Determining What Type of Payroll Schedule is Best for Your Business
The four types of payroll schedules are monthly, semi monthly, bi weekly, and weekly. Look at the pros and cons for each to determine which pay schedule is best for you and your employees.
Every business needs to determine which payroll schedule is right for their company. But it’s not that simple. Small businesses need to take into account the needs of the business and the needs of their employees before making their decision. Here’s everything you need to know about the different types of payroll schedules to make an informed decision for your business.
Let’s first define what a pay schedule is! A pay schedule is a combination of pay period and pay date. A pay period establishes how often employees receive a paycheck (pay frequency). The number of pay periods in a year is determined by the pay schedule you choose. And pay date is the actual date employees are paid (paycheck received). Something to note is that the end of a pay period and the pay date may not always be on the same date. For example: If your pay period ends on a Wednesday, the pay date may be that following Friday.
Note: Deciding a pay schedule may not even be an option for you. Each state law has a minimum pay period, so before going any further, view the Department of Labor table to see what states have payroll regulations.
4 Types of Pay schedules:
The four most common pay schedules include: monthly, semi monthly, bi weekly, and weekly. Let’s define each pay schedule and discuss the pros and cons of each.
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!
Overview: 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 during the end of every month.
- Not good for hourly employees. The semi-monthly pay schedules makes 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.
Overview: 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 managing 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.
Overview: 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.
Overview: 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).
When weighing your options 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. Now that you have a brief overview of the types of payroll schedules, hopefully it’ll be more clear which payroll schedule best fits your business goals.
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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