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Choosing a Pay Period That's Best For Your Company

by Brad Johnson on July 27, 2016
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New business owner? Switching up the way you do payroll? Either way you'll need to decide when, that is, how often, to pay your employees. You may be surprised by how much you have to think about when making this decision. The four main pay periods most businesses use are:

  • Monthly pay - 12 pay periods per year
  • Semi-monthly pay - 24 pay periods per year
  • Bi-weekly pay - 26 pay periods per year
  • Weekly pay - 52 pay periods per year

Each has its own set of advantages and disadvantages. You must pick the one that's right for you and your business cash flow. For example, you might like bi-weekly, but if you're only generating cash at the end of each month, bi-weekly won't work. The right pay cycle must align with how the business generates cash.

Monthly Pay

Monthly pay might be the best case scenario for your payroll department. Imagine only having to process payroll 12 times per year. You'd be cutting down on fees, payroll costs and the time associated with payroll. There's one big problem however: It's only legal in 12 states.

That's right - paying your employees monthly, no questions asked, is legal only in Alaska, Colorado, Delaware, Idaho, Iowa, Kansas, Michigan, North Dakota, Oregon, South Dakota, Washington, and Wisconsin. Other states allow monthly pay with restrictions. For example, Illinois, Nevada, New Mexico and Virginia allow monthly pay for executive, administrative, and professional personnel only. So check your regulations. Don't think it matters? The penalties for breaking these rules can be harsh. In Ohio, for example, anyone found in violation of payroll rules may be convicted of a first-degree misdemeanor. This can result in fines, house arrest or even up to six months in prison.

Additionally, for many employees, going a month between paychecks is a hardship. They may need payday loans to bridge the gap, or even take second jobs. 

Semi-monthly Pay

Semi-monthly pay requires 24 pay periods per year, often every 1st and 15th of a month or thereabouts. Maintaining semi-monthly pay can be difficult as designated paydays often fall on weekends or even holidays. Additionally, rather than a standard 80-hour pay period, semi-monthly pay periods tend to include around 87 hours. This can vary based on the number of days in each month. Payroll can get complicated when dealing with these types of calculations.

Bi-weekly Pay

Bi-weekly pay is every other week, or 26 pay periods per year. You're dealing with fewer fees and processing times compared to weekly pay and your numbers are usually more straightforward - 80 hours per pay period. Bi-weekly paychecks always arrive on the same day, eliminating confusion.

Weekly Pay

Weekly pay, or 52 pay periods per year, is most common in minimum wage industries. It takes a great deal of staff commitment and adds extra payroll costs but it can make sense if you're dealing with hourly employees. How so? If you have hourly employees who work irregularly, they are paid based on what they earn that week and can budget accordingly. This prevents the need for guesswork or payday loans. Additionally, in industries with high turnover, you can pay a former employee's last wages that week (or the next) and remove them from payroll.

Whatever pay period you choose, the process can be made easier with automated scheduling, timekeeping and staying on top of constantly changing regulations. Let us know if we can help.



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Topics: Payroll