How to Choose a Pay Schedule for Your Business

You’ve made good headway with your small business and are starting to hire more employees. Congrats, you’re making big moves! However, with additional staff comes the headache of additional payroll.

As a solo entrepreneur, you may not have given much thought to pay schedules in the past. However, chances are they will be important to your staff. Even if you’re still the only employee, establishing a payroll schedule for your small business is an essential step in managing your finances. 

That said,  what is a payroll schedule, and what are your options and obligations? Here’s everything you need to know.

What is a Pay Schedule?

The easiest way to describe pay schedules is as a combination of pay periods and pay dates. Your pay period determines the frequency in which your employees get paid, and the pay date refers to the day they receive their paychecks.

For example, you may select a semi-monthly payroll schedule where employees are paid for work cycles ending on the 15^th and final day of every month. However, that doesn’t necessarily mean they will receive their wages on that day. For convenience, consistency, and easier time management, you might elect to conduct payroll on the following Friday. Sometimes, you might move the pay date forward to account for weekends or public holidays, etc.

The Four Most Common Pay Schedules

While you might occasionally pay per diem employeeson a daily basis, it’s not a long-term solution or viable option for a growing team. There are four main types of pay schedules. Let’s take a look at each in detail and list some pros and cons to help you decide which salary pay schedule is right for your business.

1. Weekly Payroll Schedule

Paycheck periods per annum: 52

Payroll date: Usually a designated day of the week (Friday is most common)

Weekly pay schedules work well for businesses in the hospitality and labor sectors where many employees are paid at an hourly rate, have irregular schedules, or require overtime payments. Weekly payroll is standard for businesses like bars, restaurants, retail stores, and construction companies.

Pros of making weekly salary payments

• Freelance and contract workers often prefer weekly remuneration, which could be a critical factor if you’re looking to recruit part-time staff in a competitive market. 
•  Employee morale is higher when workers aren’t left waiting weeks to receive their overtime pay.
• Weekly payments are a better real-time match of your incomings and outgoings. 

Cons of making weekly salary payments

• Running payroll every week is time-consuming.
• Because processing costs apply every time, this is the most expensive type of pay schedule.
• If your sales or revenue stream aren’t consistent, you may struggle to cover weekly checks in quiet periods.

2. Bi-weekly Payroll Schedule

Paycheck periods per annum: 26

Payroll date: Usually every alternate Friday

According to the US Bureau of Labor Statistics, this is the most common pay schedule used by American businesses. Like with weekly payroll schedules, pay dates are allocated to a specific day. The only difference is they are paid every fourteen days rather than every seven. Most of the time, this means two payroll dates per month. However, twice a year, there will be three — when the month begins on (or very close to) one of your pay cycle days.

Pros of making bi-weekly salary payments

• Easy to action for all employees, eliminating the need for multiple payroll schedules for various categories of staff.
• Good for workers with irregular schedules who may work many hours one week and none – or very few – the next. Bi-weekly payments also make it easier for staff to manage their finances if they take sick leave or unpaid time off.
• Twice per year, employees feel like they get an “extra” paycheck.

Cons of making bi-weekly salary payments

• Months with three pay dates can be confusing to administer in terms of benefit deductions and expense accruals.
• Budgeting for months with three payrolls can be challenging for many small businesses.
• When bi-weekly pay dates bridge two different months, more complex accounting is required to align payments with monthly taxes.

3. Semi-monthly Payroll Schedule

Paycheck periods per annum: 24

Payroll date: Typically either the 1st and 15th or the 15th and 30th of every month.

As the name suggests, employees on semi-monthly pay schedules are paid twice per month, making this model very similar to making bi-weekly payments — which we’ve already established is the most common option among US employers. However, what is a semi-monthly payroll schedule used for and why would you choose this schedule over a bi-weekly model? Generally, the answer comes down to administration considerations and whether your staff are salaried or paid by the hour.

Pros of making semi-monthly salary payments

• Because insurance premiums are charged on a monthly basis, it’s easier to manage benefit deductions.
• Semi-monthly payroll is easy to administrate for salaried staff who can’t collect overtime.
• Fewer pay dates in a year means payroll is more cost-efficient and less time-consuming.

Cons of making semi-monthly salary payments

• Work weeks for hourly employees will often be split between two pay periods, making overtime and commission payouts more difficult to calculate.
• It can be challenging for employees to manage their personal finances because the day they get paid will often vary between consecutive pay periods.
• It’s easy for whoever is running payroll to lose track of which day to process payments (although ADP’s handy 1st and 15th payroll schedule 2022calendar can help with that).

4. Monthly Payroll Schedule

Paycheck periods per annum: 12

Payroll date: Usually the last day of the month

Monthly payments are the least common type of payroll schedule and are typically favored by particular types of organizations like finance companies and professional and business services. You’re probably thinking that a monthly salary pay schedule is a no-brainer in terms of ease and convenience — and you might well be right. However, there are some pretty significant disadvantages, so you’ll need to weigh up the pros and cons carefully.

Pros of making monthly salary payments

• This type of schedule works well for solo entrepreneurs, commission-based salaries, and subscription-based business models where the majority of revenue comes in at the same time every month.
• Having the lowest number of payroll dates per annum, monthly pay schedules also have the lowest overheads in terms of time and processing costs.
• It’s straightforward to manage benefit deductions as most insurance premiums are charged monthly.

Cons of making monthly salary payments

• This is the least preferred by employees, as new recruits may have to wait over a month for their first paycheck. Plus, it makes their money management and bill payments more difficult to manage.
• Many state laws require employees to be paid more regularly than once per month.
• Receiving only 12 paychecks per annum can create uncertainty for hourly employees, prompting them to seek employment elsewhere.

How to Choose Your Payroll Schedule

Regardless of what other businesses might be doing, there’s no right or wrong answer to how often you run your payroll. As a result, it’s best to base your decision on what makes the most sense for you. However, once established, switching pay schedules can be challenging and time-consuming, not to mention frustrating for your employees. The bottom line is it’s essential to get it right from the get-go.

Before you make your decision, you’ll need to consider a few additional factors:

State Regulations

Ultimately, choosing a payroll schedule may not even be up to you, as many state laws stipulate minimum pay periods. Check the relevant State Payday Requirements carefully to see which regulations apply to your business.

Business Cash Flow

For most small businesses, payroll is the largest single expense, so the rhythm of your company’s cash flow must be factored in before you choose a suitable payroll schedule. For example, does revenue flow through your company consistently every month, or are there peaks and troughs?

Accounting Complexity

Under federal law, overtime rates need to be calculated weekly and factored into whichever model you choose. If you’re a small business owner running payroll yourself, this can be complex, confusing, and time-consuming.

Processing Costs

The more payroll cycles you run, the higher your overall payroll processing costs will be.

Labor Market Expectations

Workers in some industries have set expectations of payroll frequency and may decide not to work for you if their compensation isn’t paid on a timescale that’s convenient to them.

DIY Payroll Setup without the UGH!

Whatever schedule you choose, payroll’s no big deal with Roll by ADP. 

Roll’s payroll mobile app is a completely reimagined way for small businesses to do payroll. Its conversational interface allows you to effortlessly and intuitively make payments in under a minute, on whatever device, whenever it fits your day. And the best part? There’s no need for clunky, old-school forms or static spreadsheets. Just one easy-to-use app that’s always in your pocket.

From setting up payroll to hiring your first employee, you do everything in the app through a convenient chat interface. No training needed — if you know how to text, you know how to run payroll with Roll. And our employee-friendly features and payroll self-service help your team roll with the flow, too.

Sign up for your free trial today, and get ready to Roll!