How to Choose the Best Payroll Schedule for Your Business
Expertise provided by:
- Terri Carter, BBSI's Director of Human Resources
- Michelle Grant, BBSI Payroll Specialist
While business leaders expect payroll to be among their biggest line items — as much as 70% of their total expenditures — they might not realize the impact their payroll schedule has on the company and its cash flow. Although there isn’t one best payroll schedule for all businesses, you should consider how your options influence operations and financial safety nets before choosing one.
Below, we’ll break down the factors that go into choosing a payroll schedule and how to determine the best one for your business.
What Is a Payroll Schedule?
Your payroll schedule determines how long your pay periods are and how often you pay your employees. By association, it also dictates how often your team must execute the administrative work involved and how often the outflow of cash will impact your finances.
It’s important to note, however, that payroll schedules and pay dates aren’t the same. So, if your payroll schedule concludes on a Friday, that doesn’t automatically make it payday. Employers do have some flexibility, but it depends on your state laws.
For example, payroll laws in Iowa require businesses to pay their employees within 12 days of their pay period’s end. In California, that limit is seven days.
Here are more payroll terms and their definitions to keep in mind:
- Payroll Cycle: The length of time between payrolls. For example, if an employer processes payroll every two weeks, each two-week period is considered a new payroll cycle.
- Payday: The specific days that workers receive their pay.
- Pay Period: The period of time that a worker’s paycheck covers.
Factors to Consider When Choosing a Payroll Schedule
While most states provide some flexibility, numerous laws and regulations stipulate requirements for a business’s payroll schedule. These rules may preemptively decide your schedule for you, as noncompliance comes with significant penalties. The U.S. Department of Labor provides a quick-reference guide to check whether state laws will affect your payroll schedule.
Several factors also influence your schedule, including:
- Cash Flow: The total amount of money being transferred in and out of your business accounts will affect your schedule because you will want to coordinate your various expenses (including payroll) to prevent large, simultaneous withdrawals. More frequent pay schedules can complicate that.
- Paid Non-Working Hours: Paid time off (PTO), vacations, sick leave, and similar non-working paid hours involve tracking accruals and state-mandated minimums. Paid absences also tend to generate less production or revenue, further impacting cash flow.
- Employee Expectations: Employees schedule their personal finances based on payroll schedules. If yours is too inconvenient, it can impact hiring, retention, satisfaction, and employee performance if financial stresses become significant.
- State Laws and Regulations: Some states may not allow certain payroll schedules or only allow them in specific circumstances or with approval. For example, Illinois, Nevada, New Mexico, and Virginia all impose monthly payroll schedule requirements for executive, administrative, and professional personnel.
- Payday: Payroll schedules and pay dates can be separated to assist cash flow. For example, bars and restaurants may choose Monday or Tuesday to account for weekend revenue. But there are limits, and you may need to adjust for bank holidays.
- Benefits and Deductions: Businesses often deduct expenses like health insurance or 401(k) plans from every check. However, if they follow a once-per-month cadence for these deductions, they’ll need to inform employees and assess payroll impacts.
- Garnishments: Wage garnishments for child support, lawsuits, student loans, and other employee debts generally impact each check and must be processed promptly.
- Effect on Bookkeeping: Business owners should coordinate their payroll schedules with their accounting efforts or a CPA to understand how the schedule impacts financial statements like profit and loss (P&L).
- Payroll Administration: Each pay period will require administrative work and costs to prepare timekeeping records for payroll. Less frequent schedules will reduce this burden.
Common Payroll Schedules
Per the U.S. Bureau of Labor Statistics (BLS), the most common payroll frequency is biweekly, accounting for 46% of businesses. While there are many reasons a business may choose this schedule, it’s important first to weigh the pros and cons of each option to determine the right choice for your business.
Weekly payroll schedules are the second most common schedule adopted by U.S. businesses, accounting for 32% of businesses in the nation. Weekly schedules are often used by companies with primarily manual or minimum wage or hourly labor, such as construction and food service. With this schedule, employees receive 52 checks per year.
- Pros: If employee hours vary significantly week-to-week, this schedule simplifies tracking via the short window.
- Cons: Weekly administration adds significant time and cost burdens. Additionally, if your cash flow is not regular or steady, your incoming revenue may struggle to offset the frequency of taxes, insurance, and other payroll costs when they’re paid weekly.
As one of the most balanced schedules, biweekly payroll scheduling is the norm for a significant portion of businesses and their employees. With this schedule, employees receive 26 checks per year.
- Pros: The administrative burden of processing payroll is less demanding when carried out every other week, and employees can still plan personal finances around a regular, reasonable period.
- Cons: Roughly twice per year, there will be a month containing three paychecks. Businesses need to plan and adjust for this occasional expense hike to keep it from impacting their cash flow.
Biweekly payroll schedules are more common for businesses with a mix of salaried and hourly employees if they have fairly set scheduling, such as office work.
Semimonthly payroll schedules operate closest to biweekly structures but eliminate the occasional third check. On a semimonthly schedule, your payroll cycle will no longer conclude on the same day of every week. For example, instead of pay periods concluding every other Friday, employees are paid on fixed numerical days of the month, like the 1st and the 15th, with some variations due to holidays.
- Pros: Semimonthly schedules have the same decreased burden as biweekly schedules and are slightly better with only 24 pay periods. Salaried employees simplify this process further, as monthly income is merely divided in half per pay period.
- Cons: It can be challenging for hourly workers with less rigid schedules to adjust, both in terms of variance between check amounts and planning around a fixed date rather than a day of the week.
Semimonthly payroll schedules are most common for businesses with primarily salaried employees.
Monthly payroll schedules tend to work for certain types of professionals. Business owners, in particular, commonly follow a monthly pay period because it’s easier for them to adjust to the needs of their business. For example, if cash flow is tight, they might forgo that month’s paycheck. As noted above, executives and administrators may be paid monthly in accordance with state laws.
- Pros: Monthly schedules involve the least-burdensome administrative effort, with processes occurring once every few weeks. While funds remain in company accounts, they earn interest and don’t negatively impact cash flow.
- Cons: Most employees will have difficulty adapting to a monthly schedule due to scheduling all bills around one date and budgeting for an entire month, which may affect your hiring and retention success.
Some professions may also operate on payroll schedules longer than a month, but this is rare. For example, loggers and farm workers in Wisconsin are only required by state law to be paid quarterly.
Depending on your operations and distribution of hourly and salaried employees, you may be interested in offering multiple payroll schedules simultaneously.
While this method allows a business to understand labor costs by category better, it may cause more of an administrative burden. This strategy isn’t for everyone and may make the most sense for larger businesses with multiple divisions or departments.
For combining multiple schedules, remember:
- You must still define a set pay period and communicate it to employees.
- You can’t pay employees at random intervals.
- Multiple schedules may be required depending on labor laws and agreements.
- The administration of multiple schedules will generally be the most burdensome.
How BBSI Helps Businesses With Payroll
Businesses looking to streamline their payroll processes and eliminate the administrative burden, no matter their schedule, can partner with BBSI to make it happen.
Working alongside a local Business Unit gives you access to a dedicated team of professionals who will provide critical payroll guidance. Once you’ve determined your ideal schedule, our robust, proprietary myBBSI system allows you to manage and customize it with ease — including elements like PTO plans and tax obligations.
The payroll services provided by BBSI will also minimize the amount of time your business loses to payroll administration. With BBSI, you can rest assured your payroll will be completed accurately and on time.
Contact your local BBSI branch today to get started.
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