Business owners have to go through quite a lot to hassle to compensate their employees – deal with payroll taxes, select the best payroll schedule for their enterprise and ensure that they meet every overtime requirement.
Among these, the payroll schedule is actually a crucial aspect.
Payroll schedules determine how often and when the compensation of employees takes place. Even if you are the only employee of your company, setting up a payroll plan for yourself can go a long way to have a more predictable income and keep the bank account of your business from becoming a personal line of credit.
With that in context, let’s dive in to know which payroll schedule is right for you.
A look at the different payroll schedules
Illustrated below are the four main types of payroll schedules:
- Weekly payroll schedule
A weekly payroll schedule features among the most popular options among employers.
Actually, 32.4% of businesses choose a weekly payroll schedule. This proves to be a popular choice because of its simplicity. A weekly payroll schedule implies that employees will receive payments on the same day every week.
Indeed, a weekly payroll schedule is much easier to manage. Employers can avoid prorating their employees’ first checks easily by using this schedule. Also, employees may prefer this schedule as they will receive payments more frequently in comparison to other payroll schedules.
However, running a weekly payroll can cost more money and time as it takes place on a weekly basis. Plus, the end of a month can get tricky from an accounting standpoint, as a given week can contain two different months.
- Bi-weekly payroll schedule
A majority of the businesses in the United States use a bi-weekly payroll schedule. In fact, 36% of businesses opt to pay employees every other week. A bi-weekly pay happens every two weeks, and that usually occurs on the same day of the week.
Some months may need an additional paycheck based on how the weeks play out. Opting for a bi-weekly schedule implies that employees receive payments 26 times every year – that’s half of a weekly pay schedule’s frequency.
You would have to process payroll less in comparison to the weekly schedule, thereby implying saving money on direct deposit fees and printing checks.
Also, it cuts down on the time that you will be spending doing payroll. That will help the HR staff to focus on other tasks. Further, there also exists less risk of error as you will be paying employees at half the frequency.
However, you must keep in mind that as paychecks are being issued every two weeks, there may be three pay periods in some months based on how the calendar lines up. This can make it difficult to manage deductions.
- Semi-monthly payroll schedule
A semi-monthly payroll schedule is less popular than a bi-weekly or weekly schedule. Around 19% of enterprises decide on paying their employees on a semi-monthly basis. Through a semi-monthly pay schedule, employees receive payments on the 15th and the last day of every month. This implies 24 paychecks per year.
The semi-monthly payroll schedule is relatively straightforward and simplistic. As the pay periods do not overlap months, the benefits and other deductions get simplified.
Also, this pay period avoids a majority of the bank holidays. Accountants prefer semi-monthly pay schedules since accruals are easier to calculate.
However, a semi-monthly payroll schedule only works for salaried employees. And it can be way more challenging while calculate overtime pay for hourly employees. In addition, new employees might need to wait longer to receive their first paycheck as the pay period is longer. This pay schedule is not recommended for individuals who may have different hours or varying compensation from pay period to pay period.
- Monthly payroll schedule
Through a monthly schedule, employees receive payments 12 times a year or once every month.
From an administrative perspective, this pay schedule is perhaps the easiest one to manage. As the monthly pay schedule has the minimum amount of pay periods, fewer costs and time are involved.
Also, benefits and other deductions are charged monthly, which makes processing payroll easier.
A monthly pay schedule is the easiest and cheapest to administer. Still, employees do not prefer this schedule. Employees may face cash flow issues and have trouble managing finances with only one paycheck every month. Plus, new hires may need to wait till the next pay period, and that can be weeks, just to get their first paycheck.
- Things to consider while choosing a payroll schedule
Listed below are certain things that you must consider prior to opting for a pay schedule:
Type of employees: The suitability of payroll schedules varies across different types of employees. Payroll for hourly employees proves to be easier with a bi-weekly or weekly pay schedule. Salaried employees having more consistent earnings will be better off with a monthly or semi-monthly pay schedule.
States’ rules and regulations: Every state is different regarding the laws of payroll frequencies. Some states make certain payroll schedules a mandate. You must check if your state needs a particular pay schedule. If in case it does, ensure to comply with that so as to avoid penalties and costly fines.
Employees’ preferences: In the end, if you still struggle to decide on the right payroll schedule, consider taking the opinions of your employees. They are actually the ones who will receive checks every pay period, so their perspective is worth taking note of.
Choosing the appropriate payroll schedule for your enterprise can be a daunting task. But it is extremely important at the same time too. Opting for the right payroll schedule can impact employee satisfaction, company culture and even retention and recruitment rates. Entrepreneurs must keep in mind the above-mentioned details while deciding on the right payroll schedule for their company.
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