Considerations in setting up a payroll schedule (pay periods & pay days)?


2

I am setting up payroll for the first time. So far in my research I have discovered that the state of Arizona requires:

  • I must pay employees within 5 days of the pay period.
  • I must schedule pay days at least twice per month with no two pay days more
    than 16 days apart.

Also, I found this post on picking a pay period and pay day, which provided some insight.

I am seeking experiential advice to determine the following:

  1. whether to pay weekly, every other week, or twice per month?
  2. selecting start/end days of each pay period?
  3. when to pay for the pay period?
  4. other concerns I haven't discovered yet?

Employees Payroll Pay Paycheck

asked Sep 26 '12 at 19:13
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Clint
695 points
  • Use one of the companies that do this as their business. You DO NOT want to try to "Save money" by doing it yourself. There are more important things to do. It's fine to educate yourself on the regulations - but stop there - and be smart. Pay a company to do your payroll – Tim J 6 years ago
  • TimJ, I highly concur. I am actually using Intuit's Online Payroll Plus. That service requires me to choose my pay periods and pay days, thus my question. However, Intuit doesn't offer any guidelines/requirements in their setup process regarding local and state laws. – Clint 6 years ago
  • Just for the record, I decided to go with "Pay day is every other Friday for the two-week period ending the previous Sunday." Seems to be the simplest payroll schedule. Plus, my employees liked it best of all options presented. – Clint 6 years ago

3 Answers


3

Once you're past the legal basics that you've already discovered, payroll frequency and payday is a matter of employee, employer convenience and cost. Here's some issues to consider:

(1) The labor and hassle of preparing, processing, and posting payroll is significant. In addition, some payroll processors charge per payroll run. Taken together, running 12 monthly payrolls will cost you significantly less than running 52 weekly payrolls.

(2) In an effort to mediate the significant bother and costs of processing/receiving payroll, a majority of small businesses use some form of twice monthly payroll (Biweekly or semi-monthly).

(3) Biweekly (every other week) payroll makes employee overtime calculations easy as you do not have to look at the prior period to calculate weekly overtime. However, biweekly means you'll run 1-2 more payrolls annually when compared to the 24 periods when running semi-monthly payroll.

(4) Semi-monthly (twice a month) payroll means fewer runs but requires more effort in calculating weekly overtime unless you automate your timecards. Our business is employee time and attendance management and our Virtual TimeClock software makes managing employee timecards super simple. (Whenever I mention Virtual TimeClock, I offer a 50% discount to OnStartups members just so you know this isn't a completely shameless plug for our products. Contact me if I can help you).

(5) Do yourself a huge favor and automate your payroll. Intuit Online Payroll is very good and costs about $39 per month (about $25 if you're a CostCo member). Using an online payroll service makes it dead simple to manage electronic tax filings, tax payments, payroll deductions, and employee direct deposit. It's perfect for the busy small business owner. If you want other payroll options, we maintain a list of the most popular payroll processors on our web site.

answered Sep 27 '12 at 03:19
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Keith De Long
5,091 points
  • Great point on #3 & #4 regarding overtime calculations. That alone confirms that bi-weekly is an optimal choice for my business. And given the fact that the service I decided to go with is a flat monthly fee and includes any number of payrolls, free of charge, the extra two payrolls per year is a non-issue. – Clint 6 years ago
  • I was unaware of CostCo's discount for Intuit's payroll service. I actually signed up for Intuit Online Payroll Plus through Intuit's website. I'm currently in my 30-day free trial. I wonder, is it too late to get the CostCo discount? Also, is what CostCo offers the same as the _Online Payroll Plus_ offered directly from Intuit? – Clint 6 years ago
  • Clint, Other than the lower price, the package and service you get by signing up through Costco is exactly the same as that purchased through Intuit. – Keith De Long 6 years ago
  • Just a follow up: I purchased a Costco Executive membership for $110/yr. Hours later, I contacted Intuit regarding the discount and I got it! The monthly price directly from Intuit is: $39 base fee + $12 per state (starting at 2nd state) + $1.50 per employee + $5 worker's comp processing. My discounted rate is: $23.99 base fee + $10.50 per state (starting at 3rd state) + $1.25 per employee (starting at 11th employee) + $2 worker's comp processing. So best case scenario, payroll for 10 employees in 2 states costs $25.99/mo, which is a savings of $45.01/mo. I'm saving about $20/mo. – Clint 6 years ago
  • I can confirm the statement from @KeithDeLong regarding the package/service not changing once I applied my Costco membership discount. I was actually worried about that. I assumed I would have to go through some Costco proxy or perhaps get extra spam from Costco, but no. Everything is exactly the same. The Intuit agent confirmed that they simply add my Costco membership number to my account and that applies the discount. That's it! I don't mean to sound like an ad for these two companies, but I'm thrilled. The Intuit payroll is so easy. I'm running payroll and paying taxes from my phone now! – Clint 6 years ago

2

I really would recommend moving payroll to Intuit, Paychex, or one of the other payroll companies. Done it myself in several companies and learned better to not do that again. Mistakes are very expensive and you will always miss out on details. People are extremely sensitive to even small payroll mistakes and they have long memory for those too.
Also, do check with the AZ dept of labor, since say in MA salaried employees can be paid once a month, as long as offer letter said that. Hourly - twice per month, no ifs and buts.

answered Sep 27 '12 at 04:23
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Apollo Sinkevicius
3,323 points
  • Points taken. My CPA also warned me about the fines/fees associated with mis-filed payrolls. And with the ever changing tax rates, he said a miscalculation is bound to happen for the DIYers, typically negating the costs of hiring a payroll service company in the first place. – Clint 6 years ago

1

Considerations:

Monthly works for some people, but does take some adjustments. Some bills can be moved to specific days to help the employee budget, but the process takes discipline. For the employer it works best when employees are salaried. They don't get overtime, and they get the same pay each month. This is why the US military uses this pay cycle.

Twice per month. Hard on the employee, because the two checks can be for different amounts. If they pay date falls on a weekend it can delay pay for the employee or rush it for the employer. Because the number of work days per pay period will vary, the amount of payroll will also vary. Harder to plan. One benefit for the employee is that they know the relationship between pay day and their large bills. Sometimes payroll/end of pay period sneaks up on people, and they forget to submit their time sheets.

Every two weeks Every cycle is the same length. For employees living paycheck-to-paycheck, the fact that the checks are not in synch with their monthly bills can be a problem. Easy on the employer, because they know that every other Xday they must do this to get payroll processed.

End of pay period with paychecks every two weeks Sunday works best for some companies. Other companies use the end of the day on Friday. Ending on a Sunday means that processing doesn't start until Monday. This prevents the need for employees to estimate Fridays hours. Ending on a Sunday also allows employes to use the weekend to makeup hours. Other days can work for a company depending on their work cycle. A movie theater may find it easier to end the pay cycle in the middle of the week because the bulk of the hours are on the weekends. This makes planning their work schedules easier.

Payday Meet the state law. End of the week for most companies seems to work. If you want to pay every other Friday that might force you into ending the pay cycle on a Sunday. Monthly or 2 times month payroll, will mean that you will be paying X days after the end of the cycle. I have seen companies use the 5th and the 20th.

answered Sep 26 '12 at 20:12
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Mhoran Psprep
644 points
  • I'm surprised that companies would cram pay day on the last day of the pay period and then have employees estimate their hours. I will definitely take advantage of the 5-day buffer that the state of AZ allows between pay periods and pay days. This allows for accurate reporting and some breathing room in payroll preparation. – Clint 6 years ago

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