Pay Schedule and its significance in the payroll process
Choosing a convenient pay schedule for your organization and employees can lead to a smooth payroll process. But, how can you choose the best pay schedule? To choose the best one, it is obligatory to know about the pay schedule. Pay schedule plays a vital role in the payroll management process. To have a smooth payroll process, you should determine your pay schedule for your business. You can explore the various pay schedules listed here and learn more about their pros and cons which assists you in choosing the pay schedule for your business.
Payschedule
A pay schedule represents a period of time when the employees get paid from their organization. With the help of a pay schedule employees can review their deductions, worked hours, and earnings. Also, the employer can choose their pay schedule based on their company's cash flow, legal requirements, and employee preferences.
Different categories of pay schedules
Employers should have a clear idea of the different categories of pay schedules. Some of the pay schedule types are explained here clearly
Weekly pay schedule
In the weekly pay schedule, the employees get paid once in a week. This pay schedule is paid 52 times a year. A weekly schedule is preferable for many trade workers and hourly workers. Most probably, every Friday of the week is considered as the payday for the weekly schedule. According to the U.S. Bureau of Labor Statistics (BLS), the weekly pay schedule is the second most commonly used with 27 percent.
Pros of weekly pay schedule Cons of weekly pay schedule - Easy to calculate overtime, hourly workers.
- Best suited for temporary workers.
- Regular Income for employees.
- It is a time-consuming process.
- It results in higher payroll expenses.
- Payroll journal entries must be maintained every week.
Biweekly pay schedule
In the Biweekly pay schedule, Employees get paid twice a month which means every two weeks that is 26 times in a year. If the year falls on leap year then you will have an additional payday for that year (i.e. 27 paydays). This is one of the most commonly used pay schedules which is easier to make transitions. It is really good for the business which contains a lot of non-exempt employees.
Pros of Bi-weekly pay schedule Cons of Bi-weekly pay schedule - Receives frequent paychecks.
- Less time and cost is required.
- Calculating overtime is simpler.
- Reporting the pay period during the leap year is tricky.
- Difficulty in managing benefit deductions.
- It is more expensive compared to the monthly pay schedule.
Semi-Monthly pay schedule
In the Semi-monthly pay schedule, employees will be paid twice a month. The pay period can be divided into two parts and the pay occurs between the 1st - 15th of the month which is considered to be one payday and the 16th to the end of the month tends to be another payday. Every employee gets 24 paychecks per year. This pay schedule is used for salaried employees.
Pros of Semi-Monthly pay schedule Cons of Semi-Monthly pay schedule - Consistent payment can be expected.
- No complications for the leap year.
- Less time-consuming.
- Difficulty in calculating overtime.
- It's not good for an hourly employee.
Monthly pay schedule
In the monthly pay schedule, the employees get paid every month for a year. You may receive 12 paychecks per year. This pay period suits the employees like independent contractors, freelancers, and contractors.
Pros of Monthly pay schedule Cons of Monthly pay schedule - Freelancers and independent contractors get benefits.
- Saves time and money.
- Low payroll cost.
- Difficult for hourly workers.
- Employees prefer frequent pay periods rather than monthly.
- Difficulty in managing cash flow.
Quarterly and annual pay schedule
Business owners who pay themselves are applicable for quarterly and annual pay schedules. The quarterly payschedule is paid 4 times per year and the annual payschedule is paid only once in a year. Business owners can't pay their employees every quarter or once in a year because it leads to employee dissatisfaction. Hence, business owners don’t depend on these pay schedules for employees.
What is payday?
Payday is a day, your employees get paid for their work done during the previous pay period. On this day, the paychecks are generated for the employees. Payday can vary according to the pay schedule.
How does the pay schedule determine the payday?
| PAY SCHEDULE | PAYDAY |
|---|---|
| Daily | Everyday |
| Weekly | Every Friday |
| Bi-weekly | Every other Friday |
| Semi-monthly | Twice a month |
| Monthly | A specific day in a month |
| Quarterly | Once in 4 months |
| Annually | Once in a year |
How do you choose the best pay schedule for your business?
The best pay period depends on several factors of the business. You should know about the major factors which meet your company's needs. Here are some of the factors that help you to choose your pay schedule.
- Cash flow - Choose the pay schedule that suits your company’s cash flow.
- Employee preference - consider your employee preference and choose the pay schedule. Most of the employees prefer weekly and bi-weekly pay schedules.
- Payroll processing - Consider the time taken to process your payroll and be clear in choosing the best pay schedule for your organization.
- Legal Requirements - Every state and country follows a different set of pay schedule laws and regulations. Check the legal conditions of your place and decide whether the pay schedule complies with the relevant laws.
