Photo by Vitaly Taranov on Unsplash
Let’s say you had a job
as a cashier at your local grocery store that paid every two weeks. You quit
that position and got a new job in an office, but this one pays once a month
instead. What gives?
There are different
kinds of pay schedules that determine when and how often you receive your
paycheck. Businesses usually set their pay schedules to benefit themselves.
Payroll management entails labor and costs, so companies will go for the option
that is more convenient and saves them money.
Employees (as opposed to
freelancers) don’t normally get to decide how often they get paid, so it’s
critical to factor your pay cycle into your weekly or monthly budget, especially if you live paycheck to paycheck. Will you
have your money when you need it?
Here are four common
types of pay schedules:
Kinds of Pay Schedules
Weekly Payroll
Some businesses pay
their employees weekly, which means employees receive their income on Fridays.
This schedule is more common amongst freelancers, contract workers, and trade
industries like construction and manufacturing. These job types commonly have
irregular hours, so it makes sense to pay workers according to a shorter time
frame.
While weekly schedules
are a favorite amongst employees because it means you have more regular access
to your money. If you drained your bank account on bills last week because it
was the end of the month but want a night out with your friends, no worries —
you get paid on Friday, so you can afford that night out as long as you save
enough for your upcoming expenses.
However, most businesses
avoid the weekly system. Payroll vendors frequently charge money every time a
company (their customer) runs payroll. Doing so weekly takes extra time to
process, so companies will opt for more extended periods to reduce costs and
add convenience.
Bi-Weekly Payroll
A bi-weekly pay schedule means you receive your paycheck every two weeks. This
cycle amounts to 26 or 27 paydays per year. Many businesses prefer bi-weekly
timelines because they save money processing payroll and can calculate overtime
more easily (each paycheck accounts for approximately 80 work hours). As such,
bi-weekly payroll is more common amongst businesses that pay their employees
hourly.
Bi-weekly schedules are
not challenging to manage, but two months out of the year will have three
paydays instead of two. Accountants need to factor in these paydays when
calculating voluntary employee deductions, like healthcare, which are equal in
a bi-monthly pay schedule.
Bi-Monthly Payroll
Bi-monthly pay means
your employer pays you twice per month, also known as semi-monthly. As such,
you might receive your income on the first of and in the middle of the month
(likely on the 15th), or in the middle and end. A bi-monthly pay schedule
entails 24 payments per year, which makes it distinct from bi-weekly. If you
earn $45,000 per year on a bi-weekly cycle, your paychecks (not accounting for
taxes and deductions) will be around $1730.77 each, whereas your paychecks will
equal $1,875 on a semi-monthly schedule. It’s the same amount of money but
divided differently.
Bi-monthly payroll is
common for salaried employees. Calculating deductions is easy for accountants,
and you always know which dates you will receive your income.
Monthly Payroll
You guessed it — monthly
payroll means your paycheck comes in once a month. This format is ideal for
businesses because it makes accounting easy and reduces processing costs, but
it’s disadvantageous for employees and contractors because they have less
frequent access to their money. If you work a job that pays monthly, you need
to be extra careful with budgeting because you’ll only receive your income in
lump sums 12 times per year.
How Does Your Pay Schedule Affect
You?
Your pay schedule does
not affect how much you get paid in a year, assuming you work the same number
of hours either way. However, your pay cycle does influence how often you have
access to your hard-earned money, and therefore the way you budget.
For example, let’s say
you paid all your bills last month and now don’t have much left in your
savings. Your job pays you bi-weekly, so you’ll have enough money to pay the
first round of next month’s expenses, but your next paycheck won’t arrive in
time to pay the rest. Now you’re in a tight spot.
One option is to make an
early paycheck request from your employer. If your employer agrees, they will
provide you all or part of your paycheck before they usually would, allowing
you to pay your bills, but it lengthens the time between your next paycheck.
Another option is to use financial apps. Your job’s pay cycle is out of your hands, but you can control
when you get paid with apps like Earnin. Earnin allows you to take out up to $500 of your
earnings per pay period. This way, you won’t have to worry about missing a bill
because your employer’s pay schedule isn’t in your favor, and you won’t have to
pay mandatory fees for convenience.
Your pay schedule
affects your ability to pay expenses and for recreation, so it’s important to
know how often you’ll receive your income when applying for a job or managing
your finances. Though your pay cycle might not always work in your favor, there
are ways you can control having access to your money.
Restrictions
and/or third-party fees may apply, see Earnin.com/TOS for details.
This article originally appeared on Earnin.
