A payroll schedule is a timetable by which you agree to pay your employees. It could be every week or every month, or it could refer to a specific date like the first of every month. Setting up a pay schedule helps small businesses manage their cash flow and employees manage their personal budgets. Different pay schedules have pros and cons, so here’s how to find the right cadence for your business.
How do payroll schedules work?
Pay schedules are set up by pay period and pay date. The pay period is the time during which an employee earns the wages. The pay date is when your company distributes wages via either direct deposit or paycheck. Ideally, there’s a cushion of time between the end of the pay period and the pay date.
“Allowing for a few days between the end of a pay period and the pay date gives employers time to gather employee hours worked and process payroll,” wrote Paychex.
Pay schedules are generally set up to be one of the following cadences:
- Weekly, resulting in 52 pay periods in a year.
- Biweekly, resulting in 26 pay periods in a year.
- Semi-monthly, meaning employees are paid on the 1st and 15th, or the 15th and the last day of the month, resulting in 24 pay periods in a year.
- Monthly, resulting in 12 pay periods in a year.
The Bureau of Labor Statistics reported that more than 40% of businesses rely on biweekly payroll schedules. “Biweekly payroll schedules are the most popular for a reason. For instance, they can produce fewer administrative costs for companies while still paying employees with relative frequency,” wrote Paycom. “While not as rapid as its weekly counterparts, it still grants people consistent income with enough flexibility for them to plan.”
[Read more: How to Choose the Right Payroll Software for Your Business]
Allowing for a few days between the end of a pay period and the pay date gives employers time to gather employee hours worked and process payroll.
Paychex
What to consider when choosing a payroll schedule
While biweekly may be the most popular option, it’s not the right fit for every business. There are a few factors to consider when setting up a pay schedule.
First, check your state regulations to see if your business is subject to a specific schedule. For instance, in California, most wages must be paid at least twice each calendar month on the days designated in advance as regular paydays, according to the Department of Labor. Federal law also specifies that you must keep a consistent pay frequency for the entire calendar year. Whatever payroll schedule you choose must adhere to these regulations.
Then, consider the needs and makeup of your workforce. Hourly employees often prefer more frequent paychecks (weekly or biweekly) to manage their finances, while salaried employees may be comfortable with semi-monthly or monthly schedules. Ask your team for feedback if you’re unsure which they prefer.
The biggest factor to consider is your business’s cash flow. “For most small businesses, payroll is the largest single expense, so the rhythm of your company’s cash flow must be factored in before you choose a suitable payroll schedule,” wrote ADP. If your cash flow fluctuates, a less frequent schedule (semi-monthly or monthly) might be better for financial management.
Finally, consider the administration your payroll requires. Small startups with limited resources may struggle to check timesheets, approve wages, and process payroll on a weekly basis. Your payroll schedule needs to consider feasibility: Can your team keep up with the demands of staying on schedule?
“Under federal law, overtime rates need to be calculated weekly and factored into whichever model you choose. If you’re a small business owner running payroll yourself, this can be complex, confusing, and time-consuming,” wrote ADP.
Bear in mind that the more payroll cycles you run, the higher your overall payroll processing costs will be. This could limit the pay schedule you’re able to provide.
[Read more: Time for a Payroll App? How to Choose]
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