The best payroll frequency for a microbusiness depends on various factors including the nature of the business, number of employees, cash flow and legal requirements. It’s important for every business to establish a payroll calendar in order to determine frequency, schedule processing and funding, and to ensure payroll is processed on time.
The most common payroll frequencies for micro businesses include:
Monthly payroll is straightforward and simple, especially for those businesses operating with minimal employees. It requires processing payroll once per month to compensate for a monthly salary, commission, or earned wages from hours worked. With the monthly payroll schedule, employees are paid 12 times per year on a predetermined calendar date, which is typically the last day of the month or on a specific weekday, such as the second Friday of the month. For businesses with employees paid on commission, this schedule gives businesses time to recover from income fluctuations due to slow periods. However, most employees prefer to be paid more often and some US states may have additional requirements or restrictions related to pay frequency. It is important to always familiarize yourself with the labor laws and regulations of the state(s) where your microbusiness operates.
Biweekly payroll involves paying employees every two weeks, resulting in 26 pay periods per year. This frequency is popular because it aligns with the standard two-week work period. The benefits of a biweekly schedule can help align labor expenses with business income but can also cause inconsistent monthly payroll liability. Twice a year, businesses on the biweekly schedule will have three payrolls in one month, which means payroll expenses will be 50% higher in those two months.
Semimonthly payroll involves paying employees twice a month, usually on specific dates such as the 15th and last day of the month. This frequency results in 24 pay periods per year. A semimonthly payroll schedule provides consistency in forecasting monthly payroll liabilities and helps cash flow management. Because this payroll schedule is based on calendar dates, it may not align with hourly employees’ worked hours. For business with salaried employees, this is a solid payroll option. However, a biweekly payroll is likely a better schedule for business with hourly employees,
Weekly payroll requires processing payroll every week, resulting in 52 pay periods per year. The frequency can be beneficial if employees prefer more frequent payments or if the business operates in an industry where short-term payroll is common. The payroll schedule is largely used by businesses with hourly workers and fluctuating labor needs. For example, if employees work more hours when the business is busy, and fewer when the business is slow, a weekly pay schedule can simplify employee timekeeping, align with payroll funding liability and business income. Keep in mind, the more often employees are paid the more administrative labor goes into the payroll process. Weekly payroll schedules are popular with restaurants and seasonal businesses.
When determining the best payroll frequency for a microbusiness, consider the administration, the impact on cash flow and employee preferences. It’s also important to ensure compliance with local labor laws and tax regulations regarding payroll frequency.
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*Southland Data Processing, Inc. (“SDP”) is not a law firm. This article is intended for informational purposes only and should not be relied upon in reaching a conclusion in a particular area of law. Applicability of the legal principles discussed may differ substantially in individual situations. Receipt of this or any other SDP materials does not create an attorney-client relationship. SDP is not responsible for any inadvertent errors that may occur in the publishing process.