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 a lot of 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 just some of the key considerations.
Payroll frequency 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?]
Payroll frequency refers to how often you pay employees each month.
There are four different payroll frequencies you can choose from.
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According to Steffi Wu, a spokesperson for online payroll provider Gusto, the type of worker your business employs – salaried vs. hourly – also significantly impacts your payroll schedule. “Companies that mostly employ hourly employees typically run payroll more frequently, for example,” Wu told Business News Daily.
Laurent Sellier, vice president and business leader of QuickBooks Payroll, said salaried employees who receive a set amount each period are best off being paid semimonthly.
Whether you have predominately hourly or salaried employees could impact how often you run payroll.
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.
Payroll frequency may become less of a decision for organizations as more and companies are now offering on-demand payroll, which allows each employee to choose when they want to be paid.
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.”
Federal and state payroll laws govern payroll concerns such as overtime, minimum wage and payroll frequency, and each state has its own unique set of regulations.
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 a number of 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.
Payroll costs and considerations include payroll provider fees, administrative costs, cash flow and more.
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.
The three most prominent complications of administering payroll are misclassification, miscalculating overtime and late payments.
Additional reporting by Max Freedman.