Choosing a payroll schedule is one of the most important decisions you’ll make as a business owner.
Why?
Not paying your workers often enough can strain them financially. They might end up overspending in the first couple of weeks and not have much cash left over for the essentials.
But then again, paying them too often can cause problems as well. You’ll need extra time to calculate payroll every week. And charges by your payroll vendor or banks (for checks) can add up quickly if you pay employees four times every month instead of only once.
So how do you handle this balancing act without tearing your hair out? Let’s get into the nitty-gritty of pay schedules.
What Is a Pay Schedule?
A pay schedule (or pay frequency) determines how often you pay your employees—and on what day of the month. You can use four different types of pay schedules: monthly, semimonthly, biweekly, and weekly.
But why all this fuss? Why can't you just pay whenever you want?
Why Do You Need a Payroll Schedule?
A payment schedule means you know exactly how much you need to pay your employees and when to pay them, simplifying things for your accounting and human resources (HR) teams.
And that's not it. There are labor laws and state requirements that require you to stick with a payroll schedule.
Most States Have Laws That Require You to Have Specific Payroll Schedules
Most states have specific pay frequency laws (except Alabama, South Carolina, and Florida). For instance, Georgia requires you to pay semimonthly and Maryland requires you to either pay semimonthly or biweekly.
However, none of these laws prevent you from paying more than the required number of times. For example, Arizona requires employers to pay their workers semimonthly. But that doesn’t mean it's the only pay frequency you need to choose. You can also pay your Arizona workers biweekly and weekly—you just need to pay your employees two or more times every month and less than 16 days apart.
It's also important to note that state laws are always subject to change. So, before choosing how often you'll pay your employees, check with the Department of Labor (DOL) for more information.
Your Employees Expect You to Have a Payroll Schedule
Everyone likes to get paid, and your workers aren't any different.
A consistent pay frequency can go a long way in building employee morale. It lets employees budget for recurring expenses more effectively so they can feel secure about their finances.
Also, states like California have specific payday requirements. For example, California employers need to establish a regular payday and give notice to their employees showing the date, time, and location of payment. They also need to pay workers before the 26th of each month what they've earned between the 1st and the 15th.
If you don't pay your workers on a regularly scheduled payday, they can report you to the Division of Labor Standards Enforcement (DLSE).
Now that we’ve answered this burning question, let’s look at the different types of payment schedules.
What Are the Different Types of Pay Schedules?
As we said earlier, payment schedules are divided into four types: monthly, semimonthly, biweekly, and weekly.
Let's take a closer look at each option.
Monthly Payroll Schedule
With a monthly pay schedule, you pay employees for the work they’ve done in that month.
Most companies with monthly payroll schedules pay their workers on the last day of the month, which amounts to 12 paydays per year. That makes this schedule the most cost-effective since you’re limiting the number of payroll runs. This will save your accountants time or save you on paying a payroll provider (if they charge per payroll run, which Hourly doesn’t!).
Here’s a monthly payroll template for 2023. Just click "Make a copy" to start editing your own
But…there’s a catch. About half of the states don't support monthly pay. That’s why it’s the least popular pay schedule, with only 4.4% of U.S. workers receiving monthly paychecks.
Pros
- It has the lowest processing cost since you only do payroll 12 times a year.
- Easy to calculate wages and monthly deductions, like healthcare or retirement plan contributions.
Cons
- Employees don't like this pay schedule since they have a hard time managing their finances and staying on top of bills.
- It can take at least a month for new employees to receive their paychecks, which isn't ideal. They’ll have to look for other ways to pay their bills during the first month of work.
Semimonthly Payroll Schedule
With a semimonthly pay schedule, you pay workers twice a month—or 24 times per year. The typical pay dates are on the 1st and the 15th or the 15th and the last day of every month.
Here’s a semimonthly payroll template showing pay periods for 2023. Just click "Make a copy" to start editing your own.
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Semimonthly schedules are best for exempt team members (usually salaried) and can be challenging for non-exempt employees (usually hourly). That’s because you owe non-exempt employees overtime.
But since one workweek might be split into two pay periods, you’ll have to be super careful about counting up overtime and applying it to the paycheck that reflects when the team member crossed that 40-hours-a-week threshold. Missing overtime payments can lead to penalties.
That’s why only 18% of workers receive semimonthly paychecks, making it the second least popular pay schedule—probably because most American workers (just over 55%) are paid hourly.
Pros
- Pay periods and pay dates are consistent and fall in the same month. As a result, your accounting team can just sum up your payroll expenses to give you a clear view of labor costs.
- It's ideal for salaried employees who don't earn overtime. You just divide their yearly salary by 24.
Cons
- It may not be ideal for hourly workers who earn overtime pay or those with irregular hours each week.
- Paydays may fall on a weekend or holiday since the payout is made on specific dates every month. Even if employees have set up direct deposit, they can occasionally experience delays in receiving their paychecks.
Biweekly Payroll Schedule
In a biweekly schedule, you pay workers every other week on a specific day of the week when the pay period ends. That equals 26 paydays a year, meaning there are two months each year where you pay employees three paychecks per month.
Here’s a biweekly payroll template for 2023:
Those two extra paydays can be a headache.
Why?
If you're getting consistent revenue every month, you may have a hard time budgeting for the months with extra paydays.
You can notice this difference if you compare semimonthly and biweekly pay periods.
For example, let’s say a worker earns $72,000 per year. If you pay them semimonthly, it'll result in $6,000 every month in gross wages.
($72,000 / 24 = $3,000 per pay period. Multiply that by two periods to get $6,000 per month).
Paying the same worker biweekly will result in $5,538 per month for 10 months every year.
($72,000 / 26 = $2,769 per pay period. Multiply by two to get $5,538 per month).
But for the remaining two months, you'll have a third payroll and have to pay the worker $8,307 per month ($5,538 + $2,769).
So even if you pay the employee $72,000 per year in both cases, payroll costs for biweekly schedules in those two months appear to be even higher than what you pay with semimonthly pay periods.
Pros
- Biweekly pay schedules benefit your employees since they’re paid frequently and can plan their finances around those dates.
- You can easily calculate employee overtime since the pay period is based on 80 hours total (not 86.67 hours as in semimonthly).
Cons
- The 26 pay periods can cause issues for your accounting team since they might find it difficult to budget for the months with extra paydays.
- Payroll deductions like health insurance are usually calculated on a monthly basis, so they may be problematic if your pay schedule is biweekly as you’ll have to split these deductions across the biweekly checks—which seems like and is extra work—unless you’re using Hourly, which calculates any payroll deductions for each employee automatically.
Weekly Payroll Schedule
With a weekly schedule, you pay workers every week for the work they've done that week. Almost one-third (31.8%) of U.S. workers receive weekly paychecks, making it the second most popular pay schedule—just behind biweekly (45.7%).
Most businesses choose Friday as their payday, but you can go with whichever day works best for your company.
Here’s a weekly payroll template for 2023. Just click "Make a copy" to start editing your own.
Pros
- Most employees (if not all) enjoy getting paid every week. They have access to their hard-earned cash more often, so they can pay bills immediately or make purchases.
- Weekly pay schedules make calculating overtime for employees much simpler since weekly payroll coincides with the regular workweek—and any hours over 40 in a workweek (or 8 hours daily in some states) are considered overtime.
Cons
- You have to run your payroll 52 times per year using this type of pay schedule. And your payroll costs may quickly add up if you're using checks to pay employees or a payroll service that charges a fee each time you run a payroll.
- Running payroll each week might waste your accounting team's precious time that it can spend elsewhere.
Which Payroll Schedule Should You Choose for Your Business?
Most businesses opt for a biweekly payroll schedule since it benefits both employers and employees. Employers find it cheaper to process payroll biweekly than weekly. In contrast, employees get to access their wages more often than when paid monthly or semimonthly.
However, if most of your employees are hourly, a weekly pay schedule is the way to go since it simplifies calculating overtime.
That said, every business is unique. So, consider the following before you choose a payroll schedule:
- What does your state law say about payment frequency?
- What type of workers have you employed? Hourly employees? Salaried workers?
- Which option are your employees most comfortable with?
- What's your cash flow? Can you pay workers with the type of schedule and payroll calendar you create?
- How many employees do you have?
Depending on the payment frequency you go with and the number of employees you have, your payroll processing can eat into your precious time. Instead, you can use a payroll app like Hourly to automate your payroll process and avoid all that hassle.
Consistency: The Key to Your Payroll Schedule Success
Paying your employees on time and consistently is the key to your pay schedule’s success. It'll boost your team members' satisfaction and make them feel like you respect, value, and appreciate the work they do.
In the end, you'll have to decide what’s best for your business and workers. There’s no right or wrong answer.
Use this guide to make the best decision for you and your team—and don’t forget to check your state’s pay frequency laws to make sure you’re staying above board!
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