We get many questions from small business owners about processing payroll.
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One of the most basic questions we get is "How often should I process payroll?"
The answer is that how often you process payroll is entirely up to you as a small business owner.
There are no legal requirements regarding frequency of payroll and how often you pay employees.
Having said that, it's best to pay employees on a regular, periodic basis.
You can process payroll daily, weekly, bi-weekly, semi-monthly, quarterly, semi-annually, or annually.
However, most employees have bills to pay on a monthly basis, so we don't recommend that you process less frequently than once per month.
If you use a payroll service to process payroll, you may be charged fees on a per-payroll basis. This would argue in favor of processing less frequently, say, once per month instead of every week.
There also is some effort to process payroll so doing it once per month can eliminate some work, relative to the work you'd expend processing payroll twice a month.
Employees, however, may want to be paid more frequently. Getting paid only once a month puts pressure on employees to be more disciplined in managing their money.
They can't, for example, spend all their money right after getting a monthly paycheck at the end of the month and then expect to be able to pay their mid-month bills.
While the nice thing about a monthly check is that it's a big check, most employees would prefer to be paid at least twice a month.
Ages ago, paying employees too frequently raised a security issue with the risk that employees might get mugged after cashing a paycheck or that a paycheck might be stolen in the mail. These days, with most employees opting in for direct deposit, that's a non-issue.
One option in determining payroll frequency is to put it out for a vote.
If you believe in collaborative management, you may want to survey your employees and ask them how frequently they want you to process payroll. Let the employees decide. Why not?
Don't forget that you can also implement hybrid options. So, for example, you might pay hourly part-time employees every week but process payroll for salaries employees on a semi-monthly or bi-weekly basis.
At the end of the day, employees care much more about your making payroll on time based on the published schedule than the schedule itself. If your cash flow is such that it's easier for you to make payroll on a monthly basis, that may be the right way to go.
And, of course, all things being equal, employees would love you to pay them more money on any given check - but employee compensation is a topic for another article.