Payroll errors accounted for $7 billion in IRS penalties in 2021. Around one-third of employers make a payroll mistake in any given year.
When you get payroll wrong, your employees lose trust in you and might even struggle to pay their bills. Especially if they’re on a schedule that already makes it hard to manage their money month-to-month.
So what are you to do? What’s the best payroll schedule for your company and your employees?
This article highlights the different payroll schedules you can choose from, why you should choose them or steer clear, and how to make the best decision for your company and your employees to thrive.
Choosing a Payroll Schedule
Payroll and accounting are complicated enough as it is, and managing payroll schedules can either be a burden or a choice you make that benefits both you and your employees. The schedule you choose can impact company culture, recruitment, retention, and employee satisfaction.
You need to factor in state laws, cash flow, types of employees, and benefits deductions. Depending on where your business is located, certain schedules might not be an option.
The most common payroll schedules include monthly, semimonthly, bi-weekly, and weekly. But which is suitable for your business and your employees?
ConnectPay is dedicated to making your life as a small business owner easier. We can help you manage payroll and provide all the information you need to run a successful payroll operation. Check out our free guide to discover how to best manage payroll and take the necessary steps to remain compliant with federal, state, and local laws.
1. Monthly Payroll Schedule
How does it work? On a monthly schedule, you pay employees once a month or twelve times a year, usually on the last business day of the month.
Best for: Single-owner S Corporations or very small businesses. When you’re the only employee, and most revenue comes in at once (for example, a membership or subscription-based business). Monthly payroll is enticing because it has the lowest processing cost. It also makes deductions easy to calculate.
Things to consider:
- Your state’s mandate laws. Does your labor board mandate a more frequent schedule?
- Hourly employees. If hours worked vary, it might create uncertainty for your employees.
- Money management. Many employees find monthly payroll the least appealing because it makes managing their money harder.
2. Semimonthly Payroll Schedule
How does it work? On a semimonthly schedule, you pay employees twice per month. You won’t pay every other week. Instead, you’ll pay employees twenty-four times a year or on specific dates, like the 1st and 15th.
Best for: Businesses that don’t employ hourly workers. Semimonthly works for salaried employees. Simply divide their yearly salary by twenty-four. Running monthly reports is more manageable, and most importantly for employees, they can align their most essential expenses with paydays.
Things to consider:
- Hourly employees. Semimonthly schedules don’t work well with hourly employees. Because workweeks are split between two pay periods, tracking for overtime and irregular hours is difficult. The federal Fair Labor Standards Act mandates employees earn time and a half for each hour worked over a 40-hour workweek.
You can define your company’s 7-day workweek however you want, as long as it’s pre-determined and not altered to avoid overtime. Depending on the month, there may be 14, 15, or 16 days in a pay period.
You must still calculate overtime according to your 7-day workweek. If the pay period includes half of a workweek, it can’t be counted as a full week. You can’t ignore the other half of the workweek when calculating overtime.
- Consistent paydays. Because paydays are consistent, they might land on weekends and holidays.
3. Biweekly Payroll Schedule
How does it work? The biweekly schedule is the most common pay period used by US businesses. Employees get a paycheck every two weeks. It equates to twenty-six paydays in a regular year.
Best for: Businesses like biweekly schedules because it’s easy to administer for all employees, including hourly employees. Eliminates the need for multiple schedules. Salaried employees can count on a regular paycheck every other week.
Bonus: Employees get 26 paydays per year. For 2 months a year, they get an “extra” paycheck.
Things to consider:
- Extra Days. Because of the two “extra” payroll days, you’ll need to make sure you can budget for them.
- Voluntary deductions. Pay attention to voluntary paycheck deductions like health insurance, usually deducted monthly. Months with extra paychecks might cause complications.
4. Weekly Payroll Schedule
How does it work? On the weekly schedule, you pay employees on the same day of the week, every week of the year, commonly on a Friday.
Best for: Weekly payroll makes sense for businesses that rely on manual labor to pay weekly (restaurants, retail stores, bars). It’s standard for these types of businesses.
It’s easy to match payroll expenses to income. For example, if you increase hours over a holiday weekend, you know you’re expecting more revenue and can budget for seasonal employees.
Pro tip: If you currently use a weekly payroll schedule, switching to biweekly could save up to 40% in fees. For more tips on lowering costs and optimizing efficiency, check out our free resource The 6 Pillars of Payroll.
Things to consider:
- Salaried employees. If you have salaried employees, but your business sales aren’t the same each week, you might be unable to cover payroll expenses.
- It’s costly. You’ll have to run payroll 52 times a year, and if your payroll service charges a small fee for each run, that adds up.
5. Multiple Payroll Schedules
How does it work? Multiple payroll schedules mean you use a combination of the schedules above.
Best for: If you employ different types of workers, paying them on the same schedule might not be possible. Also, paying employees on the same schedule might not be convenient if you need to pay employees more frequently. Finally, if you have workers in other states, there might be rules for how regularly you pay them.
Things to consider: Try to skip this most of the time. It’s a ton of admin to manage multiple payroll schedules, and the negatives outweigh the benefits for many small-business owners.
4 Things to Consider When Choosing Your Payroll Schedule
1. State Laws
Many states have payroll schedule requirements. Visit the Department of Labor’s website for a list of payday requirements by state. It’s essential to check because, in some states like California and Michigan, the frequency of paydays depends on the occupation.
There are only monthly payday requirements for executive administrative and professional personnel in Illinois, Nevada, New Mexico, and Virginia. In Nebraska, it’s up to the employer.
2. Cash Flow
Cash flow is paramount to the survival of your small business, but engaged and productive employees are just as important. If one late paycheck can cause employees to quit, your small business might suffer. How often can you pay employees?
You want to pay accurately and on time, so a schedule needs to follow state laws and work for your business.
3. Types of Employees
Do you employ salaried or hourly employees? Unfortunately, you’ll need to set up separate pay schedules if you need both. It doesn’t have to be an administrative burden if you manage your schedules well. And you can keep both hourly and salaried employees happy.
Hourly employees appreciate the benefits of overtime and being paid regularly, and salaried employees can align paydays with bills and manage their money better. Whatever you decide, ensure it causes the least headaches for yourself and your employees.
4. The Benefits of Using a Payroll Service
The easiest way to ensure payroll schedules aren’t a headache is to partner with a payroll service. Instead of worrying about the complex and time-consuming task of running payroll, you could be focusing on growing your business.
Payroll services simplify many things associated with accurate and timely payroll, such as:
- Tracking employee time and attendance
- Workers’ compensation
- Direct deposit information
- Payroll taxes and compliance
- Electronic payroll records
There are more, depending on your needs, and the best payroll service providers tailor your service to ensure payroll isn’t more expensive than it needs to be.
Choosing a Payroll Schedule: What’s Best for You?
Here at ConnectPay, we can guide you through the payroll process, but we need to work together to decide which schedule is best for you. It depends on cash flow and the types of employees you have, as well as the processing fees of each schedule.
An outsourced payroll service can take away the stress of managing a payroll schedule and give you time to focus on more critical tasks.
At ConnectPay, we have experts on hand who can guide you through choosing the right payroll schedule. We can make paying independent contractors simple and connect you with local experts who know the laws and regulations mandated by your state.
We also have resources for small business owners. For more on managing payroll, check out our free resource, the Connected Guide to Small Business Payroll.