In an economy like that of India, which comprises a healthy mix of blue-collar workers along with those in the services sector, every aspect of a business is an act in evolution. Especially since it is a relatively new age economy. Since the liberalization of the 90s and the IT revolution, the job market has been ever expanding. Especially after the internet investment boom, things have exploded so to say. A lot of SMEs have also come into existence in the services and operations sector along with the big behemoths. One of the aspects these SMEs ought to differ from the bigger companies is in their payroll structure and methods of deploying it. There needs to be a specific payroll schedule for an SME which benefits its specific kind of employees.
An SME has a different employee stratification from say a leading e-commerce player. The employees have different backgrounds, aspirations and also salaries. A typical SME in a metro or tier 2 may have majority of their employees in the Rs 15000 – Rs 40000 salary bracket. This payroll structure in an SME implies a lot of challenges and solutions ought to be different for those.
Payroll structures and salary brackets in SMEs
A typical SME we can consider may be a localized vendor in last-mile delivery in a city. They may help e-commerce companies in their last-mile delivery solutions. Thus, it comprises of a lot of so-called “blue-collared” employees. Or it could be a security agency supplying personnel in a city for apartment complexes. Or we could be talking of an event-management agency which gets varied personnel demand based on the seasonality of their business. The challenges these companies and the employees face in such businesses are different from other “white-collar” business counterparts.
One of the key differences is work-schedule. Some of these employees may be paid on an hourly schedule. Their work-hours may differ from week to week depending upon the demand generated. In lieu of the different payroll scale and hourly payment schedules, there ought to be better and more suitable payroll delivery methods for their specific business needs.
Monthly vs bi-weekly/semi-monthly payroll
Enter bi-weekly and semi-monthly payroll. A lot of “blue-collared” workforce based companies have opted for the semi-monthly or bi-weekly payment option in countries like America and Canada. There are benefits to such a scheme.
One of the reasons companies go for semi-monthly or bi-weekly pay is the hourly nature of work for blue-collar workers. It helps in better accounting of overtime for them. This works very favorably for the employees and creates a better working culture.
Typically, an employee in a company we are considering would earn in the income bracket of Rs 20000 – Rs 40000 in India. In such a case, it may be easy to maintain a budget on a weekly basis. The employees in these situations sometimes face budgeting difficulties towards the end of the month as they have spent the money in the first half of the month. Whereas, if the payroll processing happened twice in a month, they may have a better sum of money left at the end of the month. There are many participants who have accepted facing diet-budgeting in the last days of a month as they had splurged more in the initial week of the month.
One issue some employees who had semi-monthly payroll complained of however was payment of some larger bills. It may be difficult to manage receipts like rent, mortgage and telephone bills with a salary which is for just half the month. But such accounts can be managed over a period of time to account for such detail. But the shorter-cycle payroll has two major (3 actually) payment schedules – semi-monthly and bi-weekly (also sometimes weekly). Let us look at the details, pros, and cons of each payroll methodology.
Bi-weekly vs Semi-monthly payroll schedule and their relative benefits
A biweekly payroll comprises of payments made every two weeks. this means that there shall be about 26 or 27 payments in the entire year. A semimonthly payment, however, incurs 24 payments in the year. This means there shall be 2 months with 3 payments in them for a biweekly payroll schedule. And in a leap year, this number would go to 27. In the regular monthly payroll processing cycle however, this number is of course 12 times in a year.
Now both these payroll processing methods have their advantages and disadvantages. In this section, we shall try to enlist the major issues.
A biweekly payroll is easy to process for hourly employees generally speaking. In this scheme, they are always paid for the same time frame. A semi-monthly payday is generally tougher for hourly employees as different months have different days and the overtime expenses may vary.
Employees in an industry which has an hourly work structure, prefer a biweekly payroll because it is calculable easily, consistent across the timeline and easy to understand. A semi-monthly payroll is confusing for hourly employees as has been reported.
Manufacturing and construction are two industries which have an hourly payment schedule and hence the payroll processing may be apt if it were bi-weekly. The volume of work in these industries is not as predictable as in most white collar jobs. They are much more prone to seasonality and other geopolitical factors. Hence an employee is not always sure of the workday he or she should plan for in an entire month ahead. Thus, it can be reassuring for the payment has been made for that week of work as there may be a lockdown the next week for all they know. This boosts employee morale often. For HR teams however, this means more work as they have to perform the payroll task 4 times in a month if it is a monthly payroll cycle. However, if it is biweekly, it kind of makes it a middle of the two arrangement and is much more agreeable to the HR personnel. With the correct tech payroll system in place, this can mean an easy flow.
But we should be cognizant of the issues faced with a biweekly payroll processing schedule also. As it goes not with a monthly calendar, it is a tad tougher to manage for both the employer and the employee. It can take some getting-used-to this payroll schedule. Also as we discussed, some months shall call for 3 paychecks in this payroll schedule. This would be a localized burden for HR. This can also cause some monthly budgeting issues especially for bigger billings like rent.
But this payroll method is preferable as compared to weekly methodology as it incurs only 2 processing fee schedules in a month.
Conclusion for deciding the different payroll frequencies
In conclusion, a biweekly payroll method can be a useful method for your organization if it operates in the blue collared space. But it is a careful balance to maintain and should be discussed in detail before opting for it in a relatively new and evolving economy like India. It is encouraged to hold a discussion among the stakeholders for the same. Regardless, a continued discussion with the employees and the board for such an important part like payroll in the work life is always a good option for an SME.