Which payroll schedule is right for your business?
The four most common payroll schedules for your business and employees. Presented by Chase for Business.
Selecting a payroll schedule for your business is one of the most important decisions you’ll make for your employees.
With how busy things can get and how much you have to consider as you prepare your business for launching, choosing when and how often payday lands might not seem critical at first glance. But it’s worth your close attention. These intervals have important tax equity, financial and livability implications for you and your team. Your payroll schedule should ensure that everyone is paid correctly and timely.
Weighing the four types of payroll schedules
Understanding some of the common payroll schedule options and how they work will equip you with the tools and insight needed to choose a solution that works for everyone. Before you get too far into the decision, however, you should take a look at this U.S. Department of Labor chart. Nearly every state has laws in place that govern pay frequency. This chart will show you which ones require a weekly, biweekly, semimonthly or monthly payroll. Federal laws spell out overtime rates; these may need to be calculated every week.
The most common business payroll schedules are weekly, biweekly, semimonthly and monthly. Each of these scenarios impacts people and your payroll management in various ways:
- Weekly — once a week; 52 paychecks per year
Pros: A good option for hourly paid staff, this schedule can help them gain better control over their personal finances. Since their pay periods consist of the same number of days, it’s also easier for a payroll administrator to calculate overtime.
Cons: Keep in mind that if you contract with a payroll service provider, they often charge for each payroll they run. If your team is large, payroll executed weekly can quickly add up. It can also be costly in terms of time for an in-house payroll administrator.
- Biweekly — every two weeks; 26 paychecks per year
Pros: Another viable option for hourly employees, this schedule provides a reliable, consistent payday. Hourly employees, who are entitled to overtime, tend to prefer biweekly schedules for managing their personal finances.
Cons: Benefit deductions don’t always line up easily because not every month has four full weeks. In a calendar year, two months have three pay periods. This means that pay earned in one period won’t be paid out until the next. This can get complicated for the in-house payroll administrators, who may also be managing monthly tax reports and benefit premiums deducted monthly.
- Semimonthly — two times per month; 24 paychecks per year
Pros: The most common payroll frequency, this payroll schedule has fewer pay periods than the other schedules, making it less costly and time-consuming to process payments. Paydays land consistently on either the 1st and 15th or the 15th and 30th of the month. Because insurance benefit premiums are charged on a monthly basis, semimonthly pay schedules can make managing deductions simpler. But it can also complicate the way overtime and commissions are calculated for hourly employees. In general, salaried employees aren’t paid overtime, so they tend to prefer regular semimonthly payroll.
Cons: There are downsides for all types of employees if not adjusted. Payday might land on a weekend day one month and a Monday the next. Conversely, because semimonthly payroll is run less than biweekly, employees’ paychecks are larger in one period and smaller in the next, which may make budgeting difficult for some workers. Others may have no problem with it. Because pay periods may span more than one workweek, calculating overtime pay for hourly employees on this schedule can also be more confusing and complicated.
- Monthly — one pay period per month; 12 paychecks per year
Pros: The simplest, least time-consuming payroll schedule for administrators, a monthly schedule may make sense if you primarily employ freelancers or independent contractors. They’re accustomed to invoicing for their work and waiting up to 30 days to be paid.
Cons: While this schedule makes managing benefit payroll deductions simpler (because benefit premiums are generally charged monthly) and is the most cost-effective for employers, it can be a burden on new hires who are forced to wait a full month to be paid and must then manage personal expenses on only 12 payments per year.
Verify, confirm or reach out for help
Once you’ve settled on a payroll schedule, it’s a good idea to run your decision by an accounting professional who knows your particular situation and/or an attorney familiar with labor laws for your state. Both are invaluable resources that may help you avoid missteps in setting up your payroll.
If you’re interested in getting additional help with your payroll, reach out to a Chase business banker to learn more about your payroll options.
