How often you pay your employees has a significant impact on your business. Paying them too infrequently can cause them to stress about their budgets. However, paying them too frequently can add considerable costs to your expenses. Developing a payroll schedule template that finds a happy balance between these two primary concerns while staying compliant with the law (and local customs) is crucial.
This guide will walk you through everything you need to know about payroll schedules, including the different types of schedules, the pros and cons of each, and how to choose the right one for your business.
What Is a Payroll Schedule?
A payroll schedule determines the length of your pay periods and how often employees get paid. Many countries and jurisdictions have laws dictating a minimum pay frequency that employers must meet. You may opt to pay your employees more frequently than the law requires, but not less. Often, there are customary pay schedules to take into consideration too.
Payroll schedules are not the same as pay dates or payroll numbers. Pay dates refer to the days employees receive their salary and pay stubs, while payroll numbers are unique identifiers given to employees that help protect their personal information and make processing payroll easier. A payroll schedule refers to the frequency with which pay dates occur.
What Are the Most Common Payroll Schedules?
The four most common payroll schedules are:
- Monthly (or lunar)
Let’s go over each payroll schedule and its pros and cons in more detail.
Weekly Payroll Schedule
In a weekly pay schedule, employees are paid on the same day once every week. The pay period for weekly payroll is the last full week worked, usually designated as Monday through Sunday. Most employers choose Friday as their payday, but you can choose whatever day works best for your business (within the confines of law).
Weekly payroll schedules are frequently used for jobs that rely on manual labor as well as retail businesses and restaurants. Employees at these jobs are often paid hourly and may work irregular hours from week to week. For example, retailers can experience busy periods just before holidays and may need additional help from employees. A business may have employees work increased hours leading up to the holiday before returning them to a more relaxed schedule after the holiday passes. The increased sales revenue allows the employer to cover the higher payroll costs before returning employees to their regular schedules at a lower payroll cost.
The biggest disadvantage to weekly payroll schedules is the cost. Covering weekly payroll expenses can quickly drain your business’s bottom line if you aren’t receiving steady profits every week. This can be especially problematic if you use an outsourced payroll service and incur weekly fees.
Biweekly Payroll Schedule
A biweekly pay schedule requires employees to be paid on the same day once every two weeks. Like the weekly payroll schedule, most employers chose Friday as their payday.
A biweekly payroll schedule is effective if you have both salaried and hourly employees. This deposit schedule makes it easy for employees to budget their finances. Salaried employees are guaranteed the same paycheck every other week and hourly employees can work extra hours one week to make up for any missed hours the prior week to help balance their paychecks. Employees are paid 26 times a year with a biweekly payroll calendar, which means there are two months every year when employees receive three paychecks per month.
Those two “extra” paydays can cause headaches for employers, however. If your business’s revenue is consistent from month to month, you may struggle to budget for the months with extra paydays. This can also cause confusion when calculating payroll deductions, such as health benefits if you don’t pay close attention to the extra paydays.
Semimonthly Payroll Schedule
A semimonthly pay schedule requires employees to be paid twice every month. Employers with this pay schedule typically pay their employees on the first and fifteenth day of every month or the fifteenth and final day of the month. This varies slightly from biweekly pay schedules by resulting in 24 total paydays in a year as opposed to 26.
Semimonthly payroll schedules are a great option for paying salaried employees. Knowing both when and how much they’ll be paid each month can greatly help employees plan their monthly budgets. Likewise, employers also have a clear idea of what their payroll expenses will be each month.
However, semimonthly pay schedules can be difficult with hourly employees. This often causes one workweek to be split into two pay periods and makes calculating overtime pay needlessly complicated.
Because semimonthly pay schedules are paid on specific dates, this can cause pay dates to conflict with weekends and holidays. Even if employees have direct deposit set up, this can occasionally cause delays in them receiving their paychecks.
Monthly Payroll Schedule
A monthly payroll schedule is paid once a month for a total of 12 paydays a year. Most companies with monthly payroll schedules opt to pay employees on the last day of the month, but this can vary per country.
Because there are only a dozen paydays per year, the monthly payroll schedule is the most cost-efficient for businesses. This makes it easy to calculate alongside any other monthly reports. In countries where there is a mandatory or customary 13th or 14th month salary, this will increase costs once or twice a year.
It’s worth noting that some countries use the lunar calendar instead of the Gregorian calendar for monthly payroll. Lunar payroll cycles typically happen every 28 days.
Depending on local laws and regulations, a monthly payroll schedule may not be an option for your business. For example, if local laws require employees to be paid at least twice a month, you’ll need to use a different payroll schedule. Furthermore, a monthly pay schedule likely isn’t ideal for part-time or hourly employees. The time between paychecks can make it hard to keep a budget and manage expenses.
Which Payroll Schedule Is Right for Your Business?
Choosing the right pay schedule for your business will depend on multiple factors. The first and perhaps most important factor is selecting one that’s compliant with the law. In the U.S., pay frequency requirements vary by state. Other countries have their own laws that may differ both by region and the type of work performed, so it’s important to do your research on which laws apply to your employees.
Cash flow is also an important factor, especially for small businesses, since payroll expenses are often a company's largest monthly expense. You need to make sure that your payroll schedule isn’t expending cash quicker than your business can earn it.
Whether you process payroll in-house or outsource it to a third party can also be a major deciding factor in choosing a payroll schedule. Does your payroll system have the bandwidth to support all the reporting and paperwork that comes with weekly and biweekly paychecks? If you outsource payroll, what payroll schedules do they offer with their services?
You also want to consider the needs and flexibility of your employees. Listening to what your employees want can help you implement a payroll schedule that keeps them motivated and happy. If your employees prefer a biweekly pay schedule over a semimonthly one, weigh that with the other factors here when choosing a schedule.
Other Payroll Schedule FAQs
Here are some additional frequently asked questions about payroll schedules.
Can You Use Multiple Payroll Schedules?
If you have employees that work in different states or countries, you might be wondering if you can use multiple payroll schedules to stay compliant with the law in each location.
While you can use multiple payroll schedules, this often causes more headaches than you’ll want to deal with. If possible, it’s best to use a payroll schedule that is compliant across all employees’ locations. However, if this is not possible, you can use multiple payroll schedules that adhere to the laws of each location.
Do I Need to Use a Payroll Schedule If I’m Self-Employed?
If you’re self-employed, you have more flexibility when deciding how often you’ll get paid. While you can pay yourself as often as you’d like and are able to, having a payroll deposit schedule is still a good idea. This will help you better keep track of your finances and manage your business’ cash flow.
How Do Payroll Schedules Affect Payroll Taxes?
Payroll tax is calculated the same way regardless of what payroll schedule you use. As payroll tax laws vary by country, make sure you understand and follow the laws that apply to your employees when choosing a payroll schedule.