What Payroll Schedule Makes Sense for Your Business? [Guide]
Every small business has to decide which payroll schedule is best for their business and employees. The most common frequencies to run payroll in the United States are monthly, semi-monthly, biweekly and weekly. Some of ZenPayroll’s customers pay their employees monthly but most pay semi-monthly (twice a month) or biweekly (every two weeks).
State laws typically require a minimum pay period; you can always pay more frequently but not less. But each pay schedule has advantages and disadvantages. Let’s take a look at the differences between semi-monthly and biweekly, our two most popular options.
Semi-Monthly versus Biweekly Payroll
Semi-monthly is twice per month (for example, every 15th and 30th) and biweekly is every two weeks (for example, every other Friday). The difference between semi-monthly and biweekly may seem minor. After all, they sound the same and there are only two extra checks for biweekly (26) versus semi-monthly (24). While most employees prefer being paid more frequently, there are pros and cons to either pay period for both employer and employee.
Your accountant runs monthly reports, not weekly reports. That is why your accounting department may prefer semi-monthly pay periods, since the last paycheck of the month will typically coincide with the end of the month. For companies paying their employees biweekly, two months out of the year will have three pay periods instead of two. Your accountant must have payroll expense accruals so costs are recognized in the month the compensation was paid.
Benefits also typically run on a monthly basis. Some of your employees may have voluntary deductions for healthcare. With semi-monthly, these deductions are easy. If you are paying your employees biweekly, however, you will have to manage deductions based on the total number of annual pay periods (26 pay periods or 27 in some years).
So who prefers biweekly pay periods to semi-monthly? Salaried employees are exempt from collecting overtime but hourly employees are not. That’s one reason hourly employees prefer biweekly pay periods. Hourly employees may have inconsistent weekly work schedules which can include overtime.
For example, your employee may work 60 hours one week. For a biweekly pay schedule, this overtime is easy to calculate. It is more complicated for companies on a semi-monthly plan because they typically pay their hourly employees at 86.67 hours per period (which is a little over two 40-hour weeks). If those extra hours are between two different semi-monthly pay periods, you will have to make adjustments and it can be confusing.
Weekly Payroll and Scheduling
For many companies in the trades (e.g, construction, plumbing, etc.) or food service industry, weekly payroll can be a popular option. Just like hourly employees prefer bi-weekly pay periods, they may prefer weekly periods even more. Weekly payroll better matches an hourly employee’s cash flow needs. If an hourly employee has an irregular working schedule with overtime, weekly payroll best reflects the compensation she’s earned.
For example, if your employee works 60 hours one week and 20 hours the next, weekly payroll makes sure your employee is paid that valuable overtime in the first week when she may need it most. Even salaried employees may appreciate getting paid more often!
For many employers, however, weekly payroll can be too costly. Most payroll vendors charge for each time payroll is run. If you have dozens of employees on weekly schedules, those fees can add up. Another stumbling block for weekly payroll is time. Each time you run payroll, it can take up a lot of time for you or your payroll administrator, especially if there are payroll accruals and overtime.
This is one reason why ZenPayroll integrates with When I Work. With ZenPayroll and When I Work, you can more easily manage the scheduling for your weekly employees. In addition, both ZenPayroll and When I Work offer a flat cost per employee no matter what payroll schedule you’re on.
For more information, check out ZenPayroll’s upcoming webinar: Crash Course to Hiring, Taxes, and More! on Wednesday, July 30 at 10:00am – 11:00am PDT (1:00pm EDT).
Steve Johnsen is Head of Payroll Compliance at ZenPayroll. He has over seven years of tax and payroll compliance experience and has managed tens of thousands of payroll accounts in his career. You can also follow ZenPayroll on Twitter for more small business tips and best practices.