What’s the Best Payroll Schedule for Your Small Business?
Deciding on a payroll schedule
may be simple for large corporations with plenty of cash flowing in, but small
business owners don’t generally have that luxury. Given the costs associated
with starting, maintaining and growing a business, owners have to be meticulous
with their money – and that includes determining when it’s best to pay their
There’s more to the decision
than you might think. But, before reviewing the various factors to consider, here
are some options for scheduling payroll:
Weekly: Employees are paid every week, typically on Fridays, for the previous week of work. Fifty-two checks will be issued.
Biweekly: Employees are paid every other week, for the previous two weeks of work. Your company will cut 26 checks to each worker in a year.
Semi-monthly: Regardless of how the calendar
unfolds, employees are paid twice a month. This results in 24 payments in a
Monthly: Employees are paid once per month, so
12 checks are distributed.
Payroll Factors for Small Businesses
1. How many employees can you afford to pay?
Balancing costs is often
tricky for small business owners. There’s a good chance more money is going out
than coming in at the start, as you’re trying to establish your business
through advertising and working to build up your inventory.
You may have business loan
payments to make, assets to pay off, and tax liabilities. It’s essential that
you review all credits and debits before hiring because ignoring
them can result in trouble. Adding more people to your team than you
can afford may force you to take out a payroll loan. While that may keep your current
employees happy, it will also add another debt to your young company.
2. When will you have the money to pay everyone?
It makes sense to schedule payroll when your business is most flush with cash. If you run a client-based business, charging each client on the second Monday of every month will result in considerable income at that time. So, perhaps you decide on a semi-monthly payroll schedule, sending payments to employees in the middle and at the end of the month.
Work that is seasonal or
inconsistent might make your payroll decision more difficult. Your employee
base may have to adjust based on demand, making scheduling more tentative.
3. What are your employees’ expectations?
Are you employing hourly
workers? Salary workers? Contract workers? Commission-based workers? Each type
of employee may have different expectations in terms of frequency of payment.
Hourly workers earning a lower wage might prefer being paid weekly so they can
pay their grocery, utility and rent bills.
You’ll likely have more of a
grace period with salary employees, opening your payroll flexibility to bi-weekly
Payroll Scheduling Restrictions for Each State
Specific states are confined
to specific payroll schedules. For example, Texas requires that companies pay
employees either monthly or semi-monthly. New York, on the other hand, requires
that employees be paid either weekly or semi-monthly. Pennsylvania and North
Carolina do not have any restrictions.
Take a look at this
table to see where your operating state stands on payroll
Direct Deposit Requirements by State
There is a chance your small
business can require direct deposit payments. As with scheduling, certain
states allow direct depositing to be strictly enforced, disallowing employees
to be paid by paper check.
Direct deposit payments will
better help you monitor your cash flow because you’ll know exactly when the
paychecks are clearing.
Employers must abide by U.S.
labor laws. According to the U.S. Department of Labor, under the Fair Labor Standards
Act, nonexempt employees are required overtime pay of at least one
and one-half times the employee’s regular rate of pay for a 40-hour workweek.
In addition, some states have their own overtime laws that you’ll have to
Of course, your business has
to pay taxes. Just be sure you know how often that must happen and whether you
have to pay local or city taxes as well. All of these compliance laws affect
the amount of money you’ll have allotted for payroll.
While you’ll always have to ensure your small business is doing well enough to pay your employees, you won’t have to worry about day-to-day payroll functions and demands if you use Workful. Our advanced software runs payroll based on your schedule, creates reports detailing employee hours and tax liabilities, and tracks taxes so all aspects will be in order when you’re ready to cut checks. Workful allows you to complete payroll quickly and accurately so you can get back to growing your small business.