What Is a Pay Period?

A pay period details how regularly employees get paid and the number of checks they’ll receive yearly. An employee’s pay frequency can determine the portion of monthly deductions taken per paycheck.

All businesses are required to pay their employees. The pay schedule, however, can vary based on a number of things. State laws determine a minimum pay period of at least once per month, but there are also semi-monthly, bi-weekly, and weekly pay periods.

  • A weekly pay period is most common for hourly employees and results in 52 total paychecks annually.
  • A bi-weekly (every other week) pay period occurs every other week, resulting in 26 paychecks throughout the year. This is also typical for hourly employees.
  • A semi-monthly (twice a month) pay period occurs two times per month, which equals 24 total paychecks annually. This is most typical for salaried employees.
  • A monthly pay period, as it sounds, is one paycheck per month, totaling 12 paychecks by the end of the year. Salaried employees often receive monthly paychecks.

The sum of paychecks in a year is a crucial factor in accounting total gross pay per year. Employers must determine a stable pay period for their employees and are required to be in compliance with extra requirements as decided by the state.

Different Types of Pay Period

For any payroll department, a monthly pay schedule is ideal. They run payroll monthly, making it the fastest and most cost-efficient method. The monthly pay period is the least popular among employees as it can cause a financial strain. Although it’s not difficult to keep track of how many times employees will be paid in a year, they do generally prefer a higher frequency of paychecks.

Most employees do not like to wait an entire month to get paid. For most workers, especially low-paid hourly employees, this delay can mean serious cash flow issues.

Some states require a shorter pay period. If your business has employees in multiple states, it can be more trouble than it is worth to pay some employees monthly and alter the others depending on their state laws.

Monthly reports are created by accountants, therefore you may find that semi-monthly is easier. It should be noted that the last pay period of every month will typically end on the last day of the month. Many employers find that deductions are easier on this system.

Semi-monthly schedules help workers plan in advance. Companies with mainly hourly employees may find that overtime makes calculations tougher to decipher when based on previous pay periods.

Payroll managers have to take note, however. Unlike bi-weekly pay, wherein payday occurs on the same day every two weeks, a semi-monthly schedule could fall on a non-business day. This might call for last-minute amendments. When payday is during the weekend, most employers choose to compensate their employees beforehand.

But understanding people matters in your decision making. According to the Bureau of Labor Statistics, a weekly pay period is favored by 70 percent of construction firms and 50 percent of manufacturing companies. This schedule is also the top choice for hourly employees, too, because there’s not much lag time between doing the work and getting paid.

Pay Period "Leap Years”

Certain years have additional pay periods for employees. This is referred to as a “pay period leap year,” and it involves only employees on a salary who are paid bi-weekly. It is also conceivable to have a 27th pay period in the year.

Pay Periods for Salaried Employees

Salaried employees are paid according to a yearly amount divided into however many pay periods there are in a year.

What Is the Importance Of Pay Periods?

The procedure by which employees are paid can be expensive. It is time consuming to carry out pay calculations even when using payroll software.

Some employers prefer to pay less often in order to lower payroll costs. However, employees prefer to receive pay more often because it is less challenging to budget with shorter wait times between receiving paychecks.

Pay Periods and Employment Laws

Federal and state laws must be considered when calculating pay periods. Some states regulate the frequency of pay periods, though this is not controlled by the IRS.

Factors of Pay Period Choice

  • Cost and time
  • Your employees’ preference
  • Accounting and cash flow logistics
  • The law

There is no one pay period that is convenient for everybody. However regularly you run payroll essentially comes down to balancing the needs of your employees, what the state requires, and your company’s goals.

How Other Companies Handle Payroll

Bi-weekly pay is the most popular schedule, with about 36 percent of businesses paying their employees every other week. The next most common is employers paying their employees every week (just over 32 percent).

The smallest companies (one to nine employees) are all fairly different when it comes to the length of the pay period. As businesses become larger and take on more employees, however, a bi-weekly payroll schedule is typically the most common.

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