Types of pay schedules

There are four types of payroll calendars. Employers may choose to pay their workers weekly, biweekly, semimonthly or monthly. As we discuss the advantages and disadvantages of biweekly pay, we make references to these other payroll schedules, so it is essential to define them in advance.

• Weekly pay: Employees are paid on the same day every week. This schedule results in 52 pay periods each year and is the second-most common payroll schedule after biweekly. Weekly pay tends to be most common among very small companies and within particular industries.
• Biweekly pay: Employees are paid on the same day every two weeks, for a total of 26 paychecks per year. This is the most common pay schedule and is popular with large companies.
• Semimonthly pay: In semimonthly pay, employees are paid on two specific days of each month, for example, the 1st and 15th. This structure means that employees receive 24 paychecks each year and consistent income from month to month. Like weekly pay, semimonthly pay is more common among companies with fewer employees.
• Monthly pay: When an employer uses monthly pay, it pays its employees on the same day of each month, typically the 1st. It should be noted that some states, such as California, require that a company must pay its employees at least twice every month. Monthly pay is by far the least common pay schedule in the United States.

Now that we have a clear definition of each type of pay frequency, let’s look at some of the advantages and disadvantages of biweekly pay when compared to the alternative schedules.

Advantages of biweekly pay

Many advantages come from biweekly pay. Some of these are advantageous to the employer, while others are advantageous to the employee.

Employer advantages

• Many employers use an outside payment processing service, and, often, these services charge each time it runs a payroll cycle. As an employer, if you pay biweekly rather than weekly, the number of times payroll is processed is cut in half, saving the company money.
• Time spent processing payroll is reduced. Calculating regular wages, overtime wages, and tax and other deductions is all a part of the process, and performing these tasks biweekly instead of weekly saves a lot of time.
• Unfortunately, payroll accounting errors sometimes happen, but a biweekly pay schedule reduces the chances due to cutting the number of payroll cycles in half compared to weekly payroll.

Employee advantages

• When employees are paid biweekly, they receive their paychecks on the same day every other week. This cycle is advantageous over semimonthly pay, which falls on two particular dates each month, meaning the day of the week that the check is received is constantly changing.
• Compared to weekly pay, biweekly pay means employees receive larger paychecks, which can help with budgeting for larger bills. Semimonthly pay is similar in this regard; however, a biweekly pay schedule has the advantage of having 26 pay periods rather than 24. The result is that for two months of the year, employees receive three paychecks.
• Calculating and applying overtime payments for unsalaried employees is far simpler when paying biweekly as opposed to semimonthly. Due to the nature of semimonthly pay, each month is likely to have a different number of workdays, which can quickly complicate overtime pay.

Disadvantages of biweekly pay

While a biweekly payroll schedule has many advantages for both the employer and the employee, there are also some disadvantages to consider for both parties.

Employer disadvantages

• Compared to semimonthly pay schedules, biweekly payroll can be slightly more costly for companies using a payroll processing service. A biweekly schedule includes 26 pay periods per year, compared to 24 pay periods for a semimonthly schedule. This means paying payroll processing fees two more times each year.
• Budgeting, particularly for small businesses, can be more challenging when paying biweekly as opposed to semimonthly. The two extra paydays in a biweekly schedule reduce the consistency of monthly payroll totals when budgeting.

Employee disadvantages

• Paychecks are received less frequently, which means employees need to be much more diligent with budgeting to make it through the two weeks between paydays.
• Biweekly pay is less consistent than semimonthly pay in terms of total monthly income, making budgeting for bills each month more difficult.
• When starting a new job, biweekly pay can result in a pay gap of up to three weeks, depending on what point in the company’s pay cycle the employee begins working. Alternatively, employees may see their first paycheck prorated if they start the job in the middle of a pay period.

Choosing the right accounting software can help ease some of the growing pains.

Factoring in business size

General trends show that, as the number of employees in a business increases, the likelihood of that business using a biweekly payroll schedule increases. If we look at the chart below from the BLS, there’s a clear correlation between company size and payroll schedule.

Very small companies with 1-9 employees favor weekly pay over biweekly by a small margin. However, after a company reaches 10 employees or more, biweekly payment becomes most common. The gap between the two pay frequencies grows further as a company’s workforce grows larger.

Interestingly, the prevalence of semimonthly pay also gradually decreases as the size of the company grows. This trend clearly indicates that the more people a business employs, the more benefit it attains from paying biweekly rather than either semimonthly or weekly.

Payroll processing becomes more expensive and time-consuming as the number of employees grows, so it should be no surprise that larger organizations tend to move away from weekly pay schedules. Structure and consistency are also more critical as companies grow, explaining the tendency to avoid semimonthly payroll.

As can be seen across the board, monthly payment is by far the rarest, with only small companies of fewer than 10 employees even coming close to 10% utilization. Companies of this size tend to have more inconsistent cash flow and need to keep their overhead, such as payroll processing costs, to a minimum. In cases like this, monthly pay offers a good option for the employer, though the advantages are sparse for the employee.

Industries preferring weekly pay

While biweekly is the most common pay frequency, some industries still tend to favor weekly pay for several reasons. According to the previously cited statistics from the BLS, three specific industries prefer to pay weekly:

• Construction
• Manufacturing
• Transportation

The common thread between these industries is that the hours worked are often irregular. A typical workweek for these businesses frequently includes early morning and overnight shifts, which often span portions of two days of the week. For example, workers may begin working at 9:00pm on Monday and end their shift at 6:00am on Tuesday.

In addition, many businesses in these industries may operate on four shifts of 10 hours each per week rather than the usual five-day workweek. For these irregular hours and shift work, weekly pay can be easier to manage.

The choice is yours

As an employer, it’s up to you to determine what type of payroll schedule works best for your organization. Payroll processing expenses play a significant factor, but different payroll processors have different fees structures. Some services may charge fees monthly, regardless of how many times payroll is run in that month, while others may charge for each pay cycle.

The best course of action is to weigh the pros and cons to determine which pay frequency allows your business to run at maximum efficiency while also considering how it affects your employees. It’s crucial to consider your staff’s morale and job satisfaction, which is, of course, influenced greatly by both the rate and frequency of pay.

Many employees may prefer weekly pay to make budgeting their expenses easier. You might also consider other perks, like flextime, to create a plan that works for everyone.When job candidates are comparing job offers, they might consider pay frequency when deciding between different companies.