contain two different months.
Bi-Weekly Pay Schedule
Most businesses in the US use a bi-weekly pay schedule, with 36.5% of businesses opting to pay their employees every other week. Bi-weekly pay occurs every two weeks, usually on the same day of the week. Some months may require an additional paycheck depending on how the weeks play out. Choosing a bi-weekly schedule means your employees get paid 26 times each year, half the frequency of a weekly pay schedule.
Pros of Bi-Weekly Schedule
Compared to the weekly schedule, you’ll have to process payroll less, meaning saving money on printing checks and direct deposit fees. It also cuts down on the time you spend doing payroll, so your HR staff can focus on other tasks. There is also less of a risk of error since you are paying employees at half the frequency.
Cons of Bi-Weekly Schedule
Due to paychecks being issued every two weeks, some months may have three pay periods depending on how the calendar lines up. This can also make managing deductions more difficult. For example, benefits occur on a monthly basis. Benefit deductions and pay periods won’t always match up, thus forcing companies to manage deductions based on the total number of pay periods (26) and not just month to month.
Semi-Monthly Pay Schedule
A semi-monthly payroll schedule is much less popular than a weekly or bi-weekly schedule. Only 19.8% of businesses decide to pay their employees semi-monthly. A semi-monthly pay schedule means your employees will be paid on the 15th and the last day of each month. This equates to 24 paychecks per year.
Pros of Semi-Monthly Schedule
The semi-monthly payroll schedule is relatively simplistic and straightforward. This pay schedule especially makes sense for companies with salaried employees. Benefits and other deductions are simplified since the pay periods don’t overlap months.
This pay period also avoids most bank holidays. Accountants like semi-monthly pay schedules because they make accruals easier to calculate.
Cons of Semi-Monthly Schedule
A semi-monthly pay schedule only really works for salaried employees. It can be much more difficult when calculating overtime pay for hourly employees. Semi-monthly pay is usually calculated in current time with no lag. This means a payroll manager would have to forecast employee hours and then make adjustments rather than just administering what hours were worked. Also, new employees may have to wait longer to get their first paycheck since the pay period is longer. A semi-monthly schedule is not recommended for employees that may have different hours or varying compensation from pay period to pay period.
Monthly Pay Schedule
The monthly schedule may be the simplest and most straightforward pay schedule. Despite its simplicity, it is also the least popular with only 11.3% of businesses deciding to adopt a monthly schedule. A monthly schedule pays employees once per month, or 12 times a year.
Pros of Monthly Schedule
The monthly pay schedule is the easiest to manage from an administrative perspective. Since the monthly pay schedule has the least amount of pay periods, there is less time and costs associated with it. Benefits and other deductions are also charged on a monthly basis, making it easier to process payroll.
Cons of Monthly Schedule
While a monthly pay schedule is the cheapest and easiest to administer, they are the least preferred by employees. Employees may have cash flow issues and trouble managing their finances with only one paycheck per month. Also, new hires may have to wait until the next pay period, which could be weeks, to receive their first paycheck.
Which Payroll Schedule is Right for You?
Here are some things to consider before choosing a pay schedule:
1. States’ Rules and Regulations
Each state is different when it comes to laws regarding payroll frequencies. Some states mandate certain payroll schedules.
You can use this resource provided by the Department of Labor to see if your state requires a certain pay schedule. If it does, be sure to comply with that to avoid costly fines and penalties.
2. Type of Employees
Different payroll schedules are better suited for different types of employees.
Payroll for hourly employees is easier with a weekly or bi-weekly pay schedule. Salaried employees, with more consistent earnings, would be better off with a semi-monthly or monthly pay schedule.
But what if your business has a combination of hourly and salaried employees? Unless there is a state law mandating a certain pay schedule, you can set up different pay schedules for different employees. Don’t feel like you are locked into one schedule for all your employees. Although it may be slightly trickier to handle from an administrative standpoint, it might make more sense to separate employees into different pay schedules.
3. Ask Your Employees
If you are still struggling to decide which payroll schedule is right for you, try asking your employees’ opinions. Since they are the ones receiving checks every pay period, they might have a different perspective worth taking note of. Asking questions like, “would you rather get paid a smaller amount each week or a larger sum twice a month?” can help gather important information while making your employees feel like they contributed toward the final decision.
The Cornerstone Advantage
Regardless of how passionate you are, many business owners don’t look forward to running payroll. Many of them treat it as just another administrative task that needs to be checked off.
Cornerstone PEO is an industry leader in payroll services boasting one of the best records for error-free payroll. Cornerstone acts as your outsourced HR and payroll department. Cornerstone has access to payroll experts that can help choose the best payroll schedule and answer any other payroll questions. Cornerstone also takes care of the whole administrative burden so you can rest easy knowing that your employees are paid on time and accurately.
Like other PEOs, Cornerstone will help you save significantly on employee benefits, automate your payroll, lower your experience modifier, and help with certain employee-related compliance. However, unlike other PEOs, our focus is on excellent customer service.
Other PEOs will just add you to their system and send you an invoice. At Cornerstone we assign a professional customer service rep to work with your account. This not only adds more of human touch but also allows us to create custom solutions unique to your business. Got questions? We have a rep to help you answer them. A problem occurred? You have a rep who understands your business and can create an effective solution.
Contact us here for a FREE consultation.
