How to Manage Cash Flow During Months with an Extra Payroll Day

Author: Caron Beesley | July 8, 2016

Did you know that July 2016 is unique this year in that it has five Fridays (July 1st, 15th, and 29th)?

Why should you care? If you pay your employees every two weeks (aka biweekly payroll) and usually on a Friday, then you are looking at three payroll cycles this month, not two—and it’s something you need to be prepared for. July isn’t the only month this quirk of timing occurs: September and December 2016 also feature three Fridays this year.

Of course, a number of factors go into the timing of your payroll, not just the calendar month. Employers have a choice of weekly, semi-monthly (where staff are paid twice a month regardless of the number of days in the month), or biweekly payroll. Most settle on the latter for a number of reasons:

  • More Consistency for Your Staff. For your employees, biweekly payroll means a guaranteed paycheck at precise intervals.
  • “Extra” Paychecks: Biweekly payroll also gives your employees an extra check during the months which feature three pay days. A nice bonus that they can put towards savings or paying off their bills.
  • Easier Overtime Calculations: For employers, biweekly payroll also makes it easier to calculate overtime for non-salaried workers.
  • Reduced Processing Costs and Time: The biggest benefit for employers of biweekly payroll (certainly over weekly) is that it reduces processing time and costs. Things like calculating wages, overtime for hourly staff, commissions, payroll taxes, deductions, etc.

Pros aside, there are some downsides that you need to consider:

  • Accounting Complications: Because a biweekly payroll schedule doesn’t coincide with the calendar month (accountants tend to prefer a semi-monthly payroll schedule), this can complicate reporting.
  • Cash Flow: With an extra batch of checks to cut within a calendar month, the impact on your budget and cash flow could be problematic.

So there are pros and cons on all sides. If you’ve settled on a biweekly payroll for your business, be prepared for the impact that July, September, and December’s three additional paydays could have on your budget and cash flow. Consider the following:

  • Factor the extra payroll day into your cash flow forecast (don’t forget to factor in your payroll processing costs too).
  • Step up your collections process during these periods so that you have sufficient funds coming in to ensure you can make payroll uninterrupted.
  • Invoice soon and often. Don’t wait till the end of the month to invoice; get ahead of the game as much as you can.
  • Talk to your accountant about your budget and accounting processes for these months.
  • Consider alternative financing sources to help you fill any cash flow gaps. A line of credit can help. Or consider services like Fundbox. With Fundbox you can clear invoices the moment you need the money and then repay the advance over 12 weeks. This gives you access to cash you’re owed when you need it.

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