How often should you pay your employees? As a payroll processing company, we get this question a lot. The answer can be complicated because (1) your payroll processor is not allowed to make this decision for you and (2) depending on how your worker(s) are classified, you may be required by law to pay them at a certain frequency. (For example, manual laborers must be paid weekly.) The good news is, except for certain pay frequency labor law requirements, businesses can set their own wage payment schedule for the most part.
Consistency is key
The law says your wage payment schedule must be consistent. You can't pay your employees weekly this month and then decide to pay them bi-weekly another month. Whatever you decide to do, you must be consistent about it.
Here are the most common pay options...
- Weekly is self-explanitory and results in 52 paychecks a year.
- Bi-weekly is every other week and results in 26 paychecks a year.
- Semi-monthly is twice a month and not to be confused with bi-weekly. It results in 24 paychecks a year that are typically issued on (or close to) specific numerical days of the month as opposed to specific days of the week.
- Monthly is self-explanitory and results in 12 paychecks a year.
- Quarterly is once again self-explanatory and results in 4 paychecks a year.
Typically, paying your employees with greater frequency will cost your business more money. Even though payroll processing is one of the least expensive overhead costs of doing business, this is something to keep in mind. For example, paying your employees weekly -as opposed to bi-weekly - will result in twice as many checks cut throughout the year. And most payroll processing companies charge by the total quantity of checks cut, among other factors.
From your employee's perspective, they're almost always going to want to get paid more frequently. It comes down to cash flow, just as you as a business owner would prefer to get paid sooner and more frequently after performing work for your clients.
Labor law compliance
Last year, we published a series of articles explaining pay frequency requirements for New York State worker classifications. You can find them here...
State payday requirements
How often you're required to pay not just all of your employees - but certain classifications of workers - varies by state. Some states have very complicated pay day laws. In Arizona, paychecks must be issued no more than 16 days apart, and employees must receive a minimum of two paychecks per month. On the other hand, Michigan's pay day laws are some of the most nonrestrictive, as pay frequency is determined by occupation.
No two states mandate pay frequency the same way, so it's up to you as the business owner to do your homework. Here's a great resource to check the basic pay day requirements for your state(s).
Hourly vs. salaried employees
You can pay hourly or salaried employees at different frequencies. For example, you may choose to pay hourly employees weekly, and salaried employees semi-monthly. Just make sure your payment schedule complies with state requirements and is consistent and clear for employees to understand.
Again, issuing paychecks more frequently ends up costing employers slightly more over time, so many employers choose to issue as few checks as possible. On the other hand, employees usually want to be paid more frequently.
You've got to add up the costs of payroll processing and direct deposit, as well as other costs associated, and make sure they're aligned with your state's pay day laws. Then you can determine the best pay schedule for your firm. Just make sure it's fair, complies with state and federal laws, and clearly shows employees at what frequency they can expect to get paid.