10 May How Often to Pay Employees?
New businesses often ask how often to pay employees. Everyone wants to get paid on time, for sure, but should that be monthly? Semi-Monthly? Bi-Weekly? Weekly? That’s the question. Though several factors play a part in deciding the period, it often comes down to your business’ income cycle, how often you want to run payroll, how frequently employees want to be paid, and of course provincial labour standards.
Business Income Cycle
Depending on your business, there may be predictable times when funds are received, ensuring that the bank account has enough funds to cover payroll expenses. For example, if monthly subscriptions are received at the start of the month, then having a monthly pay period ending on the last day of the month might make for some tight payrolls, or employees having to wait a day or two before getting paid. If your income is more of a level stream, then that’s less of a consideration.
How Often Do You Want to Run Payroll?
No, “never” isn’t an option. Nice try. But this question does come down to personal preference. Traditionally, payroll can be pretty time consuming. Having to calculate all the hours, overtime, vacation pay, deductions and so on. Of course, with amazing software like Canadian Payroll Connected (which you can Try Free for 30 days), this take a big bite out of processing time. Thus, even though a Monthly period might be favourable to reduce time spent on payroll processing, with the right software this just isn’t the burden it used to be.
How Frequently Employees Want to Be Paid?
By adding in consideration for how often the employees might want to be paid, then you can choose a payroll cycle that works with both you and them. For example, if the employees will expect an advance in between payroll runs, then you’ll be better off to just make the pay period more frequent. Changing from a monthly to a semi-monthly period for example.
Other times, it might be a matter of their budget syncing up. If they have things like rent, utilities, car payments and such being withdrawn on a monthly basis, then having a semi-monthly pay cycle is easier to budget for than a bi-weekly pay cycle. With a bi-weekly pay cycle though, they’ll have a couple months in the year where they’ll get paid three times in a month, which can be seen as a ‘bonus pay period’, so that might be preferable to them.
Labour Standards: The Ultimate Decider
Sometimes the decision is made for you. For example, in British Columbia, labour standards note that employees shall be paid no more than 16 days after the work is performed. This means that a Monthly pay period is out of the question. Even a mid-month advance doesn’t satisfy this law, so a Semi-Monthly or Bi-Weekly pay period is probably the best options.
As another example, Saskatchewan is pretty weird in that if you’re a manager, you can be paid a Monthly Salary. However other employees must be paid at most Semi-Monthly; Monthly is just not an option. Again, the labour standards can limit your choices.
Differences Between Pay Periods
Every pay cycle has pros and cons.
Weekly Payroll:
Pro: Employees like getting a weekly paycheck
Con: Administratively, this is a big pain in the neck. Every week you’re running payroll.
Bi-Weekly Payroll:
Pro: Employees are paid consistently on the same day every two weeks. Usually a Friday, which means they have money for the weekend. And a few times a year they get three payrolls in a single month
Con: Many of their expenses are on a Monthly basis, meaning that sometimes the expenses fall in between pay periods.
Semi-Montly Payroll:
Pro: Lines up well with most monthly expenses for employees. Reasonable processing time between payrolls
Con: Having a variable day of the week as a pay day can make it difficult to plan other things, such as weekend activities.
Monthly:
Pro: Easiest for businesses since payroll only needs processing once a month. Employees get large paychecks.
Cons: Not all labour standards allow for this frequency. Employees need to have good budgeting to manage a monthly paycheck. Often monthly employees will ask for mid-month advances, defeating the purpose of a monthly payroll. Having all payroll come out at once is a big expense at once for the business.
Choose How Often to Pay Your Employees
Hopefully this has given you some points to consider in setting a payroll cycle for your business. In the end, so long as it’s within provincial labour standards, there’s really no right or wrong payroll cycle. It’s just about finding that happy medium between what the company wants and what the employees want. As a final note: if you’re wanting to change payroll cycles, for considerations of calculating payroll deductions, it’s best to plan ahead and change your payroll cycle after the last payroll of the current year. This will ensure correct deduction calculations so the employees won’t get any surprises at tax time. And for help with your payroll, consider our super-affordable software packages to do most of the work for you!
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