The Payroll Blog
News, tips, and advice for small business owners
When setting up payroll for your small business, one of the things you'll have to set up is a payroll schedule. Depending on where you live, your state may make this decision for you and provide guidelines for the type of payroll schedule you need to follow. Other states leave the choice up to business owners to decide. The four payroll schedules are: weekly, bi-weekly, semi-monthly, and monthly. Most confusion comes with understanding bi-weekly and semi-monthly payroll schedules becasue they seem very similar. However, there are a few differences you should know.
How Bi-Weekly Pay Works
Under a bi-weekly pay approach, employees receive a check every two weeks, or 26 paychecks per year. Typically employees receive the check on a specific day of the week, such as Friday. There are two months during the year when employees receive three paychecks.
The biggest drawback to the bi-weekly scheme is that it doesn't coincide with calendar months and can be confusing not only to employees, but to accounting departments.
Furthermore, bi-weekly pay runs can cause havoc to monthly budgets and costing analysis. Given that there are 52 weeks in a year, these weeks do not necessarily divide themselves neatly into 12 months. There will be certain months in the year where three pay runs are required within one calendar month; this can complicate any budget or costing estimate that is done on a monthly basis, as is the norm.
How Semi-Monthly Pay Works
On a semi-monthly system, those same employees are paid slightly less often — 24 times — and receive slightly larger checks.
Although it is an elementary point, it needs to be made to employees — under either system the employee will get the same base annual salary, which is simply divided by either 26 or 24 to determine the pay checks.
Deciding on the Best Option
There are advantages and disadvantages to all of the different payroll schedules. Don't forget to check in with your state to see if the decision has been made for about which schedule to follow. Once you know your schedule, you'll be able to share with your employees so they know when to expect their paycheck. When it comes to payroll schedules, choosing to outsource your payroll could be a good idea so you don't have to worry about missing a payday.