Payroll in arrears explained

When employees get paid is important to everyone at your business. It’s important to employees because it determines when they should expect their wages and how they should budget their funds. It’s important to employers for the same reason—it influences cash flow and budgets for the business. That is why it’s essential to understand the basics of common payroll schedules and related terminology, like payroll in arrears.

What is payroll in arrears?

Payroll in arrears refers to a delay between the pay period and the pay date. For the employees, this means that they will be working for a set period (past the payroll week) and agree to be paid after that period ends. Payroll in arrears is done to make payroll easier for small businesses.  

Arrears literally means, “an unpaid and overdue debt.” But when people talk about payroll in arrears, they are referring to the fact that employees may have a pay date that is after their pay period has ended. 

So while the employer does owe the employee money for their time worked, payroll in arrears is legal (with some reasonable restrictions), and in fact, often the expectation for hourly employees.

States determine acceptable payroll schedules for employees. Typically this is done by employee type. So salaried employees will have one set of rules, and hourly employees will have another set of rules. 

For example, in California some salaried employees can be paid on a monthly schedule, while hourly employees must be paid at least twice a month. Additionally, employees on a weekly or biweekly pay schedule must be paid within seven calendar days of the end of the pay period. 

They also have more specifications for certain industries, like the motion picture industry. These state rules exist to protect employees and ensure they are paid in a timely fashion after completing work for a business. 

Before you select a pay schedule for your business, it is important to check any applicable laws in your state.

What is a payroll schedule?

A payroll schedule is a combination of a pay date and a pay period. A pay date is just what it sounds like, it’s the day employees get paid. A pay period is the time period that the employees worked. 

3 Common payroll schedules 

There are three common payroll schedules: weekly, biweekly, and semi-monthly. It is also possible to pay some workers monthly in some areas, but this isn’t common as the other three types of schedule. 

1. Weekly 

Weekly payroll means a pay date happens once a week, for a total of 52 pay dates in the year. The pay period for a weekly schedule is a week long, often Saturday to Friday, but each business can choose the best period that works for them. Pay day is often on a Friday, but again, every business can pick what works for their situation. Employers with hourly employees often choose a weekly pay schedule.

2. Biweekly

Biweekly payroll means a pay date happens every other week, for a total of 26 pay dates in the year. The pay period for a biweekly schedule is two weeks long, and employers can choose the days that work best for their business. Pay day is often on a Friday. Employers with hourly employees often choose a biweekly pay schedule. 

3. Semi-monthly

Semi-monthly payroll means a pay date happens twice a month, for a total of 24 pay dates in the year. The pay period for a semi-monthly schedule is typically the 1st to the 15th of the month and the 16th to the last day of the month. Pay days are usually on the 15th and last day of the month. Of course, because some months are longer than others, that means that the exact number of days in the pay period can change with a semi-monthly pay schedule. For that reason, employers with salaried employees often choose a semi-monthly pay schedule.

Choose the right pay schedule for your business

Understanding pay schedule terminology is the first step to selecting the right pay schedule for your business. Many businesses with hourly workers choose a weekly or biweekly pay schedule with arrears. 

Many businesses with salaried workers choose a semiweekly pay schedule without arrears, as their employees wages don’t change each pay period. And businesses with both types of workers can select to have multiple pay schedules or create one master schedule that works for everybody.

If you’re looking for a payroll provider that can handle your hourly workers’ pay schedule, look no further than Homebase. We are optimized for hourly teams that have complex schedules and need to make sure payroll gets done right. 

Payroll in arrears FAQs

What is the benefit of paying in arrears?

Paying in arrears means a business will pay employees what they are owed for already completed work. Many small businesses choose this method of payroll because it gives the business owners time to run payroll and time to factor in calculations like tips, pto, or overtime.

Do most companies pay in arrears?

Yes, most companies use an arrears payroll method, especially those with hourly or tipped employees. Since employees’ hours can change workweek to workweek, it will take payroll a few days to be finalized.

How does paying in arrears affect employees?

The biggest effect arrears has on employees is the lapse between work and pay. A current pay system means employees are paid immediately, while arrears has a lag of at least a few days. This might seem like a late payment but many businesses use this payroll method and it is actually very common. Employees are paid their agreed-upon wage and it gives businesses time to run payroll.

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