The 4 Payroll Frequencies and Which One is Best for Your Business
If you’re a business owner or manage payroll for your organization, one of the first decisions you will make before setting up your payroll system is how often to pay your employees.
While most employees prefer to get paid weekly, it makes administrative tasks difficult for you or your manager. Remembering and setting apart time to process payroll weekly can result in missed paydays and a stressful back-office process.
On the other hand, paying your employees semi-monthly can be confusing around holidays since the day is never the same. However, it makes accounting and year-end much easier on you.
So how do you choose the best payroll frequency option? What will satisfy your employees but not overwhelm you and your office manager?
At Whirks, we advise business owners and provide payroll services – but we also personally experience the pros and cons of different back-office processes.
Our team is a mix of salaried and hourly employees, and several members of our team work remotely in different states. We know how confusing it can be as a business owner and how tough it is to remember administrative tasks during a busy year.
This article will define the four different payroll periods, their pros and cons, and which one best fits your industry.
What should I consider before choosing a payroll frequency?
Before exploring the four different payroll frequencies, you need to consider a few factors to consider while you’re reading the article.
1. What’s legal?
You do not have total discretion in determining your pay schedule as an employer. Several states have requirements for the minimum pay frequency.
The Department of Labor has a helpful chart for state payday requirements, but you can also consult with your state labor office, your payroll partner, or your HR consultant for help on payday requirements.
If you’re in the state of Tennessee, where our primary office is located, Tennessee employers are required by law to pay employees at least once a month, but they have the right to pay their employees more often that if desired. Here’s a helpful breakdown of payday and wage requirements in the State of Tennessee.
2. Can I change my payroll frequency?
If you have a legitimate business reason and prepare your employees adequately, then yes, it is possible to change your payroll frequency.
The Fair Labor and Standards Act (FLSA) prohibits you from changing your payroll frequency for any unethical business reasons, like delaying payment to your employees. Changing your timetable can also mess up your tax withholdings. However, if you’re considering changing your pay periods to pay employees faster, make it easier on you to manage, most states simply require that you tell your employees within a specific time frame before making the change.
3. Can I pay both my salary and hourly employees?
Determine if you employ either salary or hourly employees – or both. Because salaried employees are exempt from overtime pay, they typically have less preference according to how they’re paid.
As long as you have the back office capability to pay your exempt and nonexempt employees differently, it is possible. Now that we’ve gone over pay date requirements, let’s talk about the four general pay periods and which ones are most suited for your industry.
1. Weekly Pay: Best for blue-collar industries
Paying your employees weekly results in 52 pay periods a year. While it demands the most time and money from an employer, calculating overtime is much easier in a 40 day pay period.
It’s usually the preferred method among your employees to get paid too which could help you retain employees longer and keep them more satisfied on the job.
The Bureau of Labor Statistics reports that 32.4 percent of private businesses pay their employees each week, especially in these industries:
- 70.6% in construction
- 50.8% in manufacturing
- 44.2% in natural resources and mining
Since processing over time is easier on a weekly basis this is an ideal fit for blue-collar services and hospitality industries. It’s also important to know that many government contracts require weekly pay for construction workers and other industries.
Ensure that you, your office manager, or your HR department has the time to process everyone’s payroll correctly and get it out on time every week.
2. Bi-weekly Pay: Best for healthcare industries
The most common pay period in the United States is bi-weekly, resulting in 26 pay periods a year. This means that your employees get paid every other week, which can sometimes result in three paychecks a month.
While it’s easier to process paychecks for the employer, it’s the most inconvenient method for your team since it’s challenging to figure out which days they will get paid.
This is the most common option for healthcare services, with the Bureau of Labor reporting that 52.9 percent of healthcare professionals are paid bi-weekly.
For example, in nursing homes and home health care services, an employer may pay overtime after 80 hours in a 14-day pay period. This would make it easier to process payroll bi-weekly.
3. Semi-monthly Pay: Best for white collar industries
Paying your employees semi-monthly is less common than weekly and bi-weekly pay periods. However, it has significant benefits for you as a business.
With only 24 pay periods, it makes processing payroll easy for you or your HR/office manager. You’ll save time and money and simplify your accounting.
However, this is the worst option if you have several non-exempt employees entitled to overtime because you have to separate each 40 hour week to calculate it.
A semi-monthly pay period is ideal for information services, with the Bureau of Labor citing that 35.9 percent of the industry is paid this way. This may be a good fit for your business if you employ several data analysts, content managers, or librarians.
4. Monthly Pay: Best for financial services
Only 11.3 percent of businesses in the US pay their employees monthly, making it the least popular method. This looks like 12 pay periods a year and one pay date a month.
While it saves a business the most time and money, it is the least desirable option for employees, especially if they are living paycheck to paycheck.
The Bureau of Labor attributes 17.6 percent of financial services pay their staff monthly. If you’re an investor or stockbroker, your business may pay you this way. Paying your employees once a month is easy because the date is always the same each month and it’s easier to budget for payroll expenses. Another reason some employers opt for monthly payroll is for their financial reports.
Consider your employees and your back office.
Choosing the right payroll frequency for your industry ensures that your team gets paid correctly and on time, which is essential for retaining employees. You should also consider which industry you’re in, and how that should influence your pay schedule. If you’re in a high-turnover industry with semi-monthly payroll, your competitors may be offering weekly payroll which could provide them a hiring edge.
However, you also have to consider the potential back-office burden. Do you (or your manager) have the time to calculate overtime pay every other week? Are you designating a day to process payroll and manage administrative tasks?
Remember when choosing your pay frequency to take into account your state pay and wage requirements, what frequency might be best in your industry, and the most beneficial for you as you process payroll for your employees.
How can an HCM system help you pay your employees correctly and on time? Read this article on 7 Benefits of Integrating Your Payroll with an HCM System.