Payroll schedule guide for hourly teams

Setting up a payroll schedule can be tricky — and not just because small business owners aren’t HR professionals.

There’s the challenge of balancing payroll frequency against your business income and cash flow needs. Plus, small businesses often employ hourly workers with inconsistent hours and wages, which makes payroll more complicated.

And payroll doesn’t only affect business owners. Even one mistake could negatively impact the employee experience in a big way.

That’s why we’ve put together this guide to payroll schedules. We’ve addressed all the most common questions and issues, including:

• What is a payroll schedule?
• What to consider when choosing a payroll schedule
• Five of the most common payroll schedules

Included is a step-by-step guide on how to transition to a new payroll schedule once you’ve decided to make the switch. We’ve also explored why using Homebase to set up your payroll schedule could be a great option for your business.

What is a payroll schedule?

A payroll schedule outlines when employees get paid. It includes a pay period and pay dates:

• Pay period — The time period when an employee worked
• Pay date — The day an employee receives their wages

Employers can pay their employees on a weekly, biweekly, semimonthly, or monthly payroll schedule. Their choice will depend on cash flow needs, industry standards, payment structure (for example, hourly wages or salary), and local and state laws.

Things to consider when choosing a payroll schedule

When choosing a payroll schedule, you should first take into account:

• Your specific company needs — Especially if you’re a new small business owner who needs to save as much time and money as you can.
• Employee needs — It’s best to follow a schedule that leads to as few paycheck errors and late pay dates as possible.

In addition, keep the following factors in mind:

Your business’s cash flow cycle

If you’re a small business owner, there will be times in the month when you need more cash in the bank than others because you’ll need to pay monthly rent and stock up on inventory. This means you’ll have less money to spend on payroll at that particular time.

Create a payroll schedule that coincides with when you’re more cash-flow positive. That way, you won’t have to pay employees late or worry about checks bouncing unexpectedly.

Industry standards

For example, if you own a small cafe, you probably pay your employees hourly, like many other businesses in the hospitality industry.

And because people who employ hourly workers typically pay them weekly or biweekly, it’s best to follow that norm. Employees in this industry tend to have a greater need for weekly earnings.

State pay frequency laws

Make sure you follow your state’s laws. Some states, like Arizona, for example, specify that you have to pay your employees at least twice a month and not more than 16 days apart. In fact, most states require employers to pay staff members at least once a month (to prevent overly infrequent payments).

Homebase’s HR and compliance tool is designed to remind you about these regulations. You can even set it up to send automatic alerts for important dates so you don’t violate any laws.

You’ll also want to make sure that you comply with federal laws and stick to rules about overtime and minimum wage requirements. Each payroll schedule, like weekly vs. monthly, may have different legal implications, so it’s important to do your homework before you make any changes.

Research your state’s pay frequency laws to avoid violations. If you need help, Homebase also offers calls with HR experts who can help you audit your internal processes to ensure you’re doing everything right.

Employee preferences and needs

Some employees prefer to be paid more often than others, and certainly more than once a month.

If that’s something you can manage as you balance your business’s needs, then consider giving out more frequent paychecks. You could try paying team members twice a month or even once a week, depending on employee preferences and whether they’re hourly or salaried.

If you have a mix of hourly and salaried workers, a payroll app like Homebase can bring various pay arrangements into one view.

Source: https://app.joinhomebase.com/onboarding/sign-up

Caption: Consider employee needs and your mix of hourly to salaried workers when deciding on a pay schedule.

Whether you employ salaried or hourly workers

When setting up your payroll schedule, consider whether your team is made up of salaried or hourly workers or a combination of both. Each type of worker may prefer a different system you may consider, state laws permitting. Hourly workers are more likely to prefer weekly or more frequent pay, while salaried workers tend to prefer once or twice a month.

Using a system like Homebase makes it easy to set up payroll for both salaried and hourly workers. You can pay employees with different rates and agreements at the same time without having to do manual calculations for each separately.

Time and resources

Consider how often you’ll realistically be able to organize payroll.

If you’re taking care of the payroll process on your own with a manual system, it may take you a few hours at a time. If you don’t feel you can commit to doing that once a week, you may decide it’s better to run payroll every two weeks instead.

But using a tool like Homebase payroll can make paying employees much easier than doing it all by hand. You may find that you can run payroll more often as a result because it’s so much more straightforward than it used to be.

What are the most common payroll schedules?

The five most common payroll schedules in the US are:

• Weekly
• Biweekly
• Semimonthly
• Monthly
• Payroll in arrears

Let’s get more specific about how each of them works and whether or not they’d be suitable for your business.

1. Weekly payroll

Source: https://app.joinhomebase.com/onboarding/sign-up

Caption: With a weekly system, you can choose the day you want to start payroll.

A weekly payroll schedule means employees get paid on the same day every week, often on Fridays. That amounts to 52 payments per year:

• Typically used for hourly workers
• Very common in the restaurant and retail industries

Why it may work for you

• Can work well for part-time or seasonal employees whose schedules and hours change from week to week.
• Good for employees who prefer to be paid more frequently or only work on an as-needed basis.
• Works especially well during busy holiday seasons when employees may have higher financial needs.

Possible drawbacks

• May not work well for you if you have weeks with less predictable cash flow each month.
• May be less realistic if your business has small profit margins and makes a large inventory payment at the beginning of every month.

2. Biweekly payroll

Source: https://app.joinhomebase.com/onboarding/sign-up

Caption: With a biweekly system, you can set the date you want your next payroll period to begin and Homebase will calculate everything automatically.

A biweekly pay schedule means team members get paid on the same day every other week, also often on Friday. That equals 26 payments a year:

• Often combined with a week in arrears (which means the employer runs the past week’s payroll rather than the current week’s).
• 36% of employers pay their staff on a biweekly payroll schedule according to the Bureau of Labor Statistics, making it the most common payroll schedule for US workers.

Why it may work for you

• Tends to match the cash flow needs of both hourly workers and salaried employees nicely.
• Works well in restaurants, which have a mix of hourly and salaried workers like chefs, managers, waiters, and hosting staff.
• Salaried employees may appreciate biweekly payroll because there are two months when they have a third paycheck, which can act as a nice “bonus” check.

Possible drawbacks

• May not be the best option if you have income predictability issues due to the nature of your industry.
• Can be difficult for salaried employees to commit to a biweekly schedule. This is because you can’t cut back on their hours during off-peak periods the way you can with hourly employees.

3. Semimonthly payroll

Source: https://app.joinhomebase.com/onboarding/sign-up

Caption: On the Homebase system, you can select the exact dates in the month when you want to run payroll.

A semimonthly payment schedule means paying employees twice a month. However, unlike biweekly payroll schedules, employees receive their payments on fixed days:

• Semimonthly payroll schedule pay dates are typically the 1st and the 15th or the 15th and the 30th.
• Employees get paid 24 times a year.

Why it may work for you

• Works well if you employ salaried employees or have more salaried employees than hourly employees.
• Can help you balance payroll with your cash flow more easily because you don’t have to worry about the two extra pay periods that occur in a biweekly pay schedule.
• The predictability makes it simpler for staff to organize automatic payments for things like rent, mortgage, car payments, health insurance, and subscriptions.
• Lets employers and employees keep track of previous paychecks for record keeping.

Possible drawbacks

• If you’re wondering how semimonthly pays work for hourly employees — our advice is to avoid this kind of schedule if you rely mostly on hourly workers. This is because they’re often scheduled per week and have fluctuating schedules.
• Irregular timesheets mean their pay won’t be the same each period and their hours will be more difficult to calculate.

4. Monthly payroll

Source: https://app.joinhomebase.com/onboarding/sign-up

Caption: The Homebase platform makes it easy to select how often you want to run payroll and when with the dropdown menu.

Monthly payroll is common for employers who hire freelancers and independent contractors that work on a project-by-project basis. It’s also typical for salaried employees and higher-level executives.

With a monthly payroll schedule, employees are paid 12 times a year:

• Not legal in states like Arizona.
• Only legal on a provisional basis in states like Connecticut (where you can pay employees monthly if you get approval from the labor commissioner).

Why it may work for you

• Could be a good choice if you have a small, lean team of employees and rely partially on freelancers.
• You may want to incentivize employees who work on commission and need to meet certain sales goals every month.
• If you’re a new business owner, you may opt to start with monthly payroll and then transition into more frequent pay periods as your business and staff grows.

Possible drawbacks

• Could mean a long delay between your employees performing work and getting paid for it.
• Doesn’t work very well for hourly employees or part-time employees who have irregular schedules and paychecks.
• Employees tend to dislike monthly pay schedules because it can make budgeting challenging and make them feel as though they have to “make do” with their paychecks from month to month.
• Even if it’s technically permissible in your state, monthly payroll may put you under more scrutiny from your labor board, especially if you need approval from a commissioner or labor department.

If you’re only able to pay staff monthly, look into providing some other perks. This will help keep staff loyal and committed, even if they’re not getting paid every week.

Consider offering gift cards, a relaxed shift-switching system, gifts for work anniversaries or birthdays, or even regular workplace coffee, pizza, or doughnuts to show your team you appreciate them.

5. Payroll in arrears

Payroll in arrears refers to a payroll schedule where employers run payroll for the previous week rather than the current one. It’s useful for business models that deal with fluctuations in pay and tips. It’s worth noting:

• Hourly workers are typically paid in arrears.
• Salaried workers usually aren’t paid in arrears because the amount they get paid doesn’t change between pay periods.

If you realize you need to rely on payroll in arrears, you should communicate this with your employees so they understand why you have to make it a regular practice and ensure they’re on board.

Why it may work for you

• Best for a bi-weekly payroll schedule because employees still get paid every two weeks.
• You only have to calculate tips or irregular hours every two weeks instead of every week.
• If you have hourly workers, you’ll sometimes need time between pay periods and pay dates to gather hours, validate them, run calculations, and check that everything is correct.

This is even more so the case if you have tipped workers. You may not be able to run payroll until at least a few days after the pay period has ended because you need time to confirm and report employee tips, which aren’t recorded on timesheets.

Possible drawbacks

• Not recommended if paying in arrears means that staff are working for a long time without receiving their pay or knowing when they’ll get paid for work already completed.
• Employees usually prefer the predictability of weekly or biweekly systems. When being paid in arrears, workers may not be paid on the same day each week or month, and they may also have to wait a long time between completing work and getting paid for it.

How to transition to a new payroll schedule

Source: https://app.joinhomebase.com/onboarding/sign-up

Caption: Homebase makes it easy to transition to a new payroll schedule.

Whether you’re changing your payroll schedule or transitioning from a manual system to a digital one, Homebase makes it easy to switch:

1. Go to the Payroll dashboard in your Homebase app.
2. Click Settings. Choose the pay frequency you wish to switch to and the associated pay period for the new schedule.
   

   Source: https://app.joinhomebase.com/onboarding/sign-up
   Caption: It’s easy to select your Pay Period in your Timesheet dashboard on the Homebase platform.

3. If you’re paying hourly employees, we encourage selecting a weekly or bi-weekly pay period to ensure accurate overtime calculations.
4. Select your desired payday.
5. Add team members to your payroll with the Team Roster tool.
6. Once your team has signed up, they can clock in and out of their shifts right within the app.
7. That will sync their hours with the payroll tool and turn them into timesheets with tax information included automatically.
8. Then, Homebase will handle your calculations. The software will even submit your direct deposits and file your taxes for you, with no need to export data to a third-party payroll tool.
9. Your dashboard will also show your team’s hours, time off, and net pay before you hit Submit and run your payroll.

Setting up your new payroll system beyond those steps:

You need to communicate the payroll schedule change to employees as early and transparently as possible. It’ll be easier to make the shift if everyone is on board with the change, so choose a payroll schedule that will work for both your team and your business.

Set the right payroll schedule for your business with Homebase

Deciding on a payroll schedule is a crucial decision to make as a small business owner because it doesn’t just affect you. It affects your employees too, so you need to get it right.

But remember that what you decide doesn’t have to be permanent. You can always update your processes. And, as you grow, you’ll likely need to revamp your payroll schedule to save time and scale your business.

That’s what makes Homebase payroll especially useful.

Our powerful payroll features are designed for small business owners with hourly workers. They also work great for owners who are new to payroll.

You can also integrate our payroll tools automatically with our other features for hiring and onboarding, time tracking and timesheets, and team communication.

This saves even more time, avoids mistakes, ensures you stay compliant with your local tax and labor laws, and gives you access to a full suite of easy-to-use HR tools within a single digital platform.