5 Considerations When Picking Payroll Frequency

Rachel Blakely-Gray
Posted by Rachel Blakely-Gray on Apr 19, 2021 10:12:28 AM

When your clients hire their first employees, they get to dive into all the aspects of running payroll. One of the first payroll decisions they may make is how often they run payroll (i.e., payroll frequency).

As their trusted advisor, your client may ask you to help them choose a pay frequency. Consider five factors to help clients choose a frequency that makes sense for their business.

5 Payroll Frequency Factors to Consider

Your clients shouldn’t choose a payroll frequency out of a hat. Instead, encourage them to think about how often they should pay employees by considering the following five factors.

1. What are the options?

When it comes to choosing a pay frequency, your clients have options. Typical pay frequencies include:

  • Weekly: 52 paychecks per year
  • Biweekly: 26 paychecks per year
  • Semimonthly: 24 paychecks per year
  • Monthly: 12 paychecks per year

Under a weekly pay schedule, employees receive their wages once per week, on the same day of the week (e.g., Friday).

A biweekly schedule gives employees their pay every other week on the same day (e.g., Friday), generally resulting in two paychecks per month.

Semi-monthly frequencies result in employees receiving two paychecks a month but on specific dates (e.g., the 15th and 30th).

Last but not least, monthly payroll doles out one paycheck per month to employees.

You can go over your client’s options and the differences between the different pay frequencies. In many cases, setting up a payroll calendar comes down to your client’s preference, which we’ll get into in the next sections.

2. What’s popular?

The next consideration your client may want to make is which frequency is most popular. Knowing standard frequencies in other workplaces could help inspire your clients and get the ball rolling.

According to the Bureau of Labor Statistics, biweekly is the most common pay frequency—42.2% of private employers use it. The next most popular is weekly with 33.8% of private businesses using it, followed by semimonthly (18.6%) and monthly (5.4%).

Keep in mind that a number of other factors could influence what’s popular, including:

  • Industry
  • Employer size
  • Employee types (e.g., hourly vs. salary)

For example, the most popular pay frequency among employers with one - nine employees is weekly, not biweekly.

3. What are the state laws?

Sometimes, choosing a pay frequency is about more than just personal preference—it’s also about compliance.

There is not a federal payroll frequency law. However, almost all states have pay frequency laws. 

Pay frequency laws by state require employers to pay their employees a certain number of times per month. In some cases, states require employers to pay employees every so many days (e.g., not more than 16 days apart in Arizona). You can pay employees more frequently than your state law requires, but not less.

When your client is choosing a frequency for the first time, the last thing they want is to violate their state’s laws. Before your client chooses a payroll frequency, let them know about their state’s laws. You can brush up on state payday requirements through the Department of Labor website.

4. How often do you want to run payroll?

Pay frequency determines how many times your client (or you) needs to run payroll. As a result, your client should consider how often they actually want to set aside the time to run payroll and cut checks (if applicable). 

However, time isn’t the only consideration. Does your client run payroll with payroll software? Some (but not all) software providers charge a fee per payroll run.

5. Do you value consistency?

And now for the final consideration: consistency. Some pay frequencies are more consistent than others.

Here are the two payroll frequencies that tend to be a little inconsistent from time to time:

  • Biweekly
  • Semimonthly

Biweekly: What is so inconsistent about biweekly payroll? Since biweekly payroll uses an every-other-week system to pay employees, this generally leads to an employee receiving two paychecks per month. However, there are two months per year where employees receive three paychecks.

Some employers have cash flow struggles during three-paycheck months. Why? Because the extra company-wide paycheck could throw off your client’s monthly payroll budget. If your clients opt for a biweekly frequency, encourage them to plan for the three-paycheck months and take steps to prepare (e.g., speed up collections and reduce expenses).

Semimonthly: Under weekly, biweekly, and monthly pay frequencies, employees receive their paychecks on the same day each pay period (unless there is a banking holiday). But with a semimonthly schedule, employees receive their paychecks on the same dates each month. That means the days may vary.

With semimonthly payroll, employees could receive their paychecks on a Monday, Tuesday, Wednesday, Thursday, or Friday—it all depends on what day the date falls on. And that means your client needs to run their payroll on different days of the week each pay period. For some, this could cause confusion. Your client may need to expedite payroll if they forget to run it when they should. If your client opts for a semimonthly frequency and they run their own payroll, encourage them to set reminders.

Topics: Payroll


 

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