Finding the best pay schedule option can be a balancing act in offering workers convenience while keeping costs down.
Pay schedule optimization plays a crucial role in preserving workforce engagement, morale and flow. Processes can vary based on the classification of your workers. Gaining insights into the various payroll structures can help employers make better-informed decisions relating to the frequency and delivery of pay.
Your business may have many types of workers with varying employment classifications — ranging from salary and hourly to full-time, part-time and independent contractor status. The implications to accounting and processing costs should be considered in determining pay schedules. While workers appreciate getting paid more frequently, employers must also consider the expenses associated with the four common types of pay schedules: weekly, biweekly, semi-monthly and monthly. Higher pay frequencies tend to incur more expenses and accounting oversight.
Weekly Pay
This schedule is ideally suited for full-time or part-time hourly employees and certain independent contractors. Hours are tracked and calculated through various physical to remote methods (e.g., smartphone apps). The higher frequency of payments allows for prompt adjustments and corrections, especially when overtime pay or bonuses are involved. Manual labor with lower wages prompts the need to cater to workers needing a higher frequency of checks to meet living situations.
Weekly pay is prevalent in the manufacturing, construction, restaurant industry and gig economy, which includes livery, ride-share and food delivery. Weekly pay schedules carry the highest processing costs, especially if physical paychecks are mailed to workers. To bolster convenience and flexibility for workers while trimming transaction costs, employers can consider adding a paycard program that enables direct/partial automatic deposit directly to the card, along with additional budgeting tools.
Biweekly vs. Semi-Monthly Pay
While they may appear similar, biweekly payrolls are processed every two weeks, while semi-monthly payrolls are processed twice per month. A biweekly pay schedule causes two months out of every year to have three pay periods, resulting in 26 to 27 payrolls, whereas semi-monthly schedules have 24 payrolls per year and no accruals to worry about. Biweekly payments require more effort by accounting departments to post and track payroll expense accruals, such as health insurance premiums.
Because of the consistency and cash flow predictability it provides, semi-monthly is best suited for salaried workers with no overtime. Hourly employees should be paid biweekly or weekly, as overtime is determined on a work week basis. Paying hourly employees on a semi-monthly basis can be problematic due to having to calculate overtime when you have a single work week divided by pay periods. In addition, paying hourly employees on a semi-monthly basis may result in late payment of wages under some state laws where employees have earned overtime.
These schedules are prevalent in industries ranging from financial services to retail workers and medical providers.
Monthly Pay
This is the lowest cost option for employers, as workers are paid at the end of the month. Payroll is processed 12 times a year. Due to the relatively large time gap between payrolls, these tend to be more common for high-paying salaried positions like C-suite executives in the technology and financial sectors. Employees paid on yearly salaries can be paid monthly in Utah.
Despite your preference, it’s prudent to comply with state regulations, as laid out by the Department of Labor, regarding pay schedules. Some states require hourly workers to be paid weekly. In general, employers can increase the frequency of pay, but they must not violate the minimum periods or intervals as mandated by states.
Diversifying Payment Options
In a competitive jobs market, employers should consider a diverse array of payment options that accentuate convenience and transparency for their workforce. If your business is still mailing paychecks for payroll, then it’s time to consider options like direct deposit, mobile payments and paycards to provide your works. These options decrease paper, materials and postage costs and are more environmentally-friendly.
Alleviate Friction and Disruption
Avoid collateral damage by maintaining transparency and consistency with pay schedules. It’s vital for upholding the trust and loyalty of workers. Disruption may be good for business strategy and transformation but must be avoided at all costs when it comes to pay schedules. Inconsistencies can wreak havoc on employees’ household finances — inadvertently causing late fees, missed payments and credit damage.
Providing the most accommodating payment methods for employees conveys the prowess of a supportive organization that fosters reciprocity with its workforce with integrity.