Save Time & Money By Reducing the Frequency of Your Payroll

Posted by Dave Dunn on August 4, 2008 | 0 Comments

Tags: Bookkeeping, Small Business

If you pay your employees more than once or twice a month, then you might consider doing so less often. The benefits of doing so are:

• Increase your cash: paying employees less often means you are hanging on to your cash for longer.
• Save money: if you use a payroll company, then you are paying them each time you run a payroll. Cutting the frequency in half won't cut the amount you pay the payroll company in half, but it might come close.
• Save time: processing payroll takes time, and often about the same amount of time whether you are running payroll for a week or a month.

There are, of course, downsides to paying your employees less often:

• Unhappy employees: few employees would pick one job over another based on the frequency of payroll, and most employees probably don't care once they are used to a specific system. Many employees, however, are likely to get upset if you change the system so that they are paid less frequently. A simple solution to this is to offer your employees an advance against payroll in the middle of the pay period. The advance need only equal half their take home pay, as opposed to half their actual salary, meaning that you retain some of the cash flow benefits of running payroll less frequently.
• Payroll hits harder when it hits: obviously, if you pay your employees less often, then you will be paying them more money when you pay them. Therefore, it is important to set up systems to make sure you will have the money in the bank when payroll comes around.

Reducing the frequency of payroll is not a good idea for many companies. For some, however, it is an easy way to save some time and money. Therefore, it's worth considering.