The majority of employees working in the United States today are paid roughly twice per month. However, setting up a payroll schedule that works for employees is a big decision for small business owners that must take many factors into account.
Federal and state laws require that a small business pays their employees at regular intervals. That is, a company cannot pay an employee twice in one month, and then only once the next month. Regardless of the time in between payroll, it must be scheduled at regular intervals.
The IRS does not mandate a certain number of pay periods each year. However, some states impose minimum payment frequencies. For example, Massachusetts, Ohio, and Utah require that employees are paid semi-monthly.
There are several options of setting up a payroll schedule for employees. Some of them include:
- Weekly: employees are often paid on the same day each week—normally Friday—for the previous week’s hours worked.
- Bi-weekly: Like weekly, employees are usually paid on the same day of the week, perhaps every other Friday, for the immediate work done (Work September 1-14, paid for that work on September 14), or for the previous two weeks worth of work.
- Semi-monthly: Payments are made to employees on the same days of each month, for example, the 1st and the 15th of the month. When these days land on a Saturday or Sunday, payday is typically pushed to either the Friday before or the Monday after.
- Monthly: Paydays fall on the same day every month, normally the first or last day of the month.
Some companies choose to pay their hourly and salaried employees on different days of the month, which reduces the workload for the accountant at payroll time, but can also complicate things if meticulous records are not kept.
Since salaried employees are paid the same amount for each paycheck regardless of hours, they can be paid currently without any delay.
For example, a salaried employee who has an annual pay of $36,000 can be paid
- $3,000 a month
- $1,500 semi-monthly
- $1,386 every two weeks. Since this amount has been rounded up, the last paycheck of the year may be slightly different to account for this difference.
On the other hand, paychecks for employees paid on an hourly basis take more time to calculate and the amounts are different from paycheck to paycheck.
Before setting up a pay schedule for employees, consider the pros and cons and costs associated with payroll for your company. It is best to have a system including a small business bookkeeping in place before hiring employees so there is less confusion and adjustments to make as the company grows.
Visit more posts in our Payroll 101 series: