Setting up a new payroll? Before you pay employee wages, you’ll need to consider your pay frequency. Whilst this may not seem significant at first, pay frequency can have practical implications that can affect not only employers but employees too.
Everything, from your employee numbers to the types of workers you have working for you, will shape what your pay frequency should look like.
Inaccuracies or errors in your team’s payroll runs can break down much more than trust. There are legal and practical implications involved when determining how often your staff should be paid. Employees must be paid accurately and on time, without fail.
Conventionally, payroll frequencies are thought of as monthly paydays contained within the calendar week. Yet, employers actually have greater freedom with how their payroll is scheduled and delivered. Weekly pay periods, for example, mean that your employees can see their output sooner. However, a weekly schedule may be more intensive for your payroll department because paydays are more regular.
Ultimately, the best pay frequency schedule will look different for every business.
Before committing to your pay frequency schedule, get a closer look at the options available to determine if it’s compatible.
Pay, or salary frequency, describes the amount of time in between paydays, or how often your employees get paid. For employees, pay frequency will impact the number of payslips they receive.
Changing pay frequencies will not impact net pay. In fact, your employees receive the same salary regardless of how often they are paid.
Many pay frequencies can be processed, these include:
|How Frequently Are You Paid?|
|How Many Paychecks Per Year||52||26||13||12||1|
|Payment Frequency Explained||Every week||Every other week||Every 28 days||Every month||Every year|
As you would imagine, a weekly pay frequency is when employees receive their wages every week. Whilst wages are less, they are given out more frequently. In this scenario, a business will need to run payroll more often when compared with other pay frequencies.
Fortnightly (or bi-weekly) pay periods
With bi-weekly payroll, employees are paid every two weeks, or fortnightly. Employees should be paid their wages on the same day regularly for each period (such as a Friday). For employers using this pay frequency, there are 26 pay periods in a year (as much as three per month).
Conventionally, many companies pay their employees monthly. This means that there are 12 paydays in a year, which normally fall on the last day of the month.
Lunar payrolls are defined by 13 pay periods per year. Setting ‘periodicity’ – where salaries are paid periodically – employers can choose lunar payroll, which would be set at a frequency of every 28 days.
Paying employees on a fortnightly payroll, rather than a weekly one, can unlock different opportunities for employers, largely by simplifying the process and limiting the volume of transactions.
If employers want to simplify the payroll process, calculating wages on a fortnightly frequency can reduce the time spent on this task. Payroll processing encompasses everything from regular and overtime wages, along with any additional compensation (including commissions) and any deductions (payroll taxes, for example). Taxes and benefits must also be calculated within every payroll cycle. As the size of payroll grows, this task can become more time consuming.
Processing payroll every other week reduces the demand on an employer to calculate payments and issue transactions. Sometimes, running payroll according to a fortnightly schedule can even reduce payroll errors.
If a business operates a bi-weekly payroll, employees are paid more often than when an employer uses monthly pay runs. Whilst monthly payroll is common, Fortnightly has its benefits, namely in how often an employee can expect to receive their salary.
Sometimes Fortnightly pay frequencies can be challenging to run, especially where there are months with three paychecks. This can trouble budgeting if it’s not properly anticipated, whereas monthly pay frequencies can offer consistency to a business.
If your employees are paid once a year, and this falls within the same tax month, you can register this under the HMRC as an ‘annual scheme’.
What’s the difference between tax and pay periods?
Tax periods are set by the HMRC.
HMRC (HM Revenue and Customs) tax periods commence from the 6th of every month until the 5th of the next. Importantly, your pay periods do not have to coincide with tax periods.
Ask yourself the following questions before deciding on pay frequencies
You can change paydays to a different calendar day or change how often you pay employees. This should be considered in how well it works to complete your business objectives. If you have full time employees, then regular monthly pay frequency schedules are often popular. Yet, if you employ workers on irregular hours or shift patterns, then more frequent paydays are to be expected.
There is flexibility with pay frequency schedules, which helps employers structure paydays around the likes of unusual shift patterns and seasonal demands based on your industry.
If the new payday falls within the same tax month or week, any new payments should be treated as extra pay for that period. However, employers don’t need to do anything if you’re recording pay for a payday within a different tax month.
Importantly, if an employer changes paydays, you will need to align payroll to the correct tax period. For more information on this process, read the official guidance and support from the HMRC.
It’s worth remembering that pay dates and frequencies are often contractual, which means changing it may involve gaining an agreement via consultation with employees or as a whole.
Unlike manual payroll, many payroll software solutions can automatically manage these kinds of changes, such as how often you pay your employees (for example, switching from weekly over to fortnightly). This should also calculate any deductions.
A pay schedule relies on two areas: pay periods and pay dates. The first describes the length of time between payroll runs, whereas a pay date simply means the day your employees are paid. This is important for employers to understand because, depending on your pay frequency, there may be a delay between the two.
Salaried employees, whose monthly wages are fixed, are unlikely to see a delay because their pay is predictable, or the same every time. As salary is evenly distributed between the months in a year, this rarely changes.
Those on hourly wages, however, can expect delays. The delay allows employers to accurately tally the time worked and calculate payroll; this practice is called ‘pay in arrears’.
2. Costs and demands
Payroll can become a costly operation for busy workplaces. But the demands and pressures that running accurate payroll can put on your time is worth considering, too.
How long should you be spending on payroll? It depends on your preferences, but more businesses are increasingly consolidating and streamlining payroll and accounting through payroll software.
3. Employee preferences
Even though it may feel like a riddle, you can eliminate confusion by asking your employees when they’d like to get paid. They may prefer to get paid earlier, especially if wages are hourly. Or your employees may desire the reliability of a fixed monthly pay date. Consider the wider financial circumstances of not only your organisation, but the people who drive your business.
Expert tip: It may be tempting to generate different pay schedules when you have a diverse mix of employees. It’s better to simplify the process, however, and use one schedule for all employees.
The right pay frequency for you will need to consider the following:
There is no universal fit for pay schedules. Rather, it will depend on the circumstances of your business. There are, however, more popular choices in the UK, with many selecting a monthly pay schedule because it offers employees reliability and simplifies the process.
Running a reliable and efficient payroll solution is desirable. But that relies on a balance of employee preferences, HMRC regulations and business goals. That’s why taking the time to decide on the best pay date for everyone is important.