4 Types of Payroll Schedules and How to Choose the Right One for Your Business
Weekly, biweekly, semimonthly, and monthly pay periods are most common in the United States, but which one is right for your business? Business.org helps you figure that out.
|
August 1, 2019
8 min read
Ah, payday. The absolute best day of the week. Er, month. No, the best two days of the month.
Wait, does anyone standardize this stuff? How many payroll weeks are in a year, anyway? Or . . . wait, what even are payroll weeks?
It’s actually pretty simple: payroll weeks are essentially pay periods. And someone does standardize this stuff: your state government. And the number of payroll weeks in a year depends on how often you pay employees. If you pay employees biweekly (which, in this case, means every other week, not twice a week), you’ll have 26 or 27 payroll weeks. If you pay them semimonthly, you’ll have 24. If you pay them monthly, you’ll have 12, and if you pay them weekly, you’ll have 52.
So what’s the right payroll schedule for your business? The answer depends on a few things, including your state’s payday laws, your employees’ needs, and your business’s expenses (including tax payments). Keep reading for the lowdown on different types of payroll periods and the info you need to choose the right one for your small business.
What are your state’s payday laws?
In some states, you can choose what type of payroll schedule you want: weekly, biweekly, semimonthly (yes, those last two are different; we’ll break that down later), or monthly. Most notably, Alabama and South Carolina don’t have any regulations on how often employers must pay their employees. But in other states, the choice gets made for you.
Take Rhode Island, where childcare providers must have the option of biweekly pay. Or New York, where manual workers must be paid weekly but clerical workers can be paid semimonthly.
Alabama and South Carolina don’t have any regulations on how often employers must pay their employees. But in other states, the choice gets made for you
Other states let you choose between weekly, biweekly, and semimonthly schedules but have a mandatory minimum pay period. For instance, in Arizona and Maine, employers can’t have more than 16 days between paydays.
Meanwhile, in Michigan, bimonthly and monthly pay periods are only regulated in certain industries. The same thing is true in California but for weekly and biweekly payroll periods.
Each state (except a handful, including Alabama and Pennsylvania) has its own rules, so how can you find out if you’re in compliance with your state’s laws? Check out the U.S. Department of Labor’s handy chart of state payday requirements.
How many payroll weeks are in each payroll period schedule?
In spite of their many regulations, most states let employers choose between at least two pay period schedules. Once you’ve figured out which ones your state allows, it’s time for you to decide which payroll period will work best for you.
It will help to know how many payroll weeks each pay period schedule contains, so let us break it down for you:
- Weekly: 52 payroll weeks a year
- Biweekly: 26 or 27 payroll weeks a year
- Semimonthly: 24 payroll weeks a year
- Monthly: 12 payroll weeks a year
Why is there a difference between biweekly and semimonthly paychecks per calendar year? Since most months are longer than 28 days (or two biweekly pay periods), those extra days add up to a few additional pay periods over the course of a year. That means employees who are paid biweekly will get three paychecks two months out of the year.
So if your first biweekly payday falls on the 2nd of the month, the next payday will fall on the 16th, and the next on the 30th.
On the other hand, if you pay employees twice a month, it doesn’t matter how many weeks each month has: they’ll always get two paychecks a month.
Weekly payroll: 52 payroll weeks
- Employees get paid frequently and on a predictable schedule.
- Employers have to spend time on payroll every single week.
Weekly payroll has pretty straightforward perks for employees: Who doesn’t love getting paid each week? But they’re the hardest pay schedule for employers, who have to dedicate time each week to calculating wages, deducting income taxes, withholding wages for garnishments or health insurance premiums, and cutting checks.
If you have the time and resources to offer weekly payroll, it can be a great perk, especially for hourly employees whose wages vary from week to week. But if you don’t have the time or resources for weekly payroll, don’t sweat it—you have plenty of other options that can make employees happy and keep your business out of the red.
Biweekly payroll: 26 or 27 payroll weeks
- Employees get paid on a predictable schedule.
- Employers save more time and money on payroll prep than with weekly pay periods.
- Leap years add an extra annual pay period every 11 years.
- Biweekly payroll can make monthly budgeting trickier.
From a personal finance standpoint, biweekly pay makes life a little easier for employees. It’s often easier on employers than weekly pay periods too—you save time and money when you don’t have to dedicate resources to running payroll every single week.
But things start to get tricky if you look at your business’s budget on a month-by-month basis. Biweekly pay periods don’t break down nicely into monthly brackets.
For instance, let’s say the first day of the new year is a Monday. In that case, employees would get paid the first, third, and fifth weeks of January and the second and fourth weeks of February. What does that mean for you? Mainly that you’ll spend more time and money on payroll in January than you would in February.
And leap years make the issue even more complicated. Thanks to the bizarre way The Ancients decided to calculate our time around the sun, every eleventh year has an extra pay period.
The last time the year had 27 pay periods instead of the typical 26 was 2015, so you’ve got some time to think about how to work it into your budget. Just bear in mind that if you go the biweekly route, you’ll need to be cautious when you plan for monthly costs.
- No contracts or commitments
- Full-picture visibility into your business’s finances
- Results-oriented approach to support growth
Semimonthly payroll: 24 payroll weeks
- Employees almost always know the exact date they’ll be paid.
- Employers save more time and money on payroll prep than with weekly pay periods.
- Leap years add an extra annual pay period every 11 years.
- Biweekly payroll can make monthly budgeting trickier.
The main perk of semimonthly payroll is its reliability—no matter the day of the week, employees know they’ll usually be paid on the first and 15th of every month (or, if you choose, the 15th and 30th).
The main problem with semimonthly payroll is the lack of reliability, or the “usually” part of that last statement. For instance, if the 30th falls on a Sunday, your employees won’t get paid until Monday or even Tuesday if their bank takes a little longer to process deposits. That’s true of all pay schedules, but it makes things more confusing when you’re used to being paid on the 30th every 30th.
Plus, hourly employees don’t have the luxury of being paid the same amount every pay period, and the variation in net pay can hit their budgets hard.
For example, say a 31-day month starts on a Monday. If your hourly employees work Monday through Friday and get paid on the 1st and 15th, there will be 10 workdays in the first half of the month and 13 workdays in the second half.
That kind of variation and unpredictability isn’t great for employees who have to pay rent on the first while also juggling transportation money, groceries, and bills. And it’s not great for employers, who also need to budget costs and expenses on a monthly basis. Throw overtime hours into the mix and you’re asking for a headache and a half.
Okay, so what does this boil down to? Semimonthly payroll works best with salaried employees. If you have mainly salaried employees, semimonthly payments will break down easily for you and them. If you have mainly hourly employees, semimonthly payments will save you some budget confusion every 11 years, but . . . that’s about all it saves.
As per the Fair Labor Standards Act, salaried employees are exempt employees, which means they’re exempt from being paid overtime.1 Hourly employees are nonexempt, which means they do get overtime.2 If you have more nonexempt than exempt employees, we strongly recommend not choosing semimonthly payroll.
Monthly payroll: 12 payroll weeks
- Employers save more on payroll expenses than with any other pay schedule.
- Employees might have a harder time budgeting.
Monthly pay periods are by far the most affordable for employers. How so? Remember, payroll costs more than just the wage you pay your workers: you also have to pay a processing fee for direct deposit or check writing. You have to spend time and human resources calculating everyone’s gross pay, withholding the right amount in taxes, and sending out the right take-home pay.
In short, payroll is a huge burden on employers. Doing it once a month can save you a lot of time, energy, hassle, and money.
But there’s one huge catch: employees don’t love it. Especially hourly employees, who don’t always get paid the exact same amount every month. (This conflict of interest between employees and employers is one reason so many states regulate which types of businesses can offer monthly paychecks.)
Just like with semimonthly payroll, monthly payroll works best for salaried employees. You’ll be hurting your employees’ budgets and complicating your business’s cash flow if you try to hand out monthly checks to a mostly hourly workforce.
Trying to calculate employee pay to build a monthly budget? For your salaried employees, divide their annual wages by the number of planned pay periods (12, 24, 26, or 52). The numbers for your hourly employees are a little harder to pin down, but you can make your best guess based on how many hours a given person usually works in a week.
The takeaway
Now that you know some payroll schedules have 52 payroll weeks a year and others just 12, it’s time to make your choice—how many payroll weeks do you want your company to have?
Start by narrowing down your options based on your state laws, and then assess based on the types of employees you have. If you have mainly hourly workers, look at weekly and biweekly pay periods. If you have mainly salaried workers, look at bimonthly and semimonthly pay periods.
Looking for a way to simplify payroll processes? Check out our list of recommended payroll software for small businesses.
Disclaimer
At Business.org, our research is meant to offer general product and service recommendations. We don’t guarantee that our suggestions will work best for each individual or business, so consider your unique needs when choosing products and services.
Sources
1. United States Department of Labor, “ELAWS – FLSA Overtime Security Advisor”
2. United States Department of Labor, “ELAWS – FLSA Overtime Security Advisor”
