How often should I pay employees?
How often you pay employees is a business decision that is made by your company. The number of pay periods (the frequency of paying employees) is not regulated by the IRS or any state agency.
Here are the options for paying employees:
- Weekly, usually on the same day of the week. Many companies pay on Friday, for the previous week.
- Bi-weekly; that is, every other week. Bi-weekly paydays may be for the previous two weeks or the immediate two weeks. For example, you may pay on Friday, September 14, for the two weeks just ended, or for the two previous weeks (ending Friday, August 31.
- Semi-monthly; that is, twice a month. Usually semi-monthly paydays are the first and 15th or the 15th and 30th, but they can be any day.
- Monthly, on the last day of the month or the first day of the following month.
How many times a year does each frequency mean?
- Employees paid weekly get 52 paychecks a year.
- Employees paid bi-weekly get 26 paychecks a year.
- Employees paid semi-monthly get 24 paychecks a year.
- Employees paid monthly get 12 paychecks a year.
Does paying more often result in more pay for some employees?
For salaried employees, paying more or less often should have no effect on total gross pay for a year, because a salaried employee's pay is based on an annual salary. Hourly employees get paid based on hours worked during a pay period, so pay frequency has no effect on pay amount.
Can I pay salaried employees at different times than hourly employees?
Yes, you can pay salaried and hourly employees in different ways and at different times.
Salaried (exempt)employees usually are paid based on an annual salary and they do not receive overtime pay, so they are often paid monthly or semi-monthly, with the same pay each time. Since there is no reason to wait to see if any overtime is due, they can be paid currently without a 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 (twice a month)
- $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.
Hourly employee pay is calculated each pay period, based on the amount of hours worked in that period and including any overtime, at the applicable rate.
Does it cost more to pay more frequently?
Yes, there are costs associated with processing a payroll. If you are doing the payroll processing yourself,costs include:
- Printing checks for employees. Payroll checks must include year-to-date pay information, so they must be special checks.
- Direct deposit costs, charged by banks
- And time spent by an employee or bookkeeper to calculate the gross pay, deductions and withholding, and net pay.
So, whether you process paychecks within your company or use a payroll service, there is a higher cost of processing paychecks more frequently. For example, it will cost you more to process paychecks every other week (26 times a year) than bi-monthly (24 times a year).
So how do I determine how often to pay employees?
As noted above, salaried employees are usually paid monthly or semi-monthly. Hourly employees are often paid weekly or every other week (bi-weekly). Employees like to get paid more frequently, but, as discussed above, it is more costly to a business to pay more frequently, so you must balance these two conflicting sides and do what you want. If your employees belong to a union, you may have to bargain with the union to decrease the number of payrolls a year.