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Determining how often your business should run payroll is an important consideration. Here’s what should go into that decision.
Businesses have a lot of options when it comes to how often they pay their employees. Whether it is every week, every two weeks or once a month, there are many factors business owners must consider when deciding how often to run payroll. Company size, legal requirements, payroll budget, whether employees are salaried or hourly are some of the key considerations.
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Payroll frequency is how often you pay your employees. It is the amount of time separating paydays. For example, if you pay an employee every other week, that employee’s payroll frequency is biweekly. There are several different options businesses have to choose from, each with its own pros and cons. There are several factors businesses have to consider when choosing how often to process payroll, including payroll costs, cash flow and employee happiness. [Did you know that we’ve researched all of the top online payroll services for your small business? Check them out to help you choose payroll services for your business.]
There are four different payroll frequencies from which you can choose:
How often you run payroll will depend on your business’s circumstances and the nature of your team. While there is no one-size-fits-all answer to how often you should pay your employees, you should consider all of the following factors before making a decision about your pay schedules.
According to Steffi Wu, head of communications at Benchling and former Gusto spokesperson, the type of worker your business employs ― salaried versus hourly ― also significantly impacts your payroll schedule. “Companies that mostly employ hourly employees typically run payroll more frequently, for example,” Wu said.
Laurent Sellier, senior vice president QuickBooks Workforce Solutions, said salaried employees who receive a set amount each pay period are best off being paid semimonthly.
Sellier added that a business’s payroll schedule also depends on the overall size of the company. Smaller businesses that employ fewer workers may be able to get away with a more frequent payroll schedule. However, as your business grows, your needs may change.
“As companies grow larger and take on more headcount, a biweekly payroll schedule is typically the preferred schedule for a number of reasons, including cost savings and it simplifies reconciliation,” said Sellier.
There are both federal and state requirements small business owners must follow when deciding how often to pay employees. These laws establish other important payroll requirements, such as minimum wage rates and overtime. The Fair Labor Standards Act, said Sellier, does not dictate how often a business can pay employees, as long as employers pay employees for the hours they have worked. However, he noted that individual state laws may vary.
“Most states set either a weekly, biweekly or semimonthly payday schedule,” said Sellier. “For example, states like Nebraska and Pennsylvania allow the employer to designate paydays. Arizona, [however], requires employers to pay employees twice a month but 16 days apart.”
According to Wu, cost-associated factors, like business cash flow and available debit schedules, typically guide payroll schedules. Since there is no one-size-fits-all approach for processing payroll, your costs will vary based on several factors, such as tax requirements, the number of employees, service bundles and, sometimes, your current payroll frequency.
The costs of running payroll exceed the fee the payroll company will charge you. Keep in mind there are additional administrative costs you’ll be responsible for. Add-on fees you’ll incur each time you run payroll may include, among others, printing paper checks, data entry and direct deposit charges.
As a small business owner, there are some risks you face processing payroll yourself or having an employee process payroll for your business. The three biggest pitfalls include:
According to Wu, many complications can be mitigated by using a payroll system that does the tricky work for you. This includes choosing a payroll system that can automate your payroll and file and pay taxes for you.
Finally, when determining how often your business should run payroll, keep in mind that you can pay salary and hourly employees at a different rate and this might be necessary, depending on your business.
Most payroll companies give you the option to update or change your payroll schedule, so if you decide your current schedule isn’t the best option for your business, you are free to make the switch.
When choosing a payroll service for your business, you’ll find a crowded market of solutions that all purport to be the best. Fortunately, we’ve done the research for you and selected some of our favorites to choose from, including these top picks:
Selecting the right payroll schedule and ensuring your people are paid accurately and on time is a critical part of keeping your business running. After all, if your team doesn’t get paid, how can you expect them to keep showing up? Work with your employees to determine the ideal pay schedule for them and your cash flow, then set up your payroll process accordingly. If you need help, payroll services offer expertise and take the burden of administration off your shoulders, so consider working with one of the top payroll services in the market.
Tejas Vemparala contributed to this article. Source interviews were conducted for a previous version of this article.