Payroll has changed a lot with HR software and automation. Some business routines like payroll frequency have been guided by the limits of manual payroll, not necessarily what’s best for the company.
Weekly, or even daily payroll, is popular with younger workers, but it makes it harder for workers to budget for major expenses like rent. Which payroll frequency is best for your company and your employees?
What is pay frequency?
Pay frequency describes the number of days or weeks between payroll being run. Companies that run payroll every week spend more time calculating taxes and other deductions, compared to companies that run payroll once a month. Employees generally prefer to be paid more often, but each option has its perks and drawbacks.
Pay frequency options
Companies decide on a pay frequency whenever they first start hiring employees. Just because you’re currently paying workers monthly, that doesn’t mean it’s too late to change. HR technology and payroll software have made it much easier to calculate and run payroll more frequently.
With manual payroll, it takes fewer work hours to run payroll just 12 times per year. However, across the nation, less than 5% of employees are paid monthly.
Positive: Monthly deductions and taxes are easily totaled with monthly pay. Very small companies may struggle to run payroll more frequently.
Negative: 61% of Americans live from paycheck to paycheck. Employees might have financial strain during the last days and weeks of each pay period. Some states require more regular payments to employees.
Paying employees twice per month adds up to 24 paychecks per year. Paydays can be scheduled for set dates like the 15th and 30th, not the same weekday.
Positive: Semi-monthly payroll makes it easy to calculate monthly expenses and deductions. Leap years can make bookkeeping complicated with weekly and bi-weekly pay.
Negative: Employees can be confused by inconsistent paydays, especially when those fall on holidays or weekends. It’s tricky to calculate overtime, which doesn’t align with semi-monthly pay periods.
With a total of 26 (or 27) paychecks per year, bi-weekly is the most popular payroll frequency. According to the Bureau of Labor Statistics, about 43% of American workers are paid this way, even more than semi-monthly.
Positive: It’s easy to calculate overtime, and employees know when to expect their checks. Bi-weekly pay is standard in many industries, and it’s relatively convenient for companies, especially with payroll software.
Negative: The weekly cycle doesn’t exactly match months or years, so the math can get tricky. Once every 11 or 12 years, there’s a 27th paycheck, which complicates salary pay.
Employees appreciate more frequent paychecks, and weekly payroll is common in certain trades and hourly positions. Between a quarter and a third of workers get weekly pay.
Positive: Workers are quickly rewarded for overtime hours. Pay periods should match the workweek, making calculations easy.
Negative: Even with automation, running payroll every week can add costs. With more pay periods over the course of the month and year, HR staff will need to spend more time running payroll, answering questions, and making corrections.
Some types of workers (and younger generations) want their pay as quickly as possible. Food service and hospitality workers may appreciate the added convenience of pay cards instead of waiting for direct deposits to bank accounts.
Positive: Integration with scheduling and timekeeping software makes daily pay more affordable than ever, and it’s a perk that could attract new talent.
Negative: It’s harder to catch and correct mistakes before End Of Day payments. Transaction fees and administrative costs can add up quickly. Not all payroll providers are equipped for daily pay (don’t worry, Netchex is!)
How to choose a payroll frequency
If your employees aren’t working for free, then you already have a payment frequency. That original choice doesn’t have to be set in stone, but you’ll need to think carefully about making changes. Make sure stakeholders are in agreement.
Pay frequency laws
Federal law requires that your pay periods should be consistent, but state laws about paydays can vary widely. Monthly payroll is most frequently regulated, and it may not be an option in your state.
Only three states (Alabama, Florida, and South Carolina) have no laws specifically about payment frequency. In South Carolina, however, employers must give written notice about payment periods, expected hours, and wages at the time of hiring.
Your employees’ preference
The workers at your company probably have a preference. Use HR surveys to learn about employee priorities and concerns. Salaried and hourly workers are affected differently by policies on payroll and overtime.
Your industry norms
Weekly and daily pay are more appropriate for laborers and certain industries. Whatever frequency is considered “standard” in your industry, paying workers less often could affect recruiting and retention.
Do your employees value by monthly bonuses, weekly overtime, or commissions? Some industries struggle with dated HR software and a workforce that prefers newer, more frequent payroll options.
How you company runs payroll
The staff in your HR department will have different perspectives, based on their experience with past employers. Each company develops processes that become entrenched over time.
- Payroll Software vs. In-House: When you’re thinking about changing payroll frequency, it’s probably a good time to shop around for a new payroll provider. Manually running payroll in-house will limit your options, multiplying the cost and workload whenever you increase frequency.
- Small vs. Large Business: Extremely small businesses are exempt from some state and federal regulations. HR software makes it easier for small and medium-sized businesses to “punch above their weight class” with advanced payroll services. Growing businesses often simplify payroll by standardizing bi-weekly schedules.
- Payroll Cost: The payroll frequency can simplify or complicate calculations like deductions and overtime. Payroll errors are expensive, but even running payroll correctly takes time and money. In addition to administrative costs, some payroll providers may charge a different rate or fees that reflect your payroll frequency.
Pay frequency change requirements
When you need to change the pay frequency at your company, there may be legal requirements. Basically, your agreed wages for current employees should not be interrupted or reduced. Get legal advice to make sure you abide by regulations, and make updates to your employee handbook.
- You should be able to prove that you have a legitimate business reason for your change
- When changing pay frequency, you can’t use that transition to avoid paying minimum wage or overtime
- Make sure that workers will be satisfied with this long term change
- Make sure employee payments aren’t delayed as a result of the transition
Discover how Netchex can help your business improve your payroll process, including your choice of pay frequency:
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