Key Components to Setting Up Payroll: Part 1 – Pay Frequencies

6 mins read

This article is about setting up payroll, starting with what the different pay frequencies are including weekly, bi-weekly, semi-monthly and monthly.

When setting up your payroll, the first place to start would be figuring out when exactly you are going to pay your employees. This is called pay frequency and is defined as how often an employee receives a pay cheque from their employer. There are various frequencies in which businesses can pay their employees such as daily, weekly, bi-weekly, semi-monthly, or monthly… and in extremely uncommon instances, quarterly. Each pay frequency has its own potential benefits and in this article, we are going to discuss the four most common best practices used by businesses to pay their employees.

Weekly Pay

Who doesn’t like to receive a pay cheque more frequently? This pay frequency ensures that employees are paid on a weekly basis or 52 times annually. The upside to this is that employees will receive their pay cheques more frequently, the downside is that companies will need to run their payroll more often… which can be time consuming and potentially costly as payroll services often charge per pay period.

This pay frequency is commonly done by smaller “mom and pop” businesses. The most common day for a pay date is Friday because, who doesn’t like to have money deposited into their bank account right in time for the weekend?

Bi-Weekly Pay

This is the most common pay frequency. Employees are paid every two weeks or 26 times annually. In most instances, this equates to being paid twice a month, however, in some months this equates to having three pay days! Employee’s pay cheques are larger and (unlike the weekly pay frequency) less time is spent processing payroll and potentially saving the company money on payroll charges. The most common days for employees to be paid with each period is Thursday or Friday, following the same mindset around having money in the bank for the weekend.

Semi-Monthly Pay

Next, we have another common pay frequency structure which pays employees twice a month, regardless of what month it is or 24 times a year. Common practice companies follow is to pay employees on the 15th and last business day of each month.

The upside to this is that employees will always have money in the bank for rent on the 1st of each month and companies save a little more time and money processing payroll. Having a semi-monthly payroll makes it easier to budget monthly expenses and month-end reporting is generally completed on the last business day of the month.

Monthly Pay

Finally, with a monthly pay schedule, payroll is processed once a month resulting in 12 pay periods annually. This pay frequency is the least common of the four best practices and generally is not compliant with provincial/federal payroll regulations. The most common day for a monthly pay date is the last business day of the month. This frequency is not a popular choice with employees, as they will have to stretch out their pay cheque for a full month.

Understanding your options and making your choice is important when setting up payroll, remember the more often you pay your employees, the more time and money it is going to cost. Your pay frequencies can influence your business and those who want to work for your company. Each pay frequency has its pros and cons; however, it is important to remember that there is no “one size fits all” solution and it’s up to you on how you would like your payroll to be processed for your employees.

Stay tuned for Part 2 of this payroll series for Employee Payment Methods, which discusses the three most commonly used methods of paying employees.

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