How often your employees receive wages for their work is determined by pay frequency. It not only impacts their financial stability but also your business’ cash flow management.
As a business owner, choosing a particular pay frequency is a critical decision. You have to stay compliant with minimum pay frequency laws, which vary by state, and you also want to attract and retain employees with a frequency that works for them. However, if you pay too frequently, you won’t have enough cash on hand for emergencies.
The good news is that once you understand the pros and cons of each pay frequency and implement the right payroll software, choosing one over the other isn’t such an overwhelming decision.
In this article, we share the key considerations about pay frequency and how to optimize it for your business.
Pay Frequency Options: An Overview
| Frequency | Weekly | Bi-weekly | Semi-monthly | Monthly |
| Description | Once per week | Once every two weeks | Twice per month | Once per month |
| Typical payday | Friday | Every other Friday | 1st and 15th of the month | 1st or last day of the month |
| Paychecks per year | 52 | 26 | 24 | 12 |
| Month-end and year-end adjustments | Yes | Yes | No | No |
What Is Pay Frequency?
Pay frequency is exactly what it sounds like: it’s how often you choose to pay your employees’ wages and salaries.
Pay frequency is a driving factor in how much cash your business will have on hand at a given time, as employee pay is often one of the largest recurring business expenses.
Most businesses choose between four pay frequency options:
- Weekly (once per week)
- Bi-weekly (once every two weeks)
- Semi-monthly (twice per month)
- Monthly (once per month)
It’s not just a matter of personal preference, though. Businesses choose certain pay frequencies over others for real reasons. These reasons can be financial, operational, legal, tax-related, or even just to increase the attractiveness of their jobs to potential employees.
Pay Frequency Options Explained
Let’s dive a little deeper into the different pay frequency options, and look at the pros and cons of each one.
Weekly
Employees are paid once per week, on a predetermined day—usually Friday.
If your business pays weekly, you generally won’t need to worry about staying compliant with labor laws, as weekly payments are on the “employee-friendly” end of the spectrum. This also means you’ll have an easier time hiring and retaining employees—after all, employees love money.
On the flip side, the employee morale boost comes at the cost of your business’ cash flows. You’ll have less cash on hand throughout the month, and you may need to invest in more robust payment-processing systems. Weekly pay frequency may also stunt your business’ short-term financial planning due to the constant outflow of funds.
Bi-Weekly
Employees are paid once every two weeks, usually every other Friday.
Bi-weekly is the most common pay frequency in the US and is fully compliant with labor laws in most states. It’s also exactly what most employees expect from an employer—so it will neither enhance nor diminish your hiring or retention rates.
From a fiscal perspective, a bi-weekly pay structure strikes a nice balance between frequent payments and manageable operational costs. Compared to a weekly pay frequency, your business will have more cash on hand throughout the month, resulting in less restricted financial planning and a greater ability to cover unexpected expenses as they pop up.
Semi-Monthly
Employees are paid twice each month, often on the 1st and 15th or the 15th and the last day of the month.
As far as employees are concerned, semi-monthly doesn’t differ in any meaningful way from bi-weekly—so states that allow bi-weekly payments usually don’t have a problem with semi-monthly payments either. So, your business will have the same flexible cash flow that comes with a bi-weekly pay frequency.
However, there’s one key difference. Because most businesses report their financials every month, semi-monthly payments result in easier reconciliation with financial statements and easier tax preparation.
For example, a bi-weekly pay period could begin on May 26th and end on June 8th, putting half of the payroll in May and half in June. This would never happen with semi-monthly payments, since the periods always fall cleanly within a given month. This means less headaches for you and your accountants.
Monthly
Employees are paid once per month, usually on the first or last day of the month.
Monthly pay frequency is prohibited in more than half of all states—so even if it makes the most sense for your business, it might not be legally feasible. Monthly pay frequency can also be a significant deterrent for potential employees with their own financial obligations like monthly rent, car payments, and credit card bills. A month is a long time to wait between paychecks.
That said, monthly payments are optimal for freeing up your business’ cash flow. Over time, the reduced number of payments can lead to some serious time and resource savings.
It also aligns payroll expenses closely with your business’ other monthly financial obligations, such as preparing financial statements and paying mortgages and leases, giving you a straightforward, consistent expense schedule for budgeting.
How Often Should I Pay My Employees?
Pay frequencies aren’t inherently “good” or “bad”—they’re simply better or worse, depending on the specifics of your situation. Here’s how you can choose the optimal pay frequency for your business.
State and Federal Laws
First and foremost, you need to stay compliant. Every state has different laws for minimum pay frequency. For the most reliable and up-to-date information, stick to official government websites.
As we mentioned earlier, bi-weekly pay frequency is the norm in the US—but there are exceptions. Here are a few of the strictest states that sometimes require weekly pay frequency:
- California (depends on occupation)
- Connecticut (longer frequencies must be approved by the commissioner)
- Michigan (depends on occupation)
- New York (manual workers must be paid weekly)
- Virginia (high earners can be paid in longer frequencies)
How To Choose a Payment Schedule
Here are some key considerations when choosing a payment schedule for your business:
- Employee needs: If most of your employees are hourly workers who may have tight financial situations, consider a weekly or bi-weekly schedule to increase retention and job satisfaction.
- Industry standards: Aligning your business’ pay frequency with the norm for your industry can help you stay competitive when hiring.
- Payroll costs and cash flow: If your business is a startup with a tight budget, you should lean towards longer pay frequencies. Weekly payments total 52 pay periods per year—monthly payments total 12. Making fewer payments per year can keep processing fees down and enhance spending freedom while your business grows.
- Ease of financial reporting: Weekly or bi-weekly pay frequencies often result in pay periods being split across two different months or years. Semi-monthly and monthly pay frequencies eliminate this.
Conclusion
To decide on the right pay frequency for your employees, you’ll need to consider their needs, industry standards, state laws, payroll process fees, and ease of reporting.
Weekly, bi-weekly, and semi-monthly pay frequencies are legal in most states and can allow for a balance between cash flow and attracting employees through frequent pay. Monthly pay is legal in fewer than half of all states and usually appeals to higher-earning employees.
Whatever route you take, you’ll have a much easier time managing payroll by using good payroll software. The right solution will help ensure your employees are paid the right amount on the right schedule, and with features like tax reporting and automations, you’re sure to save time.
References
- State Payday Requirements (DoL.gov)
- Current Employment Statistics – CES (National) (BLS.gov)
