How to Select the Best Payroll Schedule for Your Organization
Which type of payroll schedule is best for employers? The four most common types of payroll schedules are monthly, semi-monthly, bi-weekly, and weekly, and each has its own set of pros and cons that determine which approach best fits a given organization. Here's what you need to know about these payroll solutions.
What is a Pay Schedule?
A pay schedule is a combination of pay period and pay date. A pay period establishes how often employees receive a paycheck (sometimes called "pay frequency"). The number of pay periods in a year is determined by the pay schedule the employer chooses. And the pay date is the actual date employees are paid (or, "paycheck received").
Often, the end of a pay period and the pay date may not always be on the same date. For example: If a pay period ends on a Wednesday, the pay date may be that following Friday.
Four Factors Organizations Should Consider When Selecting the Right Pay Schedule
Every organization needs to determine which payroll schedule is right for its company. Doing so can impact company culture, employee satisfaction, and even recruitment and retention rates. If you only pay your employees once per year, for example, how many teammates could you realistically hire or keep on staff? Not many.
But selecting the right pay schedule is much easier said than done. Small- and mid-sized employers must take into account the needs of the organization and the needs of their employees before making their decision.
Additionally, consider the following four factors that may impact your decision:
- State Laws: State laws require a minimum pay period or the minimum frequency that organizations must pay. This varies from state to state. The most common minimum pay period allowed is semi-monthly, while many states like California, Connecticut, Iowa, and more have a required weekly minimum pay period.
- Processing Cost: Running payroll costs money, which means that organizations should accommodate these costs when selecting a pay schedule and payroll system.
- Accounting Implications: Federal law states that overtime rates need to be calculated every week. If you have a semi-monthly pay schedule, you still need to consider the overtime implications of hourly employees when running payroll.
- Benefits Deductions: HR should consider how benefits deductions will be calculated per pay period. For example, if an organization deducts health insurance benefits once per month for the premium payment, both the employer and employee need to know when that deduction will be made.
Note: Deciding a pay schedule may not even be an option for you. Review the Department of Labor table to see what states have payroll regulations.
Pros and Cons: Four Types of Pay Schedules
The four most common pay schedules include monthly, semi-monthly, bi-weekly, and weekly.
1. Monthly Pay Schedule
Occurs once a month on a specific recurring date.
Monthly pay periods (paychecks per year): 12
Payroll date: End of the month (ex: April 30).
Hours per monthly pay period: 173.33 hours
- Easy to manage benefit deductions: Insurance benefits premiums are generally charged on a monthly basis, so benefit payroll deductions are easier with a monthly, or semi-monthly schedule.
- Less time and low cost: There are processing costs charged each time payroll is run, and the monthly pay schedule has the least amount of pay periods, meaning less time and less cost associated.
- Least preferred by employees: It’s difficult for employees to manage their personal expenses when they only receive 12 paychecks per year.
- Difficult for new hires: It can sometimes take over a month before new hires receive their first paycheck, which means they’ll need to wait until the following pay period is over before they get paid!
The least common pay schedule is monthly. While it is great for managing benefit payroll deductions and is the most cost-effective for organizations, it is also employees’ least preferred pay schedule.
2. Semi-Monthly Pay Schedule
Occurs twice a month on two specific recurring dates.
Semi-monthly pay periods (paychecks per year): 24
Payroll date: Typically the 1st and 15th or the 15th and 30th of every month.
Hours per semi-monthly pay period: About 87 hours
- Easy to manage benefit deductions: Because insurance benefits premiums are charged on a monthly basis, it’s easier to process benefit payroll deductions with a monthly or semi-monthly schedule.
- Less time and lower costs: The semi-monthly pay schedule has fewer pay periods than other pay schedules, therefore reducing the cost and time to process payroll.
- Regularity: Accounting teams prefer this method because the last paycheck will typically occur at the end of every month.
- Not good for hourly employees: The semi-monthly pay schedules make overtime and commission payouts difficult. Since the workweek is typically 87 hours per pay period and some overtime hours may be split between two different pay periods, it could be difficult to make adjustments.
Great for managing benefit deductions and offers regularity, but makes overtime and commission payouts difficult.
3. Bi-Weekly Pay Schedule
Occurs every two weeks on a specific day of the week.
Bi-weekly pay periods (paychecks per year): 26
Payroll date: Usually every other Friday.
Hours per bi-weekly pay period: 80 hours
- Easy to calculate overtime for hourly employees: The overtime earned in one week will occur in the same pay period.
- Expense accruals: With the bi-weekly pay schedule, two of the twelve months will have three pay periods. In these situations, paychecks are earned in one pay period, but not paid until the next pay period.
- Difficult to manage benefit deductions: Because benefits occur on a monthly basis, benefit deductions and pay periods will not always match up. Companies will instead have to manage benefit deductions based on the total number of annual pay periods (26) instead of on a natural monthly basis.
The most common pay schedule is bi-weekly. It’s great for calculating overtime from hourly employees, but sometimes having three pay periods in one month can make it difficult for accounting to manage benefit deductions and expense accruals.
4. Weekly Pay Schedule
Occurs once a week on a specific day of the week.
Weekly pay periods (paychecks per year): 52
Payroll date: Usually every week on a Friday.
Hours per weekly pay period: 40 hours
- Most favorable for hourly employees or employees with irregular schedules: Weekly payroll is best for hourly employees who generate a lot of overtime hours because they don’t need to wait weeks before receiving overtime pay. And it’s also great for employees with irregular schedules so they can quickly be paid for their time.
- High Cost: Weekly pay schedules have the most pay periods, and there are processing costs each time payroll is run.
- High time-commitment: Payroll administrators need to run payroll 4+ times a month instead of just twice or once a month.
Because it occurs every week, the weekly pay schedule is the most expensive and most time-consuming pay schedule. But, it’s best for companies that have hourly employees or have employees with irregular schedules (freelancers or contractors).
How to Decide Which Payroll Schedule to Select
When weighing options between payroll schedules, it’s important to take into account the kinds of employees you have, and the cost, time, and resources you need to manage your payroll.
For example, an organization that employs many independent contractors may decide a monthly schedule works best for its team. On the other hand, organizations that have a limited HR and accounting team may decide to take the bi-weekly route. Ultimately, however, it's up to each individual organization to make this decision based on its unique makeup.
Looking for other ways to improve your payroll processing? Check out the payroll providers that integrate with BerniePortal to improve efficiencies.
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