Payroll Scheduling – Weekly vs Biweekly vs Bimonthly

image

Payroll Scheduling – Weekly vs Biweekly vs Bimonthly

Your payroll scheduling is one of the most important factors to consider when calculating ongoing cash flow, employee pay dates, and overall payroll costs. While staff payment schedules vary from one organization to the next, many industries have standardized payroll dates that occur weekly (once a week), biweekly (once every two weeks), or bimonthly (twice per month). Each of these options comes with its own advantages and disadvantages — for both you and your staff.

So, what’s the best payroll scheduling option for you? What strategies can you use to maintain a consistent paycheck date for your employees? Finally, how can you save on the costs of payroll using payroll financing? We will answer all of these questions and more, but first, let’s examine the impact of payroll scheduling on your cash flow:

How Payroll Scheduling Affects Business Cash Flow

In the past, monthly paychecks (one check per month) were the norm for many businesses. The frequency of payments has increased in recent years to help improve employee finances and wellbeing. However, this has also increased the risk of poor cash flow for many businesses.

How often you pay your employees can have a direct effect on your cash flow, especially if you’re business receives delayed payments on invoices. For example, let’s say that your clients have 60-90 days from the day you send an invoice to make a payment. In the meantime, your payroll has payments scheduled for employees every week. This means that, from the moment a work order is fulfilled, you could go through as many as 12 payroll cycles before your company receives compensation. Naturally, this could create a myriad of cash flow issues.

Consequently, adjusting your payroll scheduling can help you manage cash flow and avoid or, at the very least, reduce instances of poor cash flow. Generally, extending the length of time between employee pay periods can leave you with more cash on hand. Additionally, less frequent payments mean fewer payment processing fees and associated payroll costs for your business. However, this is not always the case, as there are pros and cons to both frequent and infrequent payroll schedules.

Using a Weekly Payroll Schedule

Weekly payroll is the standard operating procedure for millions of small and medium-sized businesses around the world. When you institute a weekly pay period, your employees know that they can expect a weekly paycheck, generally on the same day every week. This is one of the best ways to keep your employees content with the frequency of paychecks, as they can consistently rely on their payment once every 7 days.

However, a weekly payroll schedule also means that your employees will receive a smaller amount with each paycheck. Moreover, it means that you will need to have the cash on hand to pay your staff every single week. Needless to say, if you have delayed payments from your customers or clients, weekly payroll can get tricky and potentially put you in a cash crunch.

Using a Biweekly Payroll Schedule

Biweekly (or semi-weekly) pay periods generally strike a good balance between keeping employees happy with frequent payments, while also decreasing the frequency of payments (from weekly) to reduce the risk of cash flow issues. It also gives employees the benefit of larger payments with each paycheck, as they can expect twice as much as they would receive with weekly paychecks.

The majority of the time, there are 26 biweekly pay periods in a year (with the exception of leap years). This means that you only have to go through 26 pay cycles per year, as opposed to 52 pay cycles that come with weekly pay periods. Thus, biweekly pay periods could potentially cut your cash flow concerns in half.

However, paying your staff every two weeks can still put a strain on your cash flow. A biweekly paycheck requires you to have enough cash on hand to make two payments per month. If your payments are only coming in once a month, once every two months, once every three months, or at random intervals, it could be hard to predict if and when you will have the funds to pay your staff in full.

Using a Bimonthly Payroll Schedule

Bimonthly (or semi-monthly) payroll is similar to biweekly, except that it does not conform to a weekly schedule. A weekly schedule pays out every 7 days and a biweekly schedule pays out every 14 days. Alternatively, bimonthly pay can vary from one month to another. For example, let’s say that you always pay your employees on the 1st and 15th of every month. However, since some months have more days than others, employees could have to wait longer for their second paycheck during certain months.

Employees also might find it difficult to calculate their next paycheck with a bimonthly payroll schedule. Rather than knowing their exact compensation based on a weekly or biweekly schedule, they will have to factor in the number of days left in each month. This can get confusing with the changing number of days in each month of the year.

Using the payment schedule example above, an employee might get one paycheck for the first 15 days of January and a second paycheck for the remaining 16 days. Then, in February, the same employee would get one paycheck for the first 15 days and then a second paycheck for the remaining 13 days (or 14 days if it’s a leap year). By March, the payment schedule would resemble that of January (15 day pay period + 16 day pay period), but by April, the payment schedule would be split evenly — 15 and 15. So, even if a bimonthly pay schedule makes sense for your business on paper, it could be frustrating for your employees.

Though bimonthly payroll scheduling may help simplify your payroll processes to a degree, it can also create unnecessary headaches. Additionally, it will not provide your business with much (if any) cash flow relief, as the schedule only offers you a few extra days over biweekly payments. As a result, you could still find yourself short on cash when it’s time to pay your staff.

Using Payroll Financing To Cover Payroll

As you can see, payroll scheduling can greatly affect your ability to maintain a happy (and financially stable) workforce. Just as importantly, your payroll schedule can have a major impact on your cash flow. Fortunately, if you find that your payroll is outpacing your accounts receivable, you do have options to help fund payroll on time.

Small business loans for payroll are some of the best solutions, as they provide you with a quick influx of cash that you can pay off once you receive payment from your clients. This way, you can rest easy knowing that your staff is always paid on time, even when your business is not. Additionally, payroll funding is a much more cost-effective solution than invoice factoring or Merchant Cash Advances (MCAs). As a result, a provider like Payro Finance can offer you the payroll solutions you need to keep your business running smoothly.

So, could a small business loan for payroll be the right solution for you and your staff? If you’re interested in learning more about the advantages of payroll financing, feel free to reach out to Payro Finance today!

image
Morris Reichman
hello@payrofinance.com

Morris Reichman is the founder and CEO of Payro Finance. Former Vice President at Infinity Capital Funding an alternative finance company, Morris possesses a versatile background in the finance industry. Having spent 7+ years working across global macro operations and start up corporate finance Morris's expertise is in business accounting, risk management and investment analysis. Morris founded Payro Finance to support business owners and ensure their business continuity.

No Comments

Post A Comment