Payroll Schedules – How Do You Choose?

Calendar savingsCompanies have a few choices as to which payroll schedule to use. Knowing which is right for your company, though, takes a little thought. I’m going to go over the pros and cons of each.

The four most commonly used payroll schedules in the U.S. are weekly, biweekly (which means every two weeks), semi-monthly (which means twice a month), and monthly.

  • Weekly (52 periods per year)
  • Every Two Weeks (26 periods per year)
  • Twice Monthly (24 periods per year)
  • Monthly (12 periods per year)

Most states have set payday frequency requirements. It’s always fine to pay employees more often than required by the state but not less often.

So which one should you use? Here are the details of each.

Weekly Payroll

Weekly payroll is a popular option for trade workers like construction workers, plumbers, etc. The primary reason weekly payroll is not used in more sectors is because this schedule can be cost prohibitive. Most payroll companies charge each time payroll is run. And if payroll is done in-house, the in-house accountant has more work to do, like calculating payroll taxes, overtime, accruals, etc.

Employees like getting weekly payroll checks, though. It’s easier for employees to see the overtime earned on weekly paychecks and they are able to manage their money better. This is especially true if they are living paycheck to paycheck, which most employees are according to a recent survey.

Monthly Payroll

Not surprisingly, monthly payroll is not a popular option for employees. You’ve got to be a stellar bookkeeper for your own finances to make this work. For businesses, however, it is the cheapest route since payroll only has to be run once per month and at the same time that the accountant runs the monthly reports and makes deductions.

Semi-Monthly vs. Biweekly Payroll

The two schedules are similar but since there are not exactly 4 weeks in every month, two months out of each year will come up with one extra paycheck in a biweekly system. This is a little inconvenient for the accountant since the reports are run monthly and since benefits are calculated monthly.

The semi-monthly schedule is probably the most convenient for salaried employees since it is easier to pay bills when checks come on certain days of the month. But many hourly employees who make overtime regularly prefer biweekly paychecks. It can be really hard for employees to understand overtime calculations when overtime has to be calculated based on previous pay periods. This can result in employees complaining to managers that their paychecks are incorrect so it might save everyone some headache if employees who earn overtime are paid on a weekly or biweekly basis.

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