- A payroll schedule helps companies know when and how to pay employees
- When deciding on a payroll schedule, companies may want to consider: state or country regulations, cash flow, market expectations, employee needs, and time and cost of each schedule
- Weekly, biweekly, semimonthly, and monthly are the most common schedules
- Small businesses may prefer biweekly and semimonthly pay periods, bigger businesses may prefer monthly payment schedules
A payroll schedule determines how often employees get paid. Choosing a payroll schedule might seem trivial, but in reality, the frequency with which an employee is paid can be just as important as how much – from the perspective of the employee and the employer.
Why defining a payroll schedule is important
Aside from the fact that almost every state in the U.S. requires a payroll schedule, defining this aspect simplifies payroll letting companies know when and how to pay employees. This is also helpful when it comes to resources as defining a payroll schedule can help identify profit margins.
A payroll schedule enhances the overall employee experience. By providing clarity to employees about when they’ll receive their wages, and allowing them to manage their finances better and feel more confident about their income.
Selecting the appropriate payroll schedule is crucial for businesses to remain in line with local labor laws. By prioritizing compliance, businesses can prevent incurring unwanted fines or penalties. It’s essential to consider the specific labor regulations of a country, which outline payment timelines for employees, along with factors like current market conditions and the company’s available resources. Doing so ensures that businesses adhere to legal requirements.
The different considerations for your payroll schedule
When weighing options between payroll schedules, it’s important to take the following factors into account:
- State regulations. Most states have specific payroll schedule requirements regarding the minimum number of times an employee must be paid in a month. For example, Arizona requires businesses to pay their employees at least two times per month, no more than 16 days apart.
- Your company’s cash flow. In most cases, payroll is the company’s largest expense, meaning the payroll schedule must be in sync with your cash flow.
- Market expectations. Certain industries expect payments on a specific frequency. If a company’s payroll schedule doesn’t align with the market’s expectations, it might struggle to find suitable employees.
- Employee needs. Choosing a payroll schedule without considering your employees’ needs can alienate your workforce and hurt your retention
- Time and cost. Payroll processes can be expensive and time-consuming. Organizations must factor in these costs when selecting a payroll schedule.
A payroll schedule refers to the frequency with which a business pays its employees. It could be a schedule of intervals, like every week or every month, or a schedule of dates, like the 15th of every month.
Commonly used payroll schedules
Some payroll schedules are more common than others. Here are the five most common schedules:
Weekly payroll schedule
Occurs once a week on a specific day of the week. The most common payday for a weekly payroll is Friday. This schedule works well for companies with primarily hourly employees.
Pros of weekly payroll schedule:
- Weekly payroll makes it easier to calculate overtime for employees.
- Hourly employees, independent contractors, and employees with irregular schedules are paid quickly for their work.
Cons of weekly payroll schedule:
- Running payroll 52 times per year comes at a high cost, as many payroll service providers charge a fee each time you run payroll.
- Processing payroll each week may prove overwhelming for your payroll administrator.
Biweekly payroll schedule
Occurs every two weeks on a specific weekday, equating to 26 paydays per year (sometimes 27). With the biweekly payroll schedule, two of the twelve months will have three pay periods. This schedule is easy to administer for all types of employees.
Pros of biweekly payroll schedule:
- It helps employees regulate their cash flow. For example, if an hourly employee is sick for one week, he/she/they can work extra hours the following week to compensate for the lost time.
- A biweekly payroll schedule makes it easy to calculate employee overtime, as overtime is calculated weekly.
Cons of biweekly payroll schedule:
- Months with three paychecks, or years with 27 paydays, make it difficult to manage benefit deductions such as health insurance, which is typically calculated monthly.
- Companies must set aside funds to cover a third monthly payroll twice a year.
Semi-monthly payroll schedule
Occurs twice a month on two specific recurring dates. Usually, these are the 1st and 15th or the 15th and 30th. The semi-monthly payroll schedule is popular among companies that don’t employ hourly workers.
Pros of semi-monthly payroll schedule:
- Accounting teams prefer this method schedule, as pay dates and pay periods are consistent each month, making it easier to run monthly reports.
- It’s easier to process benefit deductions, like health insurance, with a semi-monthly or monthly schedule.
- A semi-monthly payroll schedule can help employees align their expenses (e.g., mortgage payments) with their paydays.
Cons of semi-monthly payroll schedule:
- With a semi-monthly payroll schedule, workweeks of hourly employees will often be split between two pay periods, which makes tracking hours for overtime difficult.
Monthly payroll schedule
Occurs once a month on a specific recurring date, usually at the end of the month. This schedule is often not possible in the US, as many states require employees to be paid more frequently than monthly.
Pros of monthly payroll schedule:
- Monthly payroll has the lowest processing costs of all the payroll schedules, as you have to process payroll only 12 times per year.
- Paydays usually align perfectly with monthly liability costs like healthcare deductions.
Cons of monthly payroll schedule:
- Monthly payroll is employees’ least preferred payroll schedule, mainly because it’s difficult to manage their expenses when they only receive 12 paychecks per year.
- New hires sometimes need to wait one month before they receive their first paycheck.
Multiple payroll schedules
Having multiple payroll schedules means using more than one of the payroll schedules detailed above.
Pros of multiple payroll schedules:
- Multiple payroll schedules are a good solution if a company employs different types of workers, and it’s not attainable to pay all of them on the same schedule.
Cons of multiple payroll schedules:
- Managing multiple payroll schedules is incredibly time-consuming and costly.
Payroll schedules around the world
The most common payroll schedule in the U.S and Canada, used in 38% of the states/provinces, is the semi-monthly payroll schedule. In 31% of the states/provinces, multiple payroll schedules are being used, while 27% of states/provinces prefer the monthly payroll schedule.
93% of the countries in Europe remain loyal to the monthly payroll schedule, with the only exceptions being Russia, Ukraine (both using the semi-monthly payroll schedule), and Norway (monthly and semi-monthly payroll schedules).
The Asia-Pacific region also favors the monthly payroll schedule, with 68% of the countries/states opting to pay their employees once per month. In 28% of the countries/states in APAC, companies are using multiple payroll schedules.
Which payroll schedule should you choose for your business?
Choosing the right payroll schedule for your business is a decision that requires careful consideration of various factors. It’s essential to weigh the administrative costs and effort involved in each payroll schedule against the preferences and needs of your employees.
For businesses with hourly workers who rely on regular wages, a weekly or bi-weekly schedule might be more suitable. In contrast, salaried employees might prefer a semi-monthly or monthly arrangement. It’s also crucial to ensure that the chosen schedule complies with local labor laws and regulations.
Additionally, the cash flow of the business and the capabilities of your payroll processing system should be taken into account. Ultimately, the best payroll schedule aligns with the business’s operational needs while also meeting the financial expectations and requirements of its employees..
Cross-border payroll payments in any Pay Schedule
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How does a payroll schedule work?
A payroll schedule combines the pay period and the pay date. The pay period defines how often employees receive a paycheck. The employer’s pay schedule determines the number of pay periods a year. And the pay date is the actual date employees are paid.
How do you choose a payroll schedule?
When deciding on a payroll schedule, you must take into account the organization’s and its employees‘ needs. In addition, it’s important to consider your company’s cash flow, state regulations, and market expectations.
What is the most common payroll schedule?
It differs from place to place. In North America, for example, the most common payroll schedule is the semimonthly payroll schedule, while in Europe, it’s the monthly payroll schedule.
Can a business change a payroll schedule?
Yes. Employers are not prevented from changing the payroll schedule as long as the change does not unreasonably delay the payment of wages.