What is the most important thing when it comes to managing the payroll of your employees? If you thought it is the accuracy and lawful compliance of the payment to the employees, you are not wrong. However, there is one thing that we all neglect when we think about this question; and that is the pay frequency. This is not a term that you frequently come across. This article talks about the meaning and types of pay frequency as well as the factors that you need to consider while choosing it effectively.
To understand the meaning of the term pay frequency, let us first understand the meaning of the word ‘frequency.’ Frequency denotes the rate at which a particular thing takes place over a given period of time. You can call it recurrence or regularity.
When combined, the term ‘pay frequency’ refers to the rate at which the payment to the employee is made over the span of time. It can be called as regularity of payment or recurrence of payment.
The most common query in the mind of the readers after understanding the pay frequency is – Does it make a difference in the annual salary or tax liability? Companies can understand the employees’ curiosity to understand this concept. The pay frequency does not change the amount of payment to the employees – either positively or negatively. The annual income of the employees remains the same; so does their tax liability. The only thing that changes is the number of paychecks that the employee receives.
From the options of weekly, bi-weekly, semi-monthly, or monthly, the industries are free to choose a pay frequency that they want to use. Organizations need to keep in mind the basics of their payroll process in order to select a suitable pay frequency for their employees. Besides that, the selection can depend upon a variety of factors which we will discuss later in the article.
As mentioned in the paragraph above, there are four types of employee pay frequency. The only difference among the four is the time between two paychecks. The following are the four classifications of pay frequency:
A weekly employee pay frequency refers to the system of paying the employees each week. The amount they receive is very less, and hence they need to be paid more frequently. The organization needs to run more frequent payroll cycles for such payments. An employee is paid 52 times a year. It is usually preferred when dealing with construction workers, builders, housekeepers, forklifts, and other similar laborers.
Being the most common pay interval, the weekly pay frequency’s benefits are reaped by both – the employer and employees. The employees receive frequent and consistent paychecks. Given the expenses of the employees, they may face financial hardships if they are paid monthly. Weekly paychecks guarantee that the employees have enough hard cash to pay for their necessities. Moreover, if the employees have worked overtime, they don’t have to wait for the OT pay until the end of the month. They can cash in the fruits of their hard work by the end of the workweek.
For employers, the weekly pay frequency provides support to the business by making planning simple and straightforward. Monthly or semi-monthly payroll can be a hassle to manage. Instead of having to adjust the payroll cycle on random days of the month, the weekly pay frequency allows you to have a fixed day in every week in which you process payroll. Moreover, the employer does not have to wait longer periods to hire new employees as the full and final settlement can be done within a week.
When you pay your employees every other week, you are paying them bi-weekly. In this method, the employee receives approximately 2 paychecks a month, coming to a total of 26 a year. In a year, there can be about two months where the payment can be made thrice in a week. The education, health services, information, leisure, hospitality, and information industry are the ones that use a bi-weekly method of payment.
Bi-weekly payment allows the employees to meet their expenses on time due to the regularity of the payment. It allows them to feel secure as they know that the paycheck is going to come on the same day every two weeks, meaning they do not have to worry that they will receive late or early paychecks.
The employer can save time and minimize the possibility of making a mistake in the entire payroll process as compared to the monthly pay frequency.
Bi-weekly pay frequencies and semi-monthly pay frequencies can be easily muddled as both of them are paid twice a month. However, the distinction between the two is that the former pay frequency is carried out on fixed days of the week, while the latter is paid on specific dates of the months. For example, in a bi-weekly pay, the organization pays the employees on every second Saturday. While in the case of semi-monthly payment, the organization pays the employees on the 15th and 30th every month. It is difficult to track as there are no fixed days on which these dates fall. The employees receive a total of 24 paychecks a year – precisely two paychecks a month.
This form of payment usually fits with the payroll management software and other pay structures, making it easy for the organization to effectively meet the expectations of the employees. It is often seen that the organizations that are exceptionally huge use this method of payment for the salaried staff. Besides, with semi-monthly pay frequency, the employer can maintain a steady cash flow for the organization as he has to have enough cash to meet the payroll needs twice every month. The employer’s challenges in calculating weekly pay for the leap years are reduced as the employees do not have to count the leap days in a year or month.
Monthly payouts are one of the most commonly embraced modes among the various payment options for salaried employees. The salary paid through this type of pay frequency is usually very high compared to the payments made through the weekly or bi-weekly methods. As the name suggests, the payment made to the employees is at the end of every month. The employer pays the employee a total of 12 paychecks a year under the monthly pay frequency.
The employees who plan their income and expenses and move in their lives accordingly are the ones benefited by this method. A monthly salary allows them to have scope for a little savings as well.
Employers do not have to bother going through the payroll process more than once a month. This saves them a lot of time and energy that can be used on the more critical issues.
As mentioned above, there are several factors that determine the selection of the suitable employee pay frequency for the organization. Besides the provisions of the organization’s own HRM guide, they need to consider the following external factors:
The labor laws vary from state to state. In many provinces, the law mentions the limit to minimum pay interval, which ensures that the organization’s pay frequency does not conflict with the legal provisions. Other states have very particular conditions for the pay frequencies in that region. For example, the law may mandate a particular pay frequency for the kind of work the employee performs.
The organizations can pay the employees more frequently than the legal provisions state; however, they cannot pay them less than what is mentioned in the laws. Moreover, the organization cannot change the employees’ frequency as and when they wish. The government states that such changes in pay frequencies are allowed if they are for some rightful business reasons and are meant to be permanent. The organizations are bound to be in legal trouble if they are caught trying to bring changes with the intention of escaping the payment of wages. It is due to this reason that businesses and organizations need to make sure that they comply with the statutory regulations concerning employee pay frequency.
Not all employees can be grouped under one pay frequency. Understanding the employment types helps in determining the employee pay frequency that they will be covered in. Usually, the employees who work at construction sites, as housemaids, or in similar fields as such, are paid weekly. Similarly, the employees who come under the salaried class are covered under the monthly pay frequency.
What type of pay frequencies do the other organizations in the industry follow? It may assist you in knowing what methods would be easy to follow. After all, the entire industry cannot be wrong in following a particular manner, right?
The recurrence of payment in the organization can contribute to a lot of factors. These factors can be employee motivation, the overall productivity of the organization, the organization’s market image, and much more. In order to select a type of employee pay frequency, the organization first needs to understand what are the options they have and what are factors they need to consider before selecting a suitable pay cycle.