Payroll frequency made simple – a quick guide for Canadian businesses

When you’re starting up a business, one of the many decisions you’ll need to make is how often you’ll pay your staff. Figuring this out upfront not only sets you up to plan out a payroll calendar that’s compliant with your deduction remittance schedule; it also empowers your employees to address their own personal financial planning and provides them with a critical sense of stability.

Not sure where to start? That’s what we’re here for! We’ll go over key elements to find the best fit for you and your business by answering some of the questions we field most often:

1. How can I determine my ideal payroll frequency?
2. What are my Canadian payroll frequency options?
3. What are the pros and cons of each payroll frequency type?
4. How does regional legislation affect Canadian payroll frequency options?
5. How can I set up and change my business’ payroll frequency?

Let’s get started!

How can I determine my ideal payroll frequency?

While there are many questions you could answer to find that perfect fit, starting with these five will best help you make your decision with confidence.

• What are your provincial/territorial regulations? Most regions require adherence to minimum payment frequencies, ranging from every 14 days to once a month. These requirements can also vary by employment type. Don’t worry – we’ll get into this in our legislation section below!
• How much time and resources are needed to run payroll? More frequent processing requires more administration over the course of the year and thereby can increase associated costs. That being said, discrepancies can be more quickly detected and remedied when payroll is processed more frequently; this also gives employees quicker access to their wages.
• What type of workers do you have (salaried or hourly)? Some businesses prefer paying hourly employees more frequently because schedules can vary from week to week, making overtime and corrections easier to calculate. More frequent pay can also be an advantage in attracting and retaining staff!  
• What does your cash flow calendar look like and how does this affect your financial planning? Businesses may want to consider customer billing cycles, when money typically comes in, and when are bills paid in order to slot in payroll at a time when cash flow is less stressed.
• Will you be paying your employees to date or in arrears on the day that payroll is processed? Paying in arrears means that employees aren’t paid for their work until after it’s done. While this reduces the chance of needing to make corrections and retroactive payments, it also means employees wait a little longer to be paid for work completed. This is more often the case for hourly employees.
  
  On the other hand, paying to date means payment based on work that’s expected to be completed but which hasn’t been completed yet. This means employees are paid more quickly (as there isn’t a lag between time logged and payroll processed and paid out) but can also increase administrative burden due to the possibility of retroactive adjustments. This is most often used with salaried employees.

What are my Canadian payroll frequency options?

There are many frequency options available: quarterly, monthly, 13 periods annually (every 4 weeks), semi-monthly (twice a month), bi-weekly (every 2 weeks), 22 or 10 periods annually (usually for teachers), and weekly.

We’ll be taking a deeper dive into the four most popular options:

What are the pros and cons of each payroll frequency type?

For every frequency option, there are both positives and negatives! Often, payroll frequency decisions come down to a combination of legislation compliance and what business owners are already used to, which can be based on industry norms or past experience.

Weekly

Pros:

• Faster access to wages for employees.
• Easier overtime calculations for hourly staff.
• Adherence to all jurisdictional payroll frequency minimums.
• Sometimes used by trades, unions and the manufacturing sector.

Cons:

• Higher administrative burden, with 52 pay runs per year.
• Increased payroll processing cost (materials, fees, work time allocation costs, etc).
• Could lead to some cash flow challenges.
  
  

Bi-weekly (every 2 weeks)

Used by many industries for various types of employees, this is one of the two most popular options. Employers select a day of the week for bi-weekly payments (for example, every second Friday) and typically have a total of 26 payroll runs per year.

Pros:

• Easy scheduling of automated payments (for employees’ personal budgeting).
• Repeating processing schedule.
• Adherance to all jurisdictional payroll frequency minimums.
• Generally more consistent and easier to calculate, as each pay period covers the same amount of days.
• Retail, hospitality, and many service-based industries (such as IT, construction and healthcare) are more likely to use this payroll frequency than other industries, as it’s well-suited to paying hourly employees. By eliminating the processing and administrative costs that would be associated with weekly payroll, it also allows enough time to verify hours and make any adjustments, while still keeping payments frequent enough for hourly employees.

Cons:

• Doesn’t always line up with monthly accounting periods, which can lead to carrying over in accounting. Wages earned in one month may only be paid in the next but still need to be noted in your books for the correct month.
• Days worked where wages are unpaid until the pay period the following month are considered “accrued.” These can be calculated by determining a daily average pay (based on previous payroll) or estimating based on expected salary in the case where payroll amounts vary. The increased administrative time dedicated to these calculations should be factored into your decision-making process!
  
  

Semi-monthly (twice per month)

This is the other most popular payroll frequency option. Employers do two payroll runs per month, often on the 15^th and final day of the month, for a total of 24 payroll runs per year.

Pros:

• Easier for bookkeeping when it comes to closing out on month-end and year-end, assuming the pay period end date and pay date are the same.
• No carry-over from month to month.
• Adheres to all jurisdictional payroll frequency minimums.
• Used by various industries and is also the model often used to remove the requirement for mid-month advances in those with a monthly payroll frequency. This also ensures that, in such cases, remittances are based on the employer’s frequency rather than estimating on an advance.

Cons:

• Not as predictable math-wise as bi-weekly for hourly employees, with payroll amounts changing depending on the number of days within a run.
  
  

Monthly

Pros:

• Mostly used by professionals who are not subject to overtime (such as teachers, doctors, engineers, etc). Payroll becomes simplified, lowering the administrative burden due to the predictable nature of the stable pay periods, type of employee, and closing out every month end (no carrying over in the case where the pay period start and end dates are aligned with the pay date).

Cons:

• Doesn’t adhere to most jurisdictional frequency minimums.
• With mid-month advances sometimes being offered, costs end up being similar or equal to the semi-monthly option.

How does regional legislation affect Canadian payroll frequency options?

While selecting the best payroll frequency for your business, you’ll also want to keep in mind any payment frequency jurisdictional legislation that applies to your employees.

Please note that vacation pay and the final pay following termination may be subject to different minimum payment delay dates.

How can I set up and change my business’ payroll frequency?

Setting your payroll frequency with Payworks is simple! Our team can make recommendations tailored to your business so that, by the time you begin onboarding, you’ve locked in an option that feels right for you and your team.

Changing your frequency

If you’re already up and running with a payroll frequency that you’ve been thinking about changing, there’s no time like the present! The earlier in the year you tackle the process the better, as tax deductions (EI, CPP, etc) and exemptions are calculated based on pay frequency. Changing that frequency often means adjusting deductions to avoid over- or under-deducting from their employees. You could also find yourself subject to a CRA Pensionable and Insurable Earnings Review (PIER) to ensure accuracy of deductions.

Payworks Pro Tip: Don’t forget that you must issue a Record Of Employment (ROE) to all affected employees when changing your payroll frequency (see our "ABCs of ROEs" to find out why employers need to issue them when doing this change, and learn all about ROEs in general!). Our ROE Manager takes the stress out of issuing ROEs, making it a whole lot easier for you to get back to business, all while paying your employees accurately and on time.

Looking for a little help and guidance when it comes to paying your people while remaining legislatively compliant? Payworks has been navigating the waters of Canadian payroll (and more) for over 25 years! Find out why 98% of businesses who choose Payworks choose to stay, and how our solutions are designed to help business owners like you weather the ever-changing world of payroll and workforce management: https://www.payworks.ca/landing-pages/campaigns/book-a-demo.