While many are familiar with a bi-monthly pay schedule — typically on the first and fifteenth of the month — there are actually a few ways to structure a payroll schedule. Like most decisions business owners make, the way you structure your small business payroll schedule depends most on your small business needs and the types of workers you contract or employ.
There are four common types of payroll schedules found in the U.S.: monthly, semi-monthly, bi-weekly, and weekly. There are pros and cons to each, which are covered in detail below this chart to help make your choice a little easier.
|Type||Frequency||Paychecks per year|
|Weekly||Once a week on a specific day of the week, e.g. every Friday||52|
|Bi-weekly||Every two weeks on a specific day of the week, e.g. every other Friday||26|
|Semi-monthly||Twice a month on two specific days of the month, e.g. 15th and 30th||24|
|Monthly||Once a month on a specific, recurring date, e.g. the 20th of every month||12|
As you read on, it’s important to note that state laws often stipulate a minimum payment period. Depending on where your business is located, schedules with long periods between checks (like a monthly payroll schedule) might not be an option. Make sure you have a look at this handy table from the Department of Labor before you decide anything.
One of the reasons that weekly payroll schedules, which often pay out on Fridays, are less common is because the processing cost associated with cutting checks every seven days is higher than the other options here. However, as you can imagine, many employees enjoy getting paid every week, especially freelancers and other contract employees– so it’s definitely the most popular among employees. This type of pay schedule works best for organizations that pay hourly wages or employees that have irregular schedules.
While bi-weekly might sound similar to semi-monthly, there are also a few important differences. Bi-weekly payroll schedules mean that payout happens every other week, which could sometimes mean being paid 3 times per month. This is a particularly popular schedule for hourly employees; since they can collect overtime, bi-weekly pay periods can capture their erratic schedules that might mean 60 hours one week and 30 the next. However, this payroll schedule means extra work for your accounting team in order to make sure that costs and payouts are aligned based on the months that payments were issued for tax purposes.
Employees on semi-monthly payroll schedules are paid two times each month, usually on the first and the fifteenth, though there are a few variations. With this type of pay schedule, the processing costs and time spent on payroll tend to be low. Save for leap years, payout is consistent at 24 times each year with about 87 hours comprising each pay period. Most accounting teams prefer this schedule and because salaried employees can’t collect overtime, they tend to be accustomed to the regularity. Hourly employees, however, tend to prefer biweekly schedules.
Payout for monthly payroll schedules happens once a month, often at the end of the month. Because this happens so infrequently, this schedule has the lowest processing cost compared to the other options here. However, it is important to note that this is probably the least preferred option for employees as managing money and paying bills can become more difficult and strategic. Plus, when a new employee starts, it can take well over a month for them to receive their first check depending on how quick your onboarding process is.
Now that you know the pros and cons of each schedule, it’s time to figure out what’s best for you. Consider everything from the type of employees you have and their preferences to the resources that you can put towards covering payroll costs. Like all things small business, it’s a delicate balance, but the good news is that there is no true right or wrong answer, just what makes the most sense for you.