Employee Payment: Methods & Timing

Instructor: Dr. Douglas Hawks

Douglas has two master's degrees (MPA & MBA) and a PhD in Higher Education Administration.

Anyone with a job gets a 'paycheck,' but how and when that 'paycheck' is delivered may vary. In this lesson, we'll discuss how the timing of payroll and the method of payment may differ between companies.

Methods of Payment

Anyone with a job looks forward to payday. But, less than 20% of employees in the United States actually get a physical check. Now, direct deposit is much more common, but payroll cards are increasing in popularity. What are these options and what are the benefits and costs to employers and employees?

Payroll Check

Let's start with the traditional method — a physical payroll check. A physical payroll check is written for each employee in the amount of the wages earned during the associated payroll period. The primary advantage of payroll checks is that employees don't need to have a bank account to receive their wages. While not really a benefit to employees, many people like the feeling of having a physical payroll check, which isn't really possible with other payment methods.

Direct Deposit

Direct deposit has become the most popular way companies pay their employees, with more than 80% of employees in the United States being paid via this method. With direct deposit, the employee provides his or her bank account information to the employer and the employer initiates an electronic transfer of funds from the company's bank account to the employee's account. Each payday, employees' wages are deposited into their bank account. The main benefit for employees here is the convenience—no need to pick up a check, worry about losing it, or running to the bank. Just wake up on payday and check your bank account!

Payroll Cards

Finally, payroll cards are slowly becoming more popular in the United States, primarily due to many employers changing from physical checks to payroll cards. Payroll cards are like a debit card for employees, but instead of being linked to a bank account, they are prepaid by the employer in the amount of the employee's wages. Each payday, they are 'reloaded' with the appropriate amount. Like physical checks, the employee doesn't need a bank account to use a payroll card, and like direct deposit, payroll cards are convenient.

Timing of Employee Payments

Different companies issue payroll on different schedules for a variety of reasons. The four common schedules for payroll are weekly, biweekly, semi-monthly, and monthly. Weekly and monthly schedules are pretty easy to understand—employees are either paid once a week or once a month. A biweekly schedule is when employees are paid on alternating weeks, such as being paid for two weeks of work every second Friday. Semi-monthly paydays occur twice a month. For example, on the fifteenth and last day of each month.

While biweekly and semi-monthly may seem like they are the same, remember that every month (except February), is slightly more than four weeks. Biweekly paydays occur 26 times per year (52 weeks divided by 2 week pay periods), while semimonthly paydays occur 24 times per year (12 months times 2 pay periods per month). While this isn't a huge difference, it does matter.

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