Deciding on the best payroll schedule for your business

The question often comes up in human resources and accounting departments: What’s the best payroll schedule? While the answer to this question is to a large degree dictated by state and local wage and hour laws, there’s some wiggle room for employers to make a decision that suits them and their employees.

Common payroll schedules

Many companies choose to pay employees on a weekly, biweekly, semi-monthly, or monthly basis—or some combination of these—depending on employee status.

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For example, some employers may pay hourly employees weekly, whereas salaried and exempt employees are paid on another payroll schedule. Still other employers may make regular bi-weekly payments but hold sales commissions for monthly or quarterly distribution. Bonuses and profit sharing payouts may only take place once a year or at other frequencies.

Accounting reasons for biweekly versus semimonthly payroll schedules

The way you distribute salary payments can differ based on the accounting schedule used to calculate payroll deductions, such as taxes, benefits, and other legal withholdings. Accounting firms will usually print out monthly reports to review profits and expenses, so often a semi-monthly payroll schedule works better than a biweekly schedule. Paying employees biweekly also mean cutting 26 checks per year instead of 24.

Hourly employees often prefer weekly or biweekly paychecks because they detail overtime (mandatory by Federal law for hours worked over 40) each pay period. This is not as complex for salaried employees who may have work hours that fluctuate but are paid the same amount each pay date.

Benefits of weekly pay periods in compensation management

While it does take a little more administration than other forms of payroll scheduling, the weekly paycheck means more to compensation management.

First of all, it makes earnings more visible and attractive for employees because they can better budget for each week’s expenses. Also, deductions and contributions can be more readily seen by employees when they have a regular weekly paystub to reference. Finally, when an employee works a somewhat flexible schedule, the hours worked each week, including overtime, are clearly indicated to the employee.

However your organization chooses to manage payroll schedules is ultimately up to your internal accounting standards and procedures. However, keep employees’ needs in mind when issuing payments for hours worked, as this is where it counts the most.