Table of Contents
What Is Payroll Frequency?
Payroll frequency is how often a company pays its employees. This is done on a periodic basis. Payroll frequencies are typically weekly, bi-weekly, monthly or semi-monthly.
Why Is Choosing the Right Payroll Frequency for Your Company Important?
Be sure how often you pay your employees is the right fit for your company. There might be a certain way to pay employees because of the type of work they do, or the type of industry your company works in. Here are some things to consider when choosing the right payroll frequency for your company.
- State regulations. There is little federal regulation when it comes to paying employees as long as you pay them at least once a month. Some states have more requirements. For example, in the state of Utah, some occupations are required to be paid on a weekly basis or at least twice in a calendar month. Other states might require that payment be made within 12 days after completing work. Be sure to review your state’s payroll frequency guidelines. If operating in multiple states or employing remote employees in different states, be as consistent as possible with everyone to avoid confusion and complications. You can run payroll at different frequencies if necessary, but you will want to be uniform on which groups will be paid together. Find your state guidelines on pay frequency here.
- Payroll costs. A key factor to consider when deciding payroll frequency is the cost to you as the employer and company. For example, if you pay your employees weekly, you will be running and processing payroll more frequently. While that might be convenient for employees, it can require more hours and manpower, which is ultimately more costly for the employer.
- Company cash flow. When determining payroll frequency, be sure you’ll have the funds to pay your employees when it comes time to run payroll. This typically isn’t an issue for larger, more well-established companies, but for a family-owned business or a startup, funds might be a bit tighter. If your funds are more limited, you might want to consider a monthly payroll. But remember, you’ll still need to follow your state’s payroll frequency laws.
Types of Payroll Frequency
There are a few different types of payroll frequencies. Before you choose which is right for your business and employees, it’s important to understand the pros and cons of each type. Let’s consider these below.
Bi-weekly is when you pay your employees every two weeks on a set weekday. This is the most common frequency found among businesses. 37% of private businesses pay their employees bi-weekly. This frequency is the easiest for calculating overtime for non-exempt employees. This is also beneficial for employers, as it cuts costs compared to weekly payroll. Rather than processing payroll 52 times a year, you would only do it 26 times a year.
One downside to bi-weekly payroll is that things can be complicated when needing to run payroll 3 times in a month. This occurs twice throughout the year. Benefit deductions become a little more complex for your payroll team as well. Also, some employees rely on getting paid weekly to pay their bills. Needing to wait two weeks can put them in a tough situation.
Weekly is when you pay your employees every week on a set weekday. It is less common than bi-weekly, but more preferred for employees so they can be paid more often. Weekly payroll is more common in industries such as construction or manufacturing. This is likely because these employees get paid for single jobs during that week and the employer knows how much they will be making off that job. These kinds of jobs might not be as consistent, which is why employers might choose to pay employees weekly. Weekly payroll can be beneficial as it is pretty straightforward with calculating overtime for non-exempt employees.
One big downside of weekly payroll is the costs that it accrues for the employer. With running payroll on a weekly basis, it can make the payroll process much pricier for an employer.
Monthly is when you pay your employee once a month, or 12 times in a year. Typically employees will be paid on the last day of the month or the first day of the month after payroll has been processed for the previous month. This is the most simple way to process payroll. Benefit deductions are the same for each month and hours will typically be the same for each paycheck month to month. Due to the simplicity and infrequency of monthly payroll, employers who run payroll monthly have the lowest payroll costs. This might be beneficial for employers who don’t have a steady cash flow and need to wait until the end of the month to pay all their employees.
A downside of monthly payroll is that it isn’t very popular with employees. Most employees have bills and expenses they have to pay throughout the month, and can’t wait until the end of the month to be paid. In addition, many states do not allow monthly payroll frequency, as many of them require employees to be paid at least twice a month.
Semi-monthly is when employees are paid on the same two dates every month. Typically those dates are the 1st and 15th or the 15th and 30th. Employees get paid for the second half of a month on the 1st of the following month. This is similar to bi-weekly, as bi-weekly has employees getting paid twice a month for most months. However, with semi-monthly payroll, employees are only paid 24 times in a year, as there are never months with 3 pay days. For accounting purposes, semi-monthly is beneficial. It’s a bit more predictable with each paycheck being the same for benefit costs. It is also helpful for tracking purposes, as checks are either paid out at the beginning of the month or end of the month. Payroll costs are cut down a bit as they are not as frequent as bi-weekly or weekly.
Semi-monthly payroll can become a bit more complicated when calculating overtime, commissions, or when a pay date falls on a weekend. In these instances, some overtime or commissions for a week or month might be on different paychecks due to the pay period they occurred. This can complicate payroll. In addition, if the pay date falls on a weekend but you need to pay employees on a Friday, this forces you to end a pay period early, change your pay period calendar, or estimate what you would pay employees on a given pay day.
This is the least common payroll frequency, and the most costly because you need to process payroll every day. This is typically only used for temp employees, who are given work on a day-to-day basis. Most employers only pay employees daily with the knowledge that this is a one-time job or for a short period. Paychecks run for this kind of work are typically pretty simple, as you only have to calculate for a single day’s work.
However, your payroll costs will likely be higher than other payroll frequencies as you are running payroll at least five times as much as any other payroll frequency. The simplicity can be beneficial for employees, as they know they will get paid daily.
How to Choose the Right Payroll Frequency for Your Company
Once you consider what is important to your company and review the different payroll frequencies, you need to decide which frequency is right for your company. Here is a step-by-step process to help make that decision.
Step 1: Be Aware of State Regulations and Company Cash Flow
Before you decide which payroll frequency is the best fit for your company, determine which is even possible for you. Determine which frequencies are allowed in the state you operate in and then determine which is possible with your business’s current cash flow. Doing this will help narrow down which payroll frequencies are potential options for you as a company.
Step 2: Determine How Much Time and Money You Want to Invest in Payroll
After you determine which payroll frequencies are an option for you, consider how much time and money each will cost you. This cost is determined by how frequently you run payroll, how complicated payroll is going to be and what resources you have to process that payroll. Those resources include employee count, the time required, and the payroll process. How many employees and how much time a company wants to invest into processing their payroll will determine which payroll frequency works best for them.
With the payroll process, a smaller business might run payroll on their own using spreadsheets or by tracking employee hours by hand. Most larger businesses have some kind of software to track and process payroll for employees. Using a software includes a cost, so a business needs to decide if the cost is worth it to them. Finally, a company might decide to outsource their payroll to a PEO (Professional Employer Organization) or a company that specializes in payroll. This can cut the costs and time spent processing payroll.
Step 3: Consider Your Workforce and the Industry
After you determine what payroll frequency options are available to you and how much time and money you are willing to invest, consider what will be best for your employees. For some industries, it makes the most sense to pay employees weekly. When deciding, consider any feedback you get from your employees. Do research on what is most common in the industry you work in and why. Remember, this can change over time. Just because you choose to use a certain payroll frequency now doesn’t mean you can’t change over time as your workforce grows and your business’s needs evolve.
Questions You’ve Asked Us About Payroll Frequency
Can a business change their payroll frequency?
Yes, you can change your payroll frequency at any time. However, be careful when you make that change. Typically making the change at the end of the year or after a quarter will make things easier for reporting purposes and making sure you pay employees accurately. In addition, changing payroll frequency will likely require conversations with employees to help them understand the change.
Are there laws regarding payroll frequency?
It varies from state to state. Every state requires that employees are paid at least once a month. Some states require an employee to be paid within a certain number of days after they have completed work. You can click here for all state payroll frequency laws.
What is the most common payroll frequency?
Bi-weekly, which is every other week. These payments are usually processed every other Friday.
Who should decide payroll frequency at your business?
Payroll frequently should be determined by leadership after receiving feedback from the payroll team on what works best for them and the employees.
Tanner has over 4 years of HR professional experience in various fields of HR. He has experience in hiring, recruiting, employment law, unemployment, onboarding, outboarding, and training to name a few. Most of his experience comes from working in the Professional Employer and Staffing Industries. He has a passion for putting people in the best position to succeed and really tries to understand the different backgrounds people come from.