When you’re running a business, you get to call the shots regarding your payroll practices, but only within limits. And by “within limits,” we mean according to the laws in your state. For instance, you can pay employees on an hourly or salary basis according to federal law, but the prevailing state laws dictate the frequency of payments.
In other words, if you prefer to pay employees just once a month for your own convenience — it’s less of a hassle —you can’t do it if state law requires at least weekly or bi-weekly payments. What’s more, payment frequency may be affected by the occupation of the workers in some states.
Examples of What Some States Require
There are a variety of state requirements. For example:
- Connecticut mandates weekly payments while Vermont requires weekly payments but allows certain exceptions. Rhode Island requires workers to be paid weekly, on regular paydays, within nine days of the end of the payroll period.
- New York requires “manual workers” to be paid weekly, while clerical and other workers must be paid at least semi-monthly and commission-based salespeople must be paid at least monthly.
- Many other states, including California, Missouri, New Jersey and Ohio, require payments of at least twice a month. Texas requires employees who are not exempt from the Federal Labor Standards Act (FLSA) to be paid at least twice a month (those exempt from the FLSA can be paid monthly).
- Some states (such as Alabama and Florida) do not have any provisions relating to payroll frequency.
These state laws are generally designed to provide protection to employees. Therefore, your business can elect to pay its employees more frequently than the mandated schedule, but not less frequently. Other than complying with state law, there’s no “wrong” or “right” way to schedule payments. Here are four basic options to choose from.
1. Weekly method. Employees are paid each week on the same day (For example, every Friday). Generally, employees seem to like this method because they are paid frequently — 52 times a year — but it can result in more work for employers.
2. Bi-weekly method. With this schedule, employees are paid every other week on the same day (for example, every other Friday). This method is common and may find a middle ground for employees and employers. The number of payments can be 26 or 27, depending on the calendar year.
3. Semi-monthly payments. In this case, a company pays its employees twice a month. Typically, this takes place on the 15th of the month (or the prior or following business day) and the last day of the month (or the prior or following business day). This could be problematic for employees if paychecks are delayed due to weekends and holidays. With direct deposit, paychecks are often paid on the actual day or prior business day. There are a total of 24 payments during the year.
4. Monthly paychecks. Finally, with a monthly schedule, employees are paid once on a month on the same date (for example, the first, 15th or last day of the month). This can result in cash flow problems for employees who don’t budget carefully and may lead to overtime complications for employers. Only 12 payments are made during the year.
Communication Is Important
Some employers use different pay schedules for nonexempt hourly employees and salaried employees. In any event, pay periods should be clearly communicated to employees so that they understand all the ramifications.
In addition, the differing state laws determine the timing of payments. For instance, under California law, wages earned during the first 15 days of the month must be paid no later than the 26th day of the month, while wages due for the second half of the month must be paid by the 10th of the following month. Also, wages for weekly, biweekly and semi-monthly payrolls in California must be paid no later than seven calendar days after the close of the payroll period. Many other states have similar provisions on the books. Contact your payroll adviser for the exact rules in your state.
Get Help to Stay in Compliance
As you can see, state laws contain pitfalls for the unwary. You must ensure that your company is in full compliance with all the applicable rules. Outsourcing payroll is one solution to consider. Not only does outsourcing help businesses avoid federal penalties for late or incorrect filings and payments, it can also help with state requirements.