Monthly Payroll: Advantages & Disadvantages (2024)

What Is a Monthly Payroll?

Monthly payroll is when you pay your employees only once a month. Typically this occurs on the last day of the month.

Should Companies Have a Monthly Payroll?

A company’s decision to pay its employees once a month is not a simple yes or no answer. Many factors that go into it, such as legal requirements or the impact it will have on the employee. When making this decision, a company needs to look at the advantages and disadvantages of paying its employees once a month. Here are some of the advantages and disadvantages to consider to determine if monthly payroll is the right fit for your company.

Advantages of Monthly Payroll

• Reduced payroll costs. One of the biggest benefits of a monthly payroll is the reduction in payroll costs for the company. Running payroll once a month as opposed to two times or more takes less time and saves money on processing payroll. This allows the company to divert those resources elsewhere by focusing on other projects or having a smaller payroll team.
• More predictability. Paying employees only once a month can lead to more predictability of payroll costs and cash flow. With an entire month to track employees’ wages, you have a more accurate date to predict what payroll as a whole might look like the following month. This can make the accounting and finance teams’ jobs easier when doing financial forecasting for the next quarter or even the rest of the year.
• Payroll deductions. Having a monthly payroll makes it easier to calculate withholdings for various company benefits. For example, health insurance has a certain amount that needs to be paid each month for the premium. It can get a little complicated if an employee is paid bi-weekly, as there are 26 pay periods and some pay periods do not require a deduction for health insurance. With a monthly payroll, you can deduct the same amount each time.

Disadvantages of Monthly Payroll

• Financial burden on employees. Only paying employees once a month can cause financial burdens, as most have bills to pay throughout the month, and it can be hard to budget when all that money is paid at once.
• Tracking overtime. While a monthly payroll can simplify things like benefit deductions, it can complicate overtime pay. Regardless of the payment schedule, you have to pay employees overtime if they work more than 40 hours a week. With a monthly payroll, you must be extra careful to make sure overtime hours are being tracked each week correctly and then paid out at the end of the month.
• Makes the end of month busy. While a monthly payroll limits payroll costs and time spent, it can make the end of the month a little busier than normal for a payroll team. Because the time spent on a payroll isn’t spread out over the month, all the time is focused on the last week of the month. It might not take as long as a whole, but it can make that last week a little more hectic than processing payroll for a bi-weekly, semi-monthly, or weekly payroll schedule.

Reasons to Avoid Monthly Payroll

While there are some advantages of a monthly payroll, most employers have moved away from using a monthly payroll. According to the Bureau of Labor Statistics (BLS), only 11.3% of employees are paid monthly. This is mainly due to the inconvenience it creates for employees and how difficult it can be to track an entire month’s worth of payroll at a time. Both of these are key factors in why a company should avoid a monthly payroll. Here are some other reasons to consider.

Employee Experience

The employee experience has become more and more prevalent in recent years, as evident by the Great Resignation as of 2021. The Great Resignation refers to a record number of employees quitting their jobs starting in 2021. While many factors contributed to that, many employers have placed more of an emphasis on the employee experience to combat the number of people quitting jobs. Part of the employee experience is getting paid on time so that employees don’t experience financial difficulties or are unable to pay their bills. Paying employees only once a month can cause issues or frustrations for employees when they need to pay bills but are forced to go into debt or pay interest on their credit cards because they can’t wait until the end of the month to get paid.

Compliance

Some states require that you pay your employees at least twice a month, or even weekly, depending on the type of work. While paying your employees monthly might not be an issue with the state you are operating in, if you hire an employee in a state that requires payment at least twice a month, you might need to change your payroll frequency to remain compliant. By avoiding monthly payroll altogether, you won’t have to worry about that issue if you expand your business into a state with different pay date laws.

New Hires

New hires’ experience with a company when they are onboarded plays a vital role in whether they choose to stay with a company or not. According to SHRM, 69% of employees who have a positive onboarding experience stick with a company for 3 years. Depending on when an employee is hired, with a monthly payroll, an employee might have to wait until the following pay period to get paid, sometimes waiting over a month. This can lead to a negative experience for them, and they may not want to stay with your company long-term.

How to Get Started With Monthly Payroll

Once you have determined that you are going to pay your employees on a monthly basis, it is important you follow the necessary steps to put the correct process in place. Here are some steps to take to ensure it is processed correctly.

Step 1: Implement the Payroll System

Regardless of the payroll frequency you will use to pay your employees, you need to have a payroll system in place. Most companies use an HRIS (Human Resource Information System) such as Eddy to process their company’s payroll. When implementing this payroll system, make sure your system processes payroll on a monthly basis. A payroll system can help ensure you are being compliant, have the right payroll deductions in place for each employee’s paycheck, set up the correct pay period, and have a pay date for the employee (typically the last day of the month, but this can vary if the last day falls on the weekend).

Step 2: Calculate the Number of Hourly and Salaried Employees

Next, determine how many employees are paid hourly and salary. All salaried employees can be processed earlier in the month with payroll running at the end of the month. This will save you time and make the last week of the month less stressful. With hourly employees, be aware of all the employees whose hours you need to track, including weekly overtime hours. This will help you stay on top of tracking hours so that when it’s time to process payroll at the end of the month, you have all the necessary hours.

Step 3: Calculate Net Pay and Pay Your employees

After you have the right payroll system in place and have calculated employees’ hours (if they are hourly) for the entire month, you can start calculating employees’ net pay. This typically takes the most time, as you want to be thorough to make sure they are being paid correctly. After that has been calculated, you can process your payroll through your payroll system and get your employees paid!

Industries That Often Use Monthly Payroll

The payroll frequency a company uses often depends on the type of industry they work in. While the industry won’t require a company to choose a payroll type, it might dictate what makes the most sense with the type of work being performed. Here are some industries and companies that more commonly use monthly payroll

Freelance Writing

Freelance writers are one of the more common jobs that are only paid once a month. Since these jobs are typically driven by the number of clicks/views that the writer’s article receives, or is based on a contract the writer signs with the company, it makes sense to pay employees on a monthly basis, after how much revenue their writing drove has been determined.

Financial Industry

According to the BLS, the financial industry pays its employees most frequently on a monthly basis. As of Feb 2022, 9.2% of employees in the financial industry are paid monthly. Jobs in this industry include real estate, consumer, finance, banking or insurance. It can also include investment funding or financial planners. Some of these employees might be paid monthly because they are only paid after a transaction is completed, which might not be until the end of the month.

Professional and Business Services

According to the BLS, the industry with the second most employees that are paid monthly is the professional and business services industry. This industry typically includes jobs such as accounting, staffing, market research, consulting, technical support, legal services and other professional services. This industry offers a wide range of jobs, so it is hard to say why they are one of the leaders in monthly payroll (even at only 8.3%). One reason might be because salaried employees are more common within this industry. Salaried employees have a set amount they get paid each month and are typically paid more than hourly employees. This means it is easier to process the payroll for these employees without having to track hours, and these employees are in a better financial situation to afford only getting paid once a month.

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