The Different Pay Frequencies and How to Choose the Right One For Your Business

Whether you are starting your own business or you’re simply thinking about making changes to your current payroll structure, choosing a pay frequency is very important and you should do it carefully. There are four main pay frequencies: weekly, biweekly, semi-monthly, and monthly. Some pay frequencies are better for certain purposes than others, which is why it is important to know and understand the pros and cons of each before making a decision. There is no federal law that requires a certain frequency, but each state regulates this individually. In Michigan, for example, employers can choose to pay their employees one time per month, two times per month, every two weeks, every week, or more frequently. However, an employer must designate regular paydays, which generally depends on the employee’s occupation. In other states like Connecticut or New Hampshire, employees must get paid weekly. If you are in a state that allows you to choose your own frequency, how do you narrow it down to one pay frequency that’s best for your business? Here is a quick breakdown of each frequency.

Weekly

Weekly paychecks are considered the most desirable for employees, so therefore it can be a great way to attract top performers. However, this pay frequency will cut into your profit. When you process payroll weekly it means your payroll department, or payroll software provider is spending more time prepping that payroll. The money spent on labor to process payroll 52 times per year surely adds up. However, that does not mean running a weekly payroll is not right for your business. A weekly payroll is a popular option in industries like construction, plumbing, and other similar professions. That being said, it is not the most commonly used option in other lines of work because of the cost and the amount of time that is spent for the person running payroll every week.

Bi-weekly

Bi-weekly means you are paying your employees every other week, which means you have to run payroll 26 times per year. Typically, running a bi-weekly payroll will cut your payroll costs in half, depending on your method of payroll processing. This is commonly seen in businesses because it is a less expensive means of paying your employees, but isn’t as undesirable as processing monthly, for example. Employees who earn overtime should be paid on a weekly or biweekly basis in order to avoid the confusion of basing payroll calculations on previous pay periods. While biweekly paychecks make the most sense to the employee, they can be a hassle for the payroll processor. 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 can be inconvenient for the payroll processor since the reports are run monthly and benefits are calculated monthly.

Semi-monthly

A semi-monthly pay frequency is when you pay your employees twice a month, usually on either the 1st and the 15th or the 15th and the last day of the month. This frequency means you are paying your employees 24 times throughout the year. This is more attractive to employers because it significantly lowers the cost of running payroll. Semi-monthly paychecks are probably the most convenient for salaried employees, too, since it is easiest to pay bills when checks come on certain days of the month.

Monthly

Running a monthly payroll is just as it states: paying your employees on a monthly basis and, thus, 12 times throughout the year. This is by far one of the cheapest options to pay employees but is not seen often unless the business has only one or two employees. Monthly payroll is a great option for the business itself, but not so great for employees because that means they have to budget for the whole month, which can be difficult for employees Because of this, processing payroll monthly can cause problems with recruitment and retention purposes. When it comes to your pay frequency, it might be worth your time to splurge a little more for the sake of your employees.

Things to keep in mind when choosing a pay frequency

Before selecting a pay frequency, remember to take the following into account:

  • Your industry
  • The number of employees that work for you
  • How many hourly vs. salary workers you have
  • The laws of the state in which your business resides

These four factors aren’t the only things you should consider, either. You also need to keep in mind things like how long processing payroll will take you and any hidden fees associated with some frequencies. If you have a weekly pay frequency, you will be running more payrolls than with any of the other pay frequencies, which takes up more time and energy. With a payroll software at your disposal, you can significantly cut back the time it takes you to run payroll and you get to choose the frequency that works for your business.

Do you have a frequency in mind yet? Remember that in the end, employees just want to be paid on time and accurately. Weighing the options and choosing a pay schedule is at a company’s discretion. Picking a payroll frequency that is both economical and welcomed by the employees is a good practice. If your business needs help with finding a happy medium, contact us today to speak with a payroll expert or download our Simplified Payroll Period Guide!