As a business owner, it’s essential to know the ins and outs of payroll, including payroll frequency. It’s not uncommon for small businesses to start with a weekly or bi-weekly payroll schedule, only to discover that it’s not the best fit for their operations. Fortunately, changing payroll frequency is possible and may even benefit your business in the long run.
In this blog post, we’ll cover everything you need to know about changing payroll frequency, including how to do it, the pros and cons of different payroll schedules, and the potential pitfalls to avoid.
What Is Payroll Frequency?
Payroll frequency refers to how often employees are paid. There are four common payroll schedules:
Weekly: Employees are paid every week, usually on the same day.
Bi-weekly: Employees are paid every two weeks.
Semi-monthly: Employees are paid twice a month, usually on specific dates, such as the 15th and 30th.
Monthly: Employees are paid once a month, usually on the last day of the month.
The frequency of payroll can affect how much you pay in payroll taxes, how much time and money you spend on payroll processing, and employee satisfaction. It’s essential to choose a payroll schedule that works for your business and your employees.
Reasons to Change Payroll Frequency
There are several reasons why you might consider changing your payroll frequency. One of the most common reasons is that your current payroll schedule is no longer working for your business. For example, a weekly payroll schedule may be too time-consuming and costly to maintain as your business grows.
Another reason to change payroll frequency is to align with your cash flow. If you find that paying your employees on a weekly or bi-weekly basis strains your cash flow, switching to a semi-monthly or monthly payroll schedule may help.
Pros and Cons of Different Payroll Schedules
Each payroll schedule has its pros and cons. Here are a few things to consider when choosing a payroll schedule:
Weekly Payroll: Pros: More frequent paydays can help with employee satisfaction and cash flow. Cons: Processing payroll every week can be time-consuming and costly.
Bi-Weekly Payroll: Pros: Bi-weekly paydays are still frequent enough to help with cash flow, but less time-consuming than weekly paydays. Cons: Payroll processing can still be time-consuming, and there are 26 pay periods in a year, which can make budgeting more challenging.
Semi-Monthly Payroll: Pros: Semi-monthly paydays are predictable and easier to budget for, and there are only 24 pay periods in a year. Cons: Employees may have to wait longer between pay periods, which can impact cash flow and satisfaction.
Monthly Payroll: Pros: Monthly paydays are the easiest to process and budget for, and there are only 12 pay periods in a year. Cons: Employees may struggle with cash flow if they’re used to more frequent paydays, and it can be challenging to catch payroll errors if they’re only discovered a month later.
How to Change Payroll Frequency
Changing payroll frequency requires careful planning and communication. Here are the steps to follow:
- Review federal, provincial, and territorial payroll laws to ensure compliance.
- Notify your employees at least 30 days in advance of the change.
- Decide on a new payroll schedule and update your payroll system.
- Adjust your budget and cash flow forecast accordingly.
- If necessary, adjust your employee benefits, such as health insurance or retirement plans, to align with the new payroll schedule.
Potential Pitfalls to Avoid
Changing payroll frequency can be a complicated process, so it’s essential to avoid these potential pitfalls:
- Failing to comply with federal, provincial, and territorial payroll laws.
- Not giving employees enough notice of the change.