How Often to Pay Your Employees
As an employer, you have to make many important decisions that can directly or indirectly affect your employees. One issue to consider is how frequently you will pay your employees. There are many different systems from which you can choose, but it’s important to consider the relevant legal requirements, benefits and disadvantages of different pay period options to find the one best suited to your needs.
To understand which pay period options are available to you as an employer, you have to know more about the relevant federal and state laws. At the federal level, there are no laws regarding the frequency of pay periods. However, there are some that prevent employers from changing pay periods haphazardly or in an effort to avoid compensating employees for overtime pay.
State laws vary, so it’s a good idea to do some research into the specific laws that apply in your state.
Breaking down pay frequency options
In general, businesses tend to have weekly, bi-weekly, semi-monthly, or monthly pay periods. Here’s how they break down:
- Weekly: Weekly pay periods are a common choice in more blue collar industries, but they can be challenging for employers. The process of collecting hours, filling out paperwork and submitting payroll every week can be time-consuming. While there are some businesses for which weekly payroll is necessary due to competition and union requirements (such as trucking), it’s much easier for employers to submit payroll on a slightly less frequent basis.
- Bi-weekly: Bi-weekly payroll (every other week) is the most popular option for employers. With a bi-weekly pay period, payday is typically every other Friday. This option offers consistency and predictability for employers and employees alike. Although it’s not as easy to track for accounting purposes as monthly or semi-monthly payroll, it is clean and straightforward.
- Semi-monthly: With a semi-monthly pay period, payday happens twice per month—usually on the 1st and the 15th of the month. Payroll is only submitted twice in a month, which makes it easier for employers to keep up. However, planning payroll can be more difficult with semi-monthly pay periods, as employers must keep track of weekends and holidays to ensure they submit payroll in a timely manner. Payday can also land on any day of the week, meaning employees don’t get the consistently of always knowing that every other Friday is payday, for example. Although this option is more straightforward when it comes to accounting, it requires additional planning to ensure employees get paid on time.
- Monthly: Monthly pay periods are generally most appropriate for S Corporation owners who want to pay themselves while keeping their taxes as simple and straightforward as possible. Monthly pay periods do not usually work as well for employees (who expect a more frequent paycheck), so it’s best to stick to a payroll option that offers at least two paydays each month.
Ultimately, it’s up to you to decide which pay period option is right for your needs. No matter which you choose, be sure you have the resources necessary to submit your payroll accurately, efficiently and consistently.