Understanding Pay Frequencies: What’s Best for Your Business

Understanding Pay Frequencies: What's Best for Your Business?

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When it comes to running payroll, one of the first decisions a business owner must make is how frequently employees will be paid. Pay frequency impacts everything from employee satisfaction to cash flow management. Understanding the different pay schedules can help you make the best choice for your business and team.

Let’s learn about the common pay frequencies, their advantages, and considerations for choosing the right one. Before that, we need to learn about the pay week.

Common Pay Frequencies:

1.Weekly: Employees are paid once every week, typically on the same day.
Advantages:
  • Employees enjoy consistent and frequent paychecks.
  • Ideal for industries like construction, retail, or hospitality, where workers may rely on more frequent earnings.
Considerations:
  • Higher payroll processing costs due to the number of pay periods.
  • Increased administrative workload.
2. Biweekly: Employees are paid every two weeks, resulting in 26 pay periods in a year.
Advantages:
  • Regular pay schedule that aligns well with budgeting.
  • More manageable administrative effort compared to weekly payroll.
Considerations:
  • Employees may have to wait longer between paychecks compared to weekly pay.
  • Requires handling two “extra” pay periods during the year.
3.Semi-Monthly: Employees are paid twice a month, often on the 15th and the last day of the month.
Advantages:
  • Predictable pay dates are easy to align with monthly bills and expenses.
  • Fewer payroll runs compared to weekly or biweekly schedules.
Considerations:
  • Paydays may fall on weekends or holidays, requiring adjustments.
  • Overtime calculations can be more complex, as workweeks don’t align neatly with pay periods.
4. Monthly: Employees are paid once a month, resulting in 12 pay periods a year.

Advantages:
  • Simplifies payroll processing.
  • Reduces administrative costs.
Considerations:
  • Employees may find it challenging to budget, especially for those who live paycheck to paycheck.
  • Less common in the U.S. and may lead to employee dissatisfaction.

Is Semi-monthly and Bi-weekly the same?

Though the terms look similar, how the employees are paid is different. In Biweekly, employees are paid once every two weeks, usually on Fridays. Employees will receive 26 paychecks in a year. With Semi-monthly, employees receive payment twice a month either 1st and 15th or 15th and the last day of the month. Employees receive 24 paychecks per year.

You might be thinking what’s the big deal? My business can cover the operations cost for 26 paychecks or 24 paychecks.

You need to have a fair understanding of workweek and legal compliances. A workweek is a fixed and regularly recurring period of 168 hours, or seven consecutive 24-hour periods. The workweek does not have to coincide with the calendar week, but instead it may begin on any day of the week and at any hour of the day.

Semi-monthly pay periods may not align with the recurring workweek since the actual day of the week moves (for example the 15th of the month could be on a Tuesday or Monday).

Since a Semi Monthly Pay Frequency changes both the actual dates of the pay period and the check date, the hours worked in a pay period may overlap across multiple workweeks.

The FLSA Overtime rule states that non-exempt employees must be paid 1.5 times their regular hourly rate for any hours worked over 40 hours in a single workweek. This is where semi-monthly pay frequencies can get messy.

For example, Dave worked 40 hours on week 1 and 40 hours on week 2, but since he is paid Semi-Monthly, he also has 8 hours in the next week but the SAME pay period.

The pay period is from 1st to 15th of a month and the workweek is from Monday to Sunday. If the 15th falls on a Tuesday, even though Dave worked for 80 hours, the company needs to consider the extra 8 hours that are not calculated in the workweek as overtime and apply overtime pay calculations on the next scheduled check date.

You may be thinking, I don’t get it.  Exactly.  This is where most employers run into problems.  It’s something that seems simple but is overlooked. Once this becomes known, it  becomes complicated.  This is why we always recommend Bi-Weekly pay frequencies.

With Bi-Weekly, Employers do not have this issue, as the pay period and the work week align making FLSA Overtime Calculations easy.

If you are dead set on paying Semi-Monthly, than a time tracking system should be used.

If you have questions or need assistance with payroll or timekeeping, PeopleWorX can take care of your semi-monthly pay frequency and keep your business out of legal compliance.

Pay Frequency by States:

Check the state laws when you are deciding on the pay frequencies. Many states have laws that support different pay frequencies. Here is the chart to know about the pay frequency by state.

Key Factors to Consider When Choosing a Pay Frequency:

1. Industry Standards: Employees expect pay schedules to align with norms in their industry. For example, hourly workers in industries like restaurants and construction, often expect weekly or biweekly pay, while salaried employees may be comfortable with semi-monthly or monthly pay.

2. Cash Flow Management: The frequency of payroll could impact your business cash flow. Weekly pay may strain cash flow, especially for small businesses. Monthly pay can help conserve resources but may not be well-received by employees. 

3. Employee Preferences: Consider conducting a survey to gauge your team’s preferences. Balancing employee satisfaction with operational feasibility is the key to a positive work environment.
4. Compliance: Be sure to adhere to state regulations regarding pay frequency. Some states mandate minimum pay periods or require timely payment of wages for certain employees.
5. Payroll Processing Costs: More frequent payroll runs mean higher costs, whether you’re processing payroll in-house or using an outsourced payroll provider..

How PeopleWorX Can Help:

Choosing the right pay frequency can be complex, but it doesn’t have to be overwhelming. At PeopleWorX, we simplify payroll processing for your business.

Our flexible payroll solutions allow you to set up and manage the best pay frequency for your business and team.

With over 20 years of experience, we’ll ensure your payroll is accurate, compliant, and tailored to your business’s unique needs. Let us handle the complexities of payroll so you can focus on what matters most: growing your business.

Contact Us To Learn More