Employers have a lot on their plates when it comes to payroll, including filing taxes and managing deductions, complying with state and federal laws and industry regulations, and determining what kind of payroll schedule works best for their businesses. But what exactly is pay frequency, and why does it matter? This article explains the most common payroll cycles, legal requirements, industry standards, how to determine payroll frequency and the cost of running payroll.
What Are the Most Common Payroll Cycles?
Payroll cycles are the amount of time that passes between each paycheck. For instance, some employers maintain a weekly payroll cycle. This means that employees can expect a paycheck on the same day each week.
Payroll cycles are fundamental in business operations because they influence your cash flow (the amount of money you have available to make business purchases) and can contribute to attracting and retaining employees.
The most common pay frequencies are:
- Weekly payroll: Employees receive a paycheck once a week. A weekly payroll cycle is favored in certain industries (such as construction, outdoor and seasonal work, and manufacturing) that tend to have irregular hours due to weather or overtime needs.
- Bi-weekly payroll: Employees get paid once every two weeks (26 paychecks per year). This is one of the most popular payroll cycles.
- Semi-monthly payroll: While it might sound the same as the bi-weekly pay frequency, employees get paid twice a month on this payroll cycle, for a total of 24 paychecks per year. Employees commonly receive paychecks on either the first and the fifteenth of each month, or the fifteenth and the last day of the month.
- Monthly payroll: A monthly pay frequency is the least common payroll cycle. High earners sometimes receive a monthly paycheck. However, individuals making less money may find it challenging to wait that long between paychecks.
What Is the Best Day of the Week to Pay Employees?
Once you have determined your frequency of pay, what day of the week should you pay your employees? When you pay your employees depends on your personal preference, as well as what makes the most financial sense for your business. You should also take into consideration what your employees want.
For instance, let’s say you own a liquor store and consistently make most of your sales on Fridays and Saturdays. It might make the most sense to pay employees on a Monday when you know you will have a large influx of cash from weekend sales to cover paychecks.
Employees who work Monday through Friday often prefer to get paid on Fridays, so they have money to spend on their days off.
Legal Requirements and Industry Standards
There are certain state and federal laws concerning pay frequency that you need to comply with.
The Fair Labor Standards Act (FSLA) is a federal law that requires employers to pay employees minimum wage and overtime pay. While it does not specifically dictate pay frequencies, it does require employers to pay wages on “the regular payday for the pay period covered.”
Many states do have specific pay frequency requirements. State laws about pay frequency vary, but all states except Florida and Alabama currently have regulations determining how often certain employers need to pay their employees.
Even if your state does not have pay frequency requirements, you will still need to comply with the FSLA and pay employees on a regular basis.
You should also consider industry standards when choosing payroll frequency. For instance, most retail and healthcare employees receive paychecks bi-weekly, while those in the construction or manufacturing industries often receive weekly paychecks.
Factors to Consider When Determining Payroll Frequency
The types of payroll frequencies you choose depend on several factors, including your industry, business size, cash flow, and the payment preferences of your employees.
Size of the Business
Small business owners may offer different payroll frequencies than those in charge of enterprise organizations. Small business owners with fewer than ten employees may prefer to pay their employees weekly, as their payroll processing is less complicated than a larger organization’s.
Larger companies with many employees, or both hourly and salaried employees may have more complicated payroll needs. Extended or multiple payroll schedules might make more sense for larger companies.
Cash Flow and Financial Stability
The less often you run payroll, the less you spend on payroll processing, which can help you save money for other business expenses. Small businesses with limited income and hourly employees may do well with a bi-weekly pay schedule, as it cuts costs associated with weekly payroll.
However, you will still need to comply with applicable laws and industry regulations concerning payroll frequency, and remember that most employees will prefer more frequent paychecks.
Payment Preferences of Employees
Often one of the biggest questions a potential employee will have is when they will get paid. Whatever payroll cycle you choose, you should have a clear answer as to what the payment frequency is for your company.
According to LendingClub, a digital marketplace bank, most American employees live paycheck to paycheck. Most employees will likely want to get paid as often as possible, although there are some exceptions. High earners and executives often receive monthly paychecks, as they have more money to live off of between payroll cycles.
The Cost of Running Payroll
So, how much does it cost to run payroll? The cost of running payroll can depend on the following:
- How many employees you have
- How often you run payroll
- How many states you employ people in
- How you pay your employees (paper check, direct deposit, payment card, etc.)
- What kind of help you need with tax filing or withholdings
- Fees charged if you use a payroll provider service
- Administrative costs
- New hire reporting
- Bank fees
If you choose to use a payroll service provider, they will likely either charge you per employee per check or per employee per month. For example, Gusto, a popular payroll, benefits, and HR services provider offers plans starting at $40/month plus $6/month per person.
Conclusion
The most common payroll cycles are:
- Weekly
- Bi-Weekly
- Semi-monthly
- Monthly
The type of payroll cycle you choose depends on your business size, cash flow, and employee preferences.
The FSLA is a federal law that requires you to pay employees regularly. You should review your state’s pay frequency requirements to ensure that you comply with state laws.
Certain industries tend to pay employees on a specific schedule. For instance, many construction and manufacturing companies pay their employees weekly due to irregular hours, while larger organizations might pay highly compensated workers monthly.
The cost of running payroll depends on several factors, including how many employees you have, how they get paid, and whether you do payroll yourself or use a payroll processing service.
To determine the best payroll frequency for your business, you should examine your cash flow and learn your employees’ preferences. If your company only has a few employees, a weekly pay cycle might make the most sense for you. If you have a larger organization with hourly and salaried employees, you may be better off scheduling extended or multiple payroll cycles.
FAQs
What is the importance of running payroll?
Running payroll is how you make sure your employees are paid on time, helping you comply with state and federal laws.
