Sense with Cents

Your payroll process should not create additional work for you. Choose a pay frequency that fits the type of employee, not one that creates unnecessary overhead.

For hourly employees, pay every other week. It strikes a good balance — not so infrequent that employees are waiting too long, and it aligns with the standard FLSA seven-day workweek, making overtime reporting straightforward. For true salary or commission employees, pay twice a month — easier to manage, and it lines up cleanly with monthly accounting.

Yes, you may want different pay frequencies for different types of employees — and it may actually save you time and frustration. Do not forget to check your local pay requirements for minimum frequency and other rules.

I would include a week delay between the end of the pay period and the pay date. This gives you time to complete payroll on a working day without having to make alterations for holidays or days off. Your "legal" pay date will be a week after the period ends, but in practice you will usually pay a day or two after the period ends — reserving the rest of the delay in case you need it. This built-in cushion is part of not having a payroll crisis — you have already given yourself room to handle the unexpected.

Then there is the matter of tax deposits. I am, as usual, an outlier on this topic. The required deposit frequency could be annual, quarterly, monthly, within a few days, or next day. My suggestion is easy: make the deposits the same day or next day in all cases. You will never get behind or out of compliance, and most importantly, you have an easily audited deposit to go with every pay date. Save yourself dollars and cents — make your deposits match your pay date totals so you can audit in seconds. The days of floating trust fund money for interest are long gone — and may never have been wise when you consider the cost of managing those funds and reconciling deposits.

One more thing on deposits. When filing your quarterly returns, if you have deposited too much, ask for a refund. Do not apply the overpayment to the next return — it can cause unneeded issues if you forget to account for it, or worse, the tax agency applies it to a different balance entirely. The IRS (and likely your state too) can apply deposits as they see fit, regardless of how you designate them when you submit. Better yet, avoid overpayments entirely. Before making your last deposit for a quarter, preview your quarterly report and adjust the final deposit so the total for the quarter matches your liability to the cent.

Here is my personal process. The pay period ends. Collect all needed time and pay information. Create the payroll, setting the pay date on or before the designated pay date. Print a Payroll Check Listing — if corrections are needed, make them and reprint. Print and retain a Payroll Tax Summary for the pay period, and use that report for your deposit figures. As each deposit is made, note the date and your initials on the summary — so you always know when deposits were made. Then pay the employees.

Staple the reports, time sheets, and copies of pay stubs together. I put the Payroll Tax Summary on top — it shows the pay period date, all amounts in total, and the notations of the tax deposits. One stapled packet per pay period, everything in one place. Save these by year, so you can easily destroy them after five years.