If you own a small business and are looking to hire your first employee, you need to consider how often you will pay your new hire, since this will be included in your offer letter.
Last month, we explored the employee side of receiving a paycheck, discussing different pay cycles and how the pay schedule can impact the employee. In this article, we’ll take a closer look at the employer side of the discussion and help businesses decide how often employees should receive their paychecks.
- In most places, state law dictates how often you must pay your employees, at a minimum. However, you can choose to pay more frequently than the law dictates, just not less frequently.
- There are 4 common pay schedules: biweekly, semi-monthly, monthly, and weekly. To learn more about each, please click here.
When deciding how often to run payroll, you should consider the following:
- Cost of running payroll. Do you have to pay your payroll provider every time you run payroll? Are you completing payroll yourself? Your time and finances should both be considered when determining how often to run payroll.
- Other costs involved with running payroll. This includes printing checks for employees, any direct deposit charges incurred by banks, and time spent by an employee or bookkeeper to calculate payroll.
- Employee preference. Most hourly employees like to be paid more frequently. This helps the employee budget from paycheck to paycheck. The majority of hourly employees are paid on a weekly or bi-weekly schedule. For salaried employees, the frequency is less important because they know how much money each paycheck will provide and are able to plan accordingly. Most salaried employees are paid either bi-weekly or semi-monthly. In general, most employees like to be paid more frequently than less.
- The easiest method for accounting. While employee’s preference is important, you also want to keep your bookkeeper’s patience in mind. Bi-weekly pay schedules can be complicated if there are 27 pay periods in a year (as opposed to the normal 26). This occurs depending on which day the year starts with, and how the days of the week fall. Semi-monthly pay schedules can be tricky for hourly employees, because there are 86.67 hours in a typical pay period. This makes overtime pay complicated, and could increase questions from your employees.
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These free resources should not be taken as tax or legal advice. Content provided is intended as general information. Tax regulations and laws change and the impact of laws can vary. Consult a tax advisor, CPA or lawyer for guidance on your specific situation.