Payroll Management
5 Considerations When Choosing a Payroll Frequency
Feb 24, 2015
From a start-up to a tenured company, it is always a topic of conversation when I sit down with businesses. Usually business owners expect a black and white answer from me. However, my answer has many shades of gray. Many factors play into this business decision. So, I’ve come up with five considerations when choosing a payroll frequency.
1. How often do I need to pay my employees?
There is no Federal or State law that exercise a required pay frequency. It is only mandated to pay employees regularly controlled by the State. Meaning, employees must be paid in regular intervals. Basically, you can’t pay employees monthly one month and weekly the next. If you are terminating an employee, some states require employers to pay them within a certain amount of time. Information can be found about your state on their department of labor website. Also, the IRS does not regulate the number of pay periods to be paid to your employees.
2. What is the best payroll frequency?
You should first become familiar with the basic details of each: frequency, pay date and hours per pay period. Additionally, from a company perspective you should consider the cost of processing payroll. Your payroll company can handle any of the below frequencies for processing. Most times, it is the employees who have a hard time understanding the logistics.
Weekly
• 52 pay periods per year
• Weekly pay date
• 40 hour workweek (7 consecutive days)
• Expect overall cost to be highest of the pay frequencies
• Preferred payment frequency from employees
Bi-weekly
• 26 pay periods per year
• Payroll date every two weeks
• 80 hour pay period
• Easy to calculate overtime for nonexempt employees
Semi-monthly
• 24 pay periods per year
• Two pay dates monthly (commonly 1st & 15th or 15th & end)
• 86.67 hour pay period
• Calculating overtime becomes confusing when overtime is given in a workweek, but may fall in a different pay period. Employees find it hard to keep track of pay date when it falls on the weekend.
• Favorable pay frequency for accounting purposes
Monthly
• 12 pay periods per year
• Monthly pay date
• 173.33/173.34 hour pay periods (depends on who you ask)
• Problematic for cash flow only once a month
• Similar overtime calculations difficulties as a semi-monthly payroll
3. Can I pay different employees at different times?
Yes, you can. A common accommodation includes grouping the salary employees together and the hourly employees together.
4. Can I change my pay frequency?
Yes. Possibly choose the date at the end of a fiscal year or quarter to lower potential record keeping problems that the change will create. However, expect some challenges getting the employees mind frame changed to the new pay frequency. Plan ahead. Communicate with the staff. Post in common areas where employees congregate that the pay frequency is changing. Giving one to two months’ notice should prepare everyone. Review your automated timekeeping or time sheets pay period and frequency to make adjustments before the switch. Educating the employees that their pay is the same over a year’s period is important. Consider an open door policy to the HR office or arrange a question and answer session, so employees can feel informed and prepared for the change.
5. What do employees prefer?
Employees just want to be paid on time and accurately. Of course, they want to be paid more frequently, but this is more costly on a business to pay more often.
Weighing the options is at the company’s discretion. Picking a payroll frequency that is both economical and welcomed by the employees is a balance. If your business needs help with finding a happy medium, contact us today to learn more about HireLevel’s payroll services.
