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How to choose a pay schedule for your business
Taxes and Accounting

How to choose a pay schedule for your business

9 min read

Pay schedules are usually chosen by management and can provide significant benefits and challenges to your business. Whether you’re just getting started or in the process of growing your business, adjusting your payroll method could improve cash flow.  

In this article, we’re breaking down the major pay structures chosen by American businesses. Here’s everything you need to know.

What is a payroll schedule?

A payroll schedule is the frequency with which you pay your employees. Pay periods are usually dictated by the state, which guide the amount of time between expected paychecks. 

The payroll schedule will determine how many pay periods you have per year, how many paychecks you get each month, and the way salary and taxes are structured.

Payday laws

The degree of choice you’ll have in choosing your pay schedule is determined by your state. Some states regulate the frequency of payments, while others allow you to choose how frequently you pay employees with a minimum pay period (usually 14-16 days). Exceptions may also be made according to certain jobs or industries. 

For example, Utah requires payment semimonthly (twice a month), but yearly salary employees may be paid once a month. To see the payday laws for your state check the table made by the U.S. Department of Labor.

Choosing a pay schedule

You don’t have to pay your employees on the first of each month just because it’s always been done that way. You can choose a payment schedule that works best for you. There are a few guiding principles and some pros and cons to be aware of, but we’ll walk you through it. 

  1. Begin with state regulations: Understand the parameters handed down by your state, including minimum length of pay periods and any exemptions for different types of workers. 
  2. Assess workers: Do you have more exempt or non-exempt workers? High numbers of hourly workers will usually point you towards weekly or biweekly payroll cycles. Consistent salaried employees makes semi monthly or monthly payroll cycles more preferable. 
  3. Consider the budget: Consult with your finance and leadership teams to see how budgeting will be affected by different pay periods. Choose the payroll schedule that gives you the best cash flow and cleanest budgeting methods.

When you’ve established a payroll schedule you want to stick to it as much as possible, but nothing is set in stone. Running a business means constantly gathering data and making decisions based on your best judgement, so if your payment schedule isn’t working for you—try something new.

When to change your payroll schedule

Employees and accountants alike rely on the consistency of their existing pay schedule for budgeting and cash flow, so it’s best to keep changes to a minimum. However, changing your payroll schedule can improve the payment situation for everyone involved when it’s done right. 

You might consider changing your payroll schedule if: 

  • You’re spending too much time running payroll 
  • Your ratio of exempt to non-exempt employees changes
  • You need to improve your business cash flow
  • Your employees have requested a change

Before we dive in, let’s clarify the difference between an exempt employee vs. a non-exempt employee. Exempt workers are those who are exempt from overtime pay—usually salaried employees. Non-exempt workers are usually hourly workers who are eligible for overtime and may have more flexible or varied schedules. The type of employees you have will affect the payroll schedules that work best for you.

4 types of pay schedules

Your payroll schedule determines how many paychecks your employees will get each month. While it doesn’t change the hours worked or the money earned, it can change the amount of take home pay on each paycheck. It can also affect the number of hours needed for your accounting team to complete payroll—weekly payroll means time every week to get paychecks ready.

Overview of the 4 types of payroll schedules

  • Weekly payroll schedule: Every single week (e.g. every Friday), 52 payroll weeks
  • Biweekly payroll schedule: Every two weeks (e.g. every other Friday), 26 or 27 payroll weeks
  • Semimonthly payroll schedule: Twice a month (e.g. the 1st and the 15th of each month), 24 payroll weeks
  • Monthly payroll schedule: Once a month (e.g. the 1st of each month), 12 payroll weeks

The biggest confusion usually comes with biweekly vs. semimonthly pay periods. The difference here is that one relies on weeks and the other on months. Biweekly paychecks come every two weeks, regardless of the month or date. If you get paid every other Friday and there are five Fridays in a month, you might get three paychecks in one month. Semimonthly pay schedules will give you two paychecks every month, regardless of the number of days that month, or where payday falls. Biweekly payroll gives you two or three additional pay periods per year. 

Payroll schedules Paydays per year
Weekly 52
Biweekly 26 or 27
Semimonthly 24 
Monthly  12

Weekly payroll

Getting paid every single week means you’ll get 52 paydays every year. Weekly pay schedules are sometimes required for manual, daily, or hourly labor, depending on your state. 

  • Paydays per year: 52 
  • Pro: Regular paychecks for employees
  • Con: Running payroll weekly is time-consuming for accounting, even with payroll software
  • Best for: Daily, hourly, contract, temporary, or seasonal labor

Biweekly payroll

A very common pay cycle is biweekly payments, such as every other Friday. Regardless of date, month, or number of days in the month, employees are paid every other week. Monthly cash flow can be unpredictable but manageable. 

  • Paydays per year: 26 or 27
  • Pro: Less payroll prep, predictable
  • Con: Makes monthly budgeting more difficult when paychecks come twice or three times each month
  • Best for: Nonexempt workers who work hourly and are eligible for overtime

Semimonthly payroll

Likely the most common, semimonthly pay cycles allow for two paychecks each month on designated dates. For example, if you’re paid semimonthly you might expect a paycheck on the 1st and the 15th of every month. 

  • Paydays per year: 24
  • Pro: Exact dates for payments, predictable budgeting
  • Con: Weekends and holidays cause rescheduling, can pose problems for hourly workers with fluctuating schedules if the pay date falls on an “off” week
  • Best for: Salaried employees with predictable payroll amounts

Monthly payroll

Monthly payroll is not allowed in many states, but where allowed it is payment in one check per month. Laws prevent this simply due to the issues it can cause for employees going so long between paychecks. 

  • Paydays per year: 12
  • Pro: Minimum hassle & cost for employers to run payroll
  • Con: Infrequent payments and difficulty budgeting for employees

Best for: Salaried employees with predictable payroll amounts

How do I know what payroll cycle is right for my business?

Only you can know which pay schedule will work best for your business, but the steps we’ve outlined should help. Remember to start with your state regulations, then turn to your numbers of exempt and nonexempt employees. Weekly and biweekly usually work best for nonexempt, hourly, and variable schedule employees, and monthly or semimonthly work better for salaried and exempt employees—but run the numbers and use your best judgment. 

You can also take into account the needs of your employees through interviews or surveys. For example, the date of pay might not matter to you but having checks come on the 30th instead of the 1st can dramatically benefit employees with bills due on the 1st. Working closely with your finance team and employees will allow you to pick a payroll cycle that is functional for everyone.

We can’t help you choose a payroll schedule, but we can help you organize your budgets for better financial visibility. So no matter which pay schedule you choose, you’re always on budget with Divvy.

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