Choosing the Right Pay Period for Your Small Business

When starting your small business, you probably anticipate hiring new employees at some point. Once that time arrives, will you be ready? Paying your employees involves more than simply handing out a paycheque; you will need to make some decisions about payroll and setting the right pay period.

First off, let’s look at the basics. What is meant by payroll?

Put simply, payroll is the recurring period during which the employee’s hours worked are recorded and paid. Often, this period covers two weeks (bi-weekly), but it may also be weekly, bi-monthly, or monthly. Each type of pay period offers pros and cons as we will examine.

• A weekly pay period pays the employee on a given day each week, such as every Friday. This results in the employee being paid 52 times over the year. Employees may appreciate more frequent pay and being able to budget for weekly income. As an employer, this is more time-consuming, requiring that you complete payroll every week. It may be more expensive as well if you are paying a fee to your payroll provider with each pay period.

This type of pay is often applied to hourly employees working in trades and services, due to hours fluctuating weekly.

• Bi-weekly. This is one of the most common pay periods, occurring on the same day every other week. This results in 3 paycheques for two months each year, for a total of 26 pays, or even 27 in some years.

This is a popular approach, and many employees will consider it the standard. The downside is that whoever oversees payroll will have to deal with it not aligning very well with monthly reporting. Benefit deductions may also require some adjustment.

• Semi-Monthly. This for of pay period involves paying the employee twice each month. Superficially, this appears the same as bi-weekly, but whereas bi-weekly pay results in up to 27 pay periods, semi-monthly results in 24. These pay periods might fall on the 14^thand 28^th every month, for example. This is another one of the most popular methods. It is similar enough to bi-weekly for most employees, and your payroll officer is likely to appreciate that it lines up well with monthly reporting.
• The final option is monthly payment, providing employees one paycheque per month on a specific date. Most provinces have regulations requiring more than one pay per month, resulting in this pay period being uncommon. Most employees are not fond of this type of arrangement, as it means a long wait between each pay. For those companies that do offer monthly pay, however, it is an easy and inexpensive option.

Determining which pay period is the best for you requires a few factors to be taken into consideration. Labour laws in your province might limit your options; Manitoba, for example, requires that employees be paid at least twice per month, within 10 working days of the pay period’s end.

Another consideration is the needs of your employees. Service industries and trades consider weekly pay to be the norm, while many others assume bi-weekly pay to be the standard. Employees themselves will naturally prefer more frequent pay as it often helps them with budgeting, bill payment, and more. But if your payroll provider charges with each run of the payroll, you will want to balance the needs of your employees against the costs of more frequent pay periods. Also, if you are choosing to provide physical cheques as opposed to direct deposit, keep in mind that it will be more time-consuming for you to write up the cheques and for your employees to go deposit them. In this situation, less frequent payments might be preferable.

If at some point you decide that you would like to change your pay period’s frequency, it is possible, but Service Canada will require that you issue ROEs for each employee, and you will need to have a good grasp of your CPP contributions. Your payroll providers will be able to make the necessary changes, but you should avoid making multiple or frequent changes.

The exact needs of your business and your employees will dictate which approach is best for you. It is always advisable to discuss your option with an accounting professional to find the best fit.

For help choosing the right pay period for your small business, reach out to BCJ Group.

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