What is the best payroll schedule for your organisation? While this might seem to be a minor issue in the grand scheme of the payroll universe, the decision can have some very serious implications. If your employees are not paid on a regular basis, it can be difficult for them to confidently plan for the future. Yet, if you were to pay them too often, it could incur additional costs for the organisation and would prove difficult for your HR department to keep track as well.
While there might be a “common trend” of payroll schedule that most companies might be adopting, that does not necessarily mean that it might be suitable for your organisation. Remember, there is a never a one size fits all. Here are several different payroll schedule options that you can consider for your organisation.
If your employees work on an hourly basis, this payroll schedule would be a popular option. Such a payroll schedule is typically more prevalent in the trades industry such as construction, or in the food service industry. A weekly payroll would be better suited for an hourly employee’s cash flow needs, especially if the employee has an irregular working schedule and overtime pay has to be taken into consideration. However, one downside of such a payroll schedule is the cost. Payroll vendors typically charge each time a payroll is being run. Given that payroll is being run weekly, these costs could add up to a substantial amount. Additionally, more time and effort would be require when it comes to overtime pay calculation and salary disbursement to the employees.
A bi-weekly payroll would be run every two weeks. This payroll schedule would be the next best option for hourly employees who get paid overtime, given that it is relatively easy to account for the number of overtime hours. However, a quick look at the calendar and you will realise that each month does not always have the full four weeks. Given that there are 52 weeks in a year, this would mean 26 pay periods and hence, there would be two months with a bonus pay period. Such a schedule might prove confusing for the HR and Finance department, increasing the likelihood of making payroll mistakes.
Do not mix semi-monthly payroll and bi-weekly payroll together. Based on a semi-monthly payroll schedule, employees are paid twice per month on the same calendar dates each month. Typically, companies either choose to pay on the 1st and 15th or on the 15th or last day of the month. Such a payroll schedule does not require the HR and finance department to run reports often, thus minimising the payroll cost. Additionally, since the pay period will typically coincide with the last day of the month, this makes it easier for the accounting department to close their accounts. However, one challenge of such a payroll schedule is that the dates of the pay period could fall on any given day of the week. Suppose the pay date falls on a Sunday, adjustments need to be made to ensure that employees are paid on the most recent weekday.
This type of payroll schedule is no doubt the least popular among employees out there. Why is that so? Essentially, employees have to go an entire month without a paycheck and some might struggle to manage their finances. However, this option is perhaps the most ideal and economical option to the organisation. Payroll costs are low as reports are being run once a month. Additionally, it is easier to keep track of employee benefits and attendance.
Selecting the best payroll schedule for your business ultimately depends on the nature of your business and your internal accounting processes and procedures. However, always keep in check your employees’ needs in mind when considering your payroll schedule. After all, that is what counts the most.