A pay date is the regular designated date on which your employees receive their monthly pay. Most businesses pay their employees on a bi-monthly basis. However, you can also pay them weekly, bi-weekly, or monthly.
On each pay date, your employees receive their pay for the prior pay period. This is usually a fixed amount for salaried employees, but for hourly or temporary workers, it will vary depending on their hours worked.
Everyone looks forward to payday, and many employees plan their lives around them. So, it’s crucial to pick a convenient fixed pay date each month and stick to it. Include your chosen pay schedule in your employees’ contracts and reiterate it during their onboarding.
Common Pay Schedules
Employers have many options for how often to pay employees.
Weekly pay is favored in industries such as retail and hospitality and is many employees’ top choice. However, the added effort that running a weekly payroll involves means it may not be the most practical option for your business.
In a bi-weekly pay schedule, employees are paid once every two weeks. This strikes a good balance: employees are paid more frequently, and you have more time between pay dates to calculate overtime and bonuses.
In a bi-monthly pay schedule, the business picks two dates per month on which to pay employees. For example, a company might select the 1st and 15th of each month as its pay dates.
The challenge with bi-monthly payment schedules is in calculating overtime and bonus payments. The irregularity in the number of days in each month can cause complications in the payroll process.
A monthly pay date is the most popular with large businesses or multinational enterprises (MNEs). Usually, when the chosen date lands on the weekend, the employee will be paid on the working day before.
For example, if your employee’s pay date is the 20th of the month but this date falls on a Saturday, the employee will be paid on the 19th.
Having one pay date in the month is usually the most productive for your payroll and HR departments. They only need to calculate overtime, exemption payments, and bonuses once a month.
However, paying out a considerable amount to your employees once a month may be challenging if you’re a small business or startup or have cash flow issues.
How to Decide Your Company’s Pay Schedule
When deciding how often to pay your employees, consider the following factors.
Laws and regulations
Some states have payday requirements around how often you must pay your employees, while others allow payments on a bi-weekly, bi-monthly, or monthly basis.
In most states, it’s a requirement to pay your employees on a bi-monthly basis. Other states specify that employees must be paid monthly. These include:
- North Dakota
- South Dakota
It’s important to familiarize yourself with the relevant laws and regulations around pay dates to ensure your workplace remains legally compliant.
You’ll need to consider the impact of your chosen pay date schedule on your payroll and HR departments. Determine whether the benefits of running payroll multiple times a month outweigh the associated costs.
For example, your team might appreciate being paid bi-monthly, but does your business have time to run payroll and calculate overtime and bonuses twice a month for your whole workforce?
You also need to consider your company’s cash flow. Larger or more established businesses should have more cash in the bank and so could afford a monthly payroll schedule.
However, if you’re a smaller business or new startup, you might not have the budget to process large payments to your employees once per month. In that case, smaller, more frequent payments might be better for your finances.
Sit down with your accountants to understand what pay date schedule will be best for your cash flow.
The types of employee that make up your workforce is another important factor to consider when picking a pay schedule. For example, if your team mostly consists of:
- FLSA non-exempt employees or hourly employees: It may be more beneficial to schedule pay weekly or bi-weekly. Non-exempt employees aren’t usually full-time, so payroll should be able to process their standard and overtime payments quickly.
- FLSA-exempt or salaried employees: Your payroll calculations are likely to be relatively consistent. Because of this, you could consider a monthly or bi-monthly pay schedule.
Picking your employees’ pay date, or pay schedule, is an important part of running a business. Employees look forward to and plan around their pay dates, so it’s important you clearly define when those pay dates will be and stick to them.
Many factors go into picking the right pay date schedule for your business, including state and federal laws, your cash flow, and workplace dynamics. Ultimately, it’s about balancing what’s favorable to your employees with what’s practical for your business.