Choosing how often to pay your employees isn’t as simple as picking a schedule randomly; the payroll schedule you opt for can actually have a significant impact on your business and its cash flow, and careful consideration should be made before deciding.
Firstly, let’s look at what a payroll schedule is:
What is a payroll schedule?
When you set up a payroll schedule, you’re essentially determining the length of your pay periods and the frequency at which your employees are paid. In turn, your choice also dictates how often administrative work must be carried out by your team (or by you if you’re going it alone), and how impactful cash outflow will be on your businesses finances.
It’s worth noting, however, that pay dates are not the same as pay schedules. For example, if your chosen payroll schedule ends on a Friday, this doesn’t mean that it’s automatically payday. While as an employer, you do have some flexibility over what pay schedule you choose, it’s important to check for any relevant state laws, first. If you’re outsourcing your payroll, seeking a provider’s help from the outset, can ensure that your final choice is in the best interests of the company and compliant with all relevant laws.
To help you decide which payroll schedule would work best for your company, here are some important factors to consider:
- Cash flow
To help prevent large withdrawals being made simultaneously from your business accounts (which can cause all manner of complications), you must try to coordinate your expenses, including payroll; having a less frequent pay schedule may be the solution.
- Paid non-working hours
Any non-working hours that an employee is paid for, such as vacations, paid time off (PTO), and sick leave involve the tracking of accruals and state-mandated minimums. It’s also worth noting that all paid absences can have a negative impact on cash flow, since they typically generate less production, or less revenue.
- Employee expectations
Most employees – and likely business owners, too –arrange their personal finances around their pay schedule, and if the schedule you choose isn’t convenient for them, the financial stress it can put them under may have a negative impact on employee retention and satisfaction, not to mention employee performance and even hiring.
- State laws and regulations
In some states, certain payroll schedules are not permitted, or may only be permitted under certain, specific circumstances.
- Payday
To help with cash flow, employers can separate payroll schedules from pay dates, but for bank holidays and the like, this may need to be adjusted.
- Benefits and deductions
If your business chooses to deduct health insurance or 401(k)s out of every paycheck, you’ll need to make sure that employees are informed and that the impact on payroll has been fully assessed first, especially if you pay on a monthly basis.
- Garnishments
The prompt processing of wage garnishments such as lawsuits, student loans, child support and other employee debts, is important, and these usually impact every pay check.
- Impact on bookkeeping
For your accountant or CPA to get to grips with your financial statements,such as profit and loss (or P and L), and better understand the impact your payment schedule has on it, you’ll need to make sure thatit’s coordinated with their efforts.
Having a less frequent pay schedule will help to reduce the amount of administrative work needing to be carried out on timekeeping records for payroll, and keep the cost of it down.
If you want to create a streamlined payroll process and receive appropriate guidance on pay schedules, it’s best to work with an experienced payroll provider, who in turn, will help you limit the burden of administrative work needing to be fulfilled every week or month, and keep your employees content and performing their roles with vigour!