What Is a Pay Period? Overview & 18 Facts

Managing the structures used to pay your employees is a crucial aspect of running a business. By structuring your pay period thoughtfully, you can ensure compliance with tax and labor laws and reliably meet payroll obligations.

What Is a Pay Period?

A pay period is the period of time used to calculate earned wages and determine when employees are paid. Most frequently, pay periods are weekly, bi-weekly, semi-monthly, or monthly and are recurring.

It is essential to remember that the pay period and the workweek are distinct. The workweek is a federally mandated, fixed period of 168 hours, or seven consecutive 24-hour periods, that the employer must adhere to in order to comply with the Fair Labor Standards Act (FLSA).

What Is a Pay Period?

The FLSA permits businesses to establish different workweeks for different employees or groups of employees. A workweek can begin on any calendar day and at any time during that day.

Regardless of the type of pay period, the primary function of a workweek is to ensure that overtime is paid correctly and fairly.

What is the difference between a pay period and payday?

A pay period is a report that specifies the exact amount of an employee’s paycheck for a given pay cycle. This may include worked hours, benefits and taxes withheld.

The payday is the date on which an employee receives their paycheck, which can occur up to two weeks before the date of the pay period.

Pay Period Types

Establishing a pay period establishes order and keeps the business on track with respect to tax withholdings for the IRS, calculating overtime for non-exempt employees, and adhering to regulatory mandates.

A business can select its own pay period, including multiple pay periods for different groups or types of employees, within the confines of certain state laws (i.e., salary or hourly wage). Once established, these pay periods must remain consistent throughout the year.

Daily

Due to the time and complexity involved in calculating one-time tax withholdings and processing pay within 24 hours, the vast majority of businesses, even the smallest ones, have historically opted not to pay employees daily.

There is, however, a new generation of payroll applications (sometimes referred to as “instant pay” or “earned wage access” apps) that are designed to facilitate and facilitate daily pay periods.

These services and apps enable employees to withdraw what they have already earned during a pay period prior to the established pay date, typically for a flat fee per transaction. The employee can only access wages that they have earned.

Pros: Three-quarters of employees want access to their earnings prior to payday, and daily paydays can increase employee satisfaction and potentially reduce financial stress: more than two-thirds of employees want access to their wages earlier to cover bills and emergency expenses.

Daily pay can entice temporary workers for difficult-to-fill positions and provide the means to pay for the support structures that enable employees to take on additional hours, such as child care and transportation costs.

Cons: There could be as many as 365 pay periods and paydays, but the exact number will depend on the employee.

Instant pay vendor DailyPay notes that some considerations include who pays the advance (the employer or the instant pay provider), how to withhold taxes, how to handle garnishment or reductions in arrears if the employee has already drawn the wages, and how to issue pay stubs in accordance with reporting requirements.

Pay cycles per year: Daily pay can be difficult and expensive to implement and manage, but instant pay apps are becoming increasingly functional to simplify this process.

Weekly:

Daily pay can be difficult and expensive to implement and manage, but instant pay apps are The weekly pay period is the most popular option. More than one-third of workplaces and businesses have a weekly pay period, according to the Bureau of Labor Statistics.

This percentage is higher in companies with fewer than 50 employees, in the construction industry (where it is the dominant pay period at 75.9%), in the manufacturing industry (45.4%), and in the trade, transportation, and utilities sector (45.4%).

To simplify the calculation and administration of overtime pay, the majority of companies choose to align the pay period with the workweek.

Typically, when establishing weekly pay periods, employees are paid on the same day each week, such as Friday. functional improvements are being made to facilitate this procedure.

Pros:

Aligning a weekly pay period with the workweek can facilitate compliance with FLSA overtime pay laws.

In addition, hourly employees often prefer to be paid on a weekly basis, and weekly pay periods can improve retention and engagement in roles that are prone to high turnover, as well as provide an attractive structure for seasonal employees and those who work in industries that rely heavily on tips.

Cons:

The administration of weekly payroll can be both time-consuming and costly. This is especially the case if the company relies on a third-party vendor for payroll administration, which may charge fees each time payroll is processed.

In implementing a weekly system, the company must also consider the frequency of tax withholding, benefits administration, paid time off, and holiday accounting.

What Is a Pay Period?

A human resource management system (HRMS) aids in the management of HR-related tasks, such as payroll processing. The absence of fees for each pay period makes an HRIS a viable option for weekly payroll processing.

Pay cycles per year: When a company adopts weekly pay periods, 52 pay cycles occur annually.

Bi-weekly

42 percent of private businesses, according to the U.S. Bureau of Labor Statistics, choose to pay their employees every two weeks. As companies expand, there is a tendency to adopt a biweekly pay period.

Very small businesses, those with fewer than nine employees, are the least likely to pay bi-weekly, whereas over 70 percent of businesses with more than 1,000 employees pay bi-weekly. In a bi-weekly pay period structure, pay periods end every other week and employees are paid every other week, typically on Fridays.

Pros:

Biweekly payrolls allow for consistent paydays; for example, employees are paid every other Friday. This consistency is attractive to employees, as is the fact that some months have three instead of two pay periods.

In 2021, for instance, employees whose first paycheck was issued on January 8 will receive three paychecks in April and October.

Additionally, biweekly pay cycles simplify the calculation of overtime pay for non-exempt employees, as each consecutive seven-day period can be aligned with the workweek and overtime can be calculated based on this alignment.

This also simplifies the overtime calculation for holidays, paid time off, and sick leave, if offered by your company.

Cons: Due to the fact that certain months will have three pay periods and paydays instead of two, the bookkeeping process is made more complicated by biweekly pay periods.

It is essential to monitor and forecast cash flow in order to ensure that the business can cover and process the “extra” payroll in those months.

Pay cycles per year: 

Because there are 52 weeks in a year, a bi-weekly pay schedule has 26 pay periods and 26 pay dates per year.

Semi-monthly

With semi-monthly pay periods, pay dates are typically on the 1st and 15th or the 15th and last day of the month. If that date falls on a weekend, the typical payday is the Friday before.

This is the third most prevalent option for businesses, behind monthly, biweekly, and weekly pay periods. Mining and logging, financial activities, and information systems are the industries most likely to use semi-monthly pay periods.

Pros:

Consistency favors semimonthly payrolls. The payroll is processed on the same date every month, making it more adaptable to months with an odd number of days and leap years.

The paychecks of salaried employees are typically the same amount, facilitating payroll planning and enabling employees to better anticipate earnings.

Because payroll must be paid only twice per month, the organization’s overall budgeting is afforded some flexibility. This can also facilitate the administration of benefits and the deposit and deduction of employment taxes.

Cons:

Semi-monthly pay periods can pose difficulties for non-exempt employees’ compliance with the Fair Labor Standards Act (FLSA) because workweeks may overlap pay periods, making it more difficult to calculate overtime. And some states, such as Massachusetts, prohibit bi-monthly or monthly pay for hourly employees.

Frequency of pay cycle: There are 24 pay dates per year for semi-monthly pay period employees.

Monthly

Only 5.4% of all businesses surveyed by the U.S. Bureau of Labor Statistics pay their employees once per month. Monthly pay periods are most prevalent in very small businesses with fewer than nine employees – 10 percent of which pay their employees on a monthly basis.

Pros:

Monthly pay periods are simple to administer in terms of tax withholdings, benefits, and budgeting, and they can work well for salaried employee businesses. Monthly pay periods provide businesses with greater cash flow flexibility and simplify future position budgeting.

Cons:

With hourly wage employees and/or non-exempt employees, monthly payroll administration is extremely complex and may be prohibited in some states. For example, Texas only permits monthly pay to employees exempt from overtime provisions under the FLSA.

Employers in Connecticut are required to pay the majority of hourly workers on a “regular basis, at a minimum weekly.” A longer interval is only permitted with the labor commissioner’s permission.

Frequency of pay cycles:

Using monthly pay periods, an employee will receive 12 paychecks per year.

In certain instances, it may be necessary to make exceptions to the pay periods tracked and identified by the Wage and Labor Division of the U.S. Department of Labor. Included, but not limited to, the following:

Fixed length

Some industries may have pay cycles that differ from the standard weekly, bi-weekly, semi-monthly, or monthly cycles. In education, administrative staff and teachers frequently do not work during the summer.

Consequently, some states permit public school districts to offer teachers an option in which the annual salary is distributed over 21 pay periods – over roughly 10 months of work – as well as the option to receive payment according to a standard bi-weekly pay period (or 26 pay periods). Typically, the district will issue the additional five pay periods as a lump sum in the early summer.

Custom

When an employee resigns or is terminated, they may need to receive payment outside of the pay period’s defined pay cycle. It can be difficult to maintain compliance when paying employees during these events.

There is no federal law that mandates immediate final payment, but some states have laws dictating when an employee must receive their final check in these situations.

In Colorado, for instance, terminated employees must be compensated immediately, with a few exceptions. Employees in Connecticut who are terminated by their employer must be paid in full no later than the next business day.

Pay Period Examples

Let’s take a look at how an exempt, salaried employee earning $62,400 per year would be paid throughout the year. Observe how the amount in each check varies based on the structure chosen. Importantly, neither employment tax nor benefit withholdings are accounted for in this calculation.

Paycheck Number of Pay Periods Pay date
Weekly $1,200 52 Every week
Bi-weekly $2,400 26 Every other week
Semi-monthly $2,604 24 Twice monthly
Monthly $5,196 12 Once a month

Now, let’s examine how two common pay periods would function for an hourly-paid non-exempt employee. She must be paid overtime if she works more than 40 hours in a given workweek. Let’s assume that the workweek begins on a Sunday, and to further simplify, the month starts on a Sunday as well.

What Is a Pay Period?

The employee worked 42 hours from the first to the seventh and 38 hours from the eighth to the fourteenth. Each workweek’s overtime must be calculated separately; therefore, even if the organization adopts a bi-weekly pay period, it cannot average the hours to get 40 per week.

At her base hourly wage of $31, the overtime rate (time and a half $31) is $46.50. During the first week, the employee earns $1,333 based on 40 hours at $31/hour and two hours at $46.5/hour.

During week two, she does not work overtime and earns $31 per hour for 38 hours, for a total of $1,178.

If the employee is paid on a biweekly basis, add the amounts from the weekly pay periods to obtain the biweekly pay period amount of $2,511. Not included in this calculation are tax withholdings or benefits.

How Pay Periods Are Determined

An organization chooses the pay period structure that best accommodates the type of work it performs, the needs of its employees, local labor laws, and other variables.

It is also important to note that different types of employees may have different pay periods. It is not unusual for a business to pay hourly workers weekly or biweekly and salaried workers semimonthly or even monthly.

However, the pay period must be applied consistently throughout the year to wages earned in order to remain compliant.

Hospitals, businesses providing medical or nursing care to residents, schools and preschools, and government agencies must comply with the Fair Labor Standards Act (FLSA) if they have at least two employees and an annual dollar volume of sales or business of at least $500,000.

Even if there is no enterprise coverage, the FLSA protects employees whose work routinely involves interstate commerce.

Choosing the Best Pay Period for Businesses

This is the most common pay period duration in the United States, with 42 percent of private companies opting for it.

Certain industries also tend to favor particular pay periods; for example, in the construction industry, weekly pay periods are the most common, whereas the financial and information technology industries are more likely to implement biweekly pay periods.

According to data compiled by the Bureau of Labor Statistics of the United States, the smallest businesses tend to pay their employees in the most diverse manner.

Compliance and cash flow should weigh heavily when choosing a pay period for your company. Before choosing a pay period (or periods), you must consider the exempt (salaried) and non-exempt (hourly) employees at your company, as well as any state-specific regulations governing how they can be legally compensated.

In certain states, it is illegal to pay hourly employees on a monthly or even semi-monthly basis. A company must also pay close attention to its cash flow cycles in order to determine the most effective method for meeting payroll.

If payroll must be processed multiple times per month, it may be difficult for startups and smaller businesses to meet payroll obligations due to cash flow issues.

7 Things to Consider When Choosing Pay Periods

Keeping this in mind, choose the best pay period for your business by considering state regulations, the cost of running payroll, and other factors, such as those listed below.

Employment laws and regulations

Federal regulations only mandate the payment of earned wages; they do not specify when or how wages should be paid.

Some states have stricter laws regarding the time and manner in which hourly employees must be paid. Before deciding on a pay period structure, you should examine all wage and labor laws in the states where you do business.

Workweeks

Payroll administration for small businesses can be challenging. Aligning the workweek with the pay period makes it easier to calculate overtime and process payroll.

Under the Fair Labor Standards Act, each employer is required to define a workweek as 168 hours, or seven consecutive 24-hour periods. In calculating overtime for non-exempt employees, each workweek stands alone.

For example, if an employee is paid bi-weekly and works 30 hours in one workweek and 50 hours in the next, she must be compensated for 20 hours of overtime in the second workweek at a rate of not less than time and a half her regular rate of pay.

If it’s legal to pay an hourly worker on a semi-monthly basis, it’s possible that workweeks will overlap pay periods, meaning that overtime pay may span multiple pay periods.

Payroll costs

A common payroll concern is understanding the associated costs. Costs include compensation in addition to all employment taxes paid by the employer and the employer-paid portion of benefits.

As much as 50 to 60 percent of a company’s total operating expenses can be attributed to payroll costs. Additionally, there are costs associated with payroll processing, particularly if it is performed by a third-party payroll service, which typically charges for each payroll cycle.

Overtime

Considering whether your employees are exempt or non-exempt from overtime requirements under the Fair Labor Standards Act (FLSA) will help you maintain compliance with overtime regulations and limit your pay period options.

A company with a large number of hourly nonexempt employees may benefit from selecting a pay period that simplifies overtime calculation and payment.

Semi-monthly pay periods can present challenges in terms of complying with state laws governing the payment of hourly employees and accurately calculating overtime compensation.

Employee needs

Consider what pay period structure could improve employee satisfaction. About two-thirds of workers wish they had access to their earned wages sooner in order to pay for bills and unexpected expenses.

What Is a Pay Period?

More than half of respondents say that financial stress interferes with their work. And the majority of workers (70%) would prefer more frequent payment and say it would be difficult to meet financial obligations if their next paycheck was delayed by a week.

Withholdings

The Internal Revenue Service requires certain payroll deductions from employees. Depending on the business’s total tax liability, it must be calculated in a complicated manner and paid on a predetermined schedule, either monthly or semi-monthly.

The IRS released a new version of the W-4 form in 2020 with the intent of reducing complexity and enhancing the withholding system’s transparency and accuracy.

It replaces the worksheets in the old form with questions designed to make accurate withholding determinations easier for the employee, and it provides new guidance for employers on ensuring that sufficient federal income tax is withheld.

Withholdings are intricate, and it is well-known that the regulations and procedures are subject to change. As a result, many businesses choose to manage taxes and withholdings using payroll software.

The platforms can calculate withholdings and process payroll while ensuring compliance and taking into account factors such as complex pay structures and multistate operations.

Reporting

Companies are responsible for documenting and reporting requirements for labor law and employment tax compliance. Consider how the pay period(s) you choose will assist you in meeting reporting requirements.

Employers are required by the Fair Labor Standards Act (FLSA) to maintain accurate records for every non-exempt, non-exempt employee for whom they are responsible.

A company must record the total wages paid per pay period, as well as the date of the payment and the pay period covered. Employers are required by the IRS to report wages, tips, and other compensation paid to employees by filing the appropriate form (s).

Employers who withhold federal income tax or social security and Medicare taxes are required to submit Form 941, Employer’s Quarterly Federal Tax Return, each quarter. This includes deductions from sick pay and unemployment benefits.

Common Pay Period Mistakes to Avoid

Payroll errors can lead to fines and discontented employees. In the 2019 fiscal year (FY), the U.S. Department of Labor recovered $322 million in back wages owed to workers. In FY 2020, an average of $1,120 in back wages was owed per employee. The following are examples of frequent payroll mistakes:

  1. Failure to calculate and pay overtime correctly. The majority of Department of Labor collections result from employers who failed to pay overtime wages. Unpaid overtime wages recovered in 2019 totaled $186 million.
  2. Failure to deposit employment taxes in accurate amounts and on time. The calculation of accurate withholdings for regular and supplemental pay is one of the greatest payroll challenges. Based on the total tax liability reported on Form 941, a business must decide at the beginning of the calendar year whether to use a monthly or semi-weekly deposit schedule for social security and Medicare taxes (the quarterly federal tax return). Penalties are assessed for late payments and increase proportionally to the length of time they remain delinquent.
  3. Failure to keep accurate records. The Fair Labor Standards Act (FLSA) mandates that employers keep pay records for three years, although some states may require even longer retention periods. In addition to ensuring that employees are correctly classified as exempt, non-exempt, or independent contractors, accurate records help your business comply with labor and tax laws.

Manage Pay Periods and Payroll with Payroll Software

Payroll administration is extraordinarily complex and must be performed correctly. Spreadsheets should never be used for this task. With payroll software, it is possible to configure pay periods and account for different pay periods for different employee classes.

It automates the computation of wages, deductions, employer contributions, taxes, and paid time off. It is also able to process payments via direct deposit, ensuring that employees are paid more quickly and securely than with paper checks.

You can rest assured that you are adhering to the most recent federal and state tax and labor laws if you use cloud-based payroll software.

This eliminates errors and saves time. Numerous payroll departments are adopting cloud-based systems. In 2014, only 14% of businesses processed payroll with cloud-based software; by 2018, this percentage had increased to 39%.

Human capital management (HCM) is the process your business uses to hire, train and retain your workforce. Benefits of a well-managed HCM strategy include higher employee satisfaction, less turnover and a more efficient business.

Managing pay and payroll is an important part of HCM, and many people turn to HCM software that includes payroll processing to help. HCM is one of multiple core business software applications.

Human capital management (HCM) is the process your company employs to hire, train, and retain employees. A well-managed HCM strategy results in increased employee satisfaction, decreased turnover, and a more efficient organization. Managing pay and payroll is an important aspect of human capital management (HCM), and many people rely on HCM software that includes payroll processing to assist with this task. HCM is one of a number of fundamental business software applications.

The most effective HCM software solutions integrate with modules from disparate areas of your business via enterprise resource planning (ERP) By storing everything in a single digital location, you are better able to manage your data, generate reports, and comprehend how one area of your business affects another.

Choosing the pay period or pay periods for your business may appear to be a simple choice, but it has significant repercussions for your company and its employees. The decision enables your business to fulfill one of its most important obligations, which is to pay its employees.

Managing different pay periods, accounting for complex pay structures, and adhering to state and federal regulations make payroll processing complicated. HCM software can help you manage the process more efficiently, integrate with other areas of your business, provide vital KPIs to track the performance of your team, and assist employees in managing HR-related documentation, such as taxes and personal contact information.

What Is a Pay Period?

How to choose a type of pay period

Consider the following factors when deciding how to select a specific pay period schedule:

1. Consider gross pay

The gross pay is the amount of wages that will be included on each paycheck prior to any deductions. These deductions may include federal taxes as well as contributions to benefits such as insurance and retirement. Understanding gross pay can help you determine the most appropriate pay period, as deduction amounts vary based on pay frequency.

Related: How To Calculate Gross Pay With Examples

2. Consider leap years

A leap year is a phenomenon in which an extra day is added to the calendar year to synchronize with the Earth’s rotation.

This means that if you choose a weekly or biweekly schedule, you may experience an additional pay period every four years. It may be necessary to make adjustments to prevent overpayment if you choose a salary format for wages.

3. Choose a payroll service

There are numerous payroll services available to organize and automate the pay period process. These online systems may provide a variety of features. When deciding how frequently to pay employees, you can consider these factors.

Related: FAQ: What Is a Payroll Service?

4. Learn employment laws

When determining which pay period to use, you can consider federal and state laws. Some state statutes contain regulations that vary based on a company’s industry, the influence of the IRS, and employee protections.

You can contact your state’s labor department to learn more about any regulations that may impact your pay period.

5. Consider the salary type

When selecting a pay period format, you can choose from a variety of compensation structures. This can include hourly, commission, and salary options.

Hourly and commission-based workers may prefer more frequent pay periods, whereas salaried workers may benefit more from set pay days each month.

Related: Types of Wages: Everything You Need To Know

6. Consider overtime

If employees are eligible for overtime, you may need to determine how to track and compute overtime pay.

There may be labor regulations in place at your place of employment that affect the amount of overtime pay and when it can be applied to a pay period. You can inquire about overtime adjustments with human resources.

7. Consider the employees’ needs

Choosing to pay employees more frequently can increase employee satisfaction, but it can also increase payroll costs. Some labor laws may also permit an employee to select his or her own pay frequency.

Taking these factors into account can assist you in selecting a pay period that strikes a healthy balance between employee satisfaction and financial costs.

8. Consider the business’ industry

When determining a business’s pay period frequency, there are numerous factors to consider. Consider whether there are busier periods than others and how they may affect cash flow. You can also consider the impact of industry standards on your pay schedule.

9. Consider accounting implications

The frequency of your pay period can either increase or decrease the workload associated with payroll compensation for HR. Pay periods with specified dates can reduce the need for accounting, as accountants need not pay as close attention to the dates.

10. Consider benefits

There are a variety of employee benefits available, including health insurance, disability insurance, and pension plans. You can deduct or add these benefits to your gross pay.

Calculating these into payments can help you choose a pay period that strikes a balance between compensation and payroll expenses.

11. Consider FLSA

The Fair Labor Standards Act (FLSA) is a labor law of the United States that includes minimum wage, overtime pay, and hour restrictions. It may also include other laws pertaining to employment contracts. Understanding the Fair Labor Standards Act (FLSA) can help you determine the appropriate pay period for your business.

12. Search for an accountant

Employing a certified public accountant can provide you with additional context and data that can affect pay periods.

They can assist you in generating, issuing, and maintaining accurate payroll documentation, including employee pay, commissions, and benefits. Additionally, they can ensure that all information is accurate and compliant with federal and state regulations.

How Is a Pay Period Calculated?

Companies determine the length of the pay period on which they will process payroll.

This decision can be influenced by a variety of factors, such as when the company receives payment for its products and services, how frequently employees require cash, and whether you have hourly employees or an annual salary structure. You may prefer monthly payments, but state law mandates biweekly payments.

A company that employs primarily hourly workers, for instance, may find a weekly pay period advantageous. The availability of more readily available cash flows makes employees happier and facilitates their financial planning.

Nevertheless, a business that bills its clients at the end of the month and employs primarily salaried workers may prefer to pay its employees less frequently, typically every two weeks.

Can a Business Change Pay Periods?

Although it is possible to alter your company’s pay period, it should not be done without careful consideration. In addition to any overtime concerns (see below), consider the following:

Does your company offer direct deposit? If this is the case, you will need to coordinate with all the financial institutions to ensure that deposits are not interrupted during the transition. Typically, funds are transferred one to two days prior to the direct deposit date.

Do you have payday traditions? If you give employees extra time during lunch to deposit their paychecks, offer special office hours for field workers to collect their checks, or have the CEO hand out paychecks, consider how changing your pay period will affect these traditions.

How well do you communicate with your employees? Changing the pay period is a significant undertaking. Your employees rely on having access to their pay on payday. Not only will there be confusion if your communication is poor, but there will also likely be negative employee reactions.

SHRM recommends hosting a new payday fair in addition to sending emails and posting notices on bulletin boards to make communication more proactive. Invite your payroll processor and other vendors to participate in the event.

Utilize the opportunity to educate workers on direct deposit, 401(k), and other financial planning options.

Does your state allow the desired pay period? State law governs wage payment frequency. Some states only offer a single pay period option, while others may offer four.

In Iowa, for instance, any predictable and dependable pay schedule is permitted as long as employees are paid at least monthly and no later than 12 days (excluding Sundays and legal holidays) after the end of the period for which they earned wages.

This can be waived with a written agreement; commission-based employees have unique requirements. Check the website of the U.S. Department of Labor for each state’s wage requirements.

Gross Pay

When estimating or calculating total gross pay for the year, it is essential for both employers and employees to understand their pay period, as it affects tax filings, deductions, and overall earnings expectations.

What Is a Pay Period?

Annual gross pay for salaried employees is their salary; monthly gross pay is the annual salary divided by twelve. Gross pay is computed by multiplying the number of hours worked by the hourly wage for hourly-paid employees (plus any adjustments for overtime).

The distinction is clear when one considers that a salaried employee’s gross pay will be consistent from one pay period to the next, whereas an hourly worker’s pay can vary significantly between pay periods.

Leap Years

Depending on how the employer has set up payroll and the date of the final pay period, some years have an additional pay period. This phenomenon is known as a “pay period leap year” and only affects salaried employees paid biweekly, resulting in a 27th pay period for the year.

There are options for handling this additional pay period. If you can anticipate the issue and provide adequate notice, you can divide the annual salary of an employee by 27, instead of 26, or by 53 weeks, instead of 52.

If you miss it in time, you may be required to make adjustments after the fact. Some employers simply permit the additional pay period and absorb the payroll deficit.

Salaried Employees

The annual compensation of salaried employees is divided by the number of pay periods. Therefore, if your salaried employees are paid monthly, their annual salaries would be divided by 12.

Some salaried workers are paid biweekly, while others are paid every other week. As long as the employee receives their annual salary in full, the timing of the pay period is typically irrelevant.

Overtime

If you have employees who are eligible for overtime, you will require a method for tracking and calculating overtime pay. Regulations stipulate that overtime pay must meet a minimum threshold and be paid during the same pay period in which it is earned.

Overtime pay is heavily regulated by the U.S. Department of Labor; therefore, before taking shortcuts or redistributing wages, you should consult human resources regarding the legality of payroll adjustments.

Most payroll software and services provide a straightforward method for calculating regular and overtime pay.

If you are processing payroll manually, you may be able to delay overtime payments until the following pay period, but only to allow extra time for calculations and accounting; you cannot apply overtime pay to a different period in which it was earned.

Payroll Services

Paying employees is an expensive process. Even with payroll software or an online payroll system, it requires time (which must be compensated) to perform pay calculations. A payroll processing service will also charge per transaction. These online systems charge per paycheck.

When deciding how frequently to pay employees, you should consider a number of factors. Choosing shorter pay periods (and consequently more frequent payments) is likely to be well-received by your employees.

However, more frequent payments will increase payroll costs, making budgeting more challenging.

The majority of employers pay salaried employees on a monthly or semimonthly basis, whereas hourly workers are paid weekly or biweekly.

Employment Laws

Pay period determination is governed by federal and state laws. The IRS does not regulate the frequency of pay periods, but the majority of states do. In California, for example, the frequency of employee pay is governed by the calendar date, with different rules governing different industries. 6

Rhode Island, for example, allows childcare workers to choose how frequently they are paid. 7

Check with your state’s labor department for information on pay regulations applicable to your business.

Pay Period FAQs

How does a bi-weekly pay period work?

With a bi-weekly pay period, employees receive a paycheck every other week on the same day of the week, typically Friday. Biweekly pay periods result in 26 pay cycles per year, with two months having three pay periods. 42 percent of private U.S. establishments, according to the U.S. Bureau of Labor Statistics, choose to pay their employees every two weeks.

What are the four most common pay periods?

Weekly, bi-weekly, semi-monthly, and monthly are the four most common pay periods (once a month).

How many weeks is a pay period?

Pay cycle determines the number of weeks in a pay period. Seven days comprise a weekly pay cycle. Employees are paid every two weeks during a bi-weekly pay period.

In a semi-monthly pay cycle, employees are paid approximately every 15 days, unless payday falls on a weekend, in which case payroll is typically processed the day before. The employees are paid once a month, typically on the last day of the month, during a monthly pay period.

How many pay periods are in 2021?

Monthly and bimonthly pay cycles have the same number of pay periods. The number of times payroll is processed with a weekly or bi-weekly pay period structure can vary based on the year, such as if the pay period begins on a Friday (as in 2021) or includes an extra day (leap year).

There are 53 Fridays in 2021; therefore, if the organization adopted a weekly or bi-weekly pay period and paid employees on January 1, there is a chance that they would receive a “extra” paycheck.

Consequently, on a bi-weekly pay schedule, January, July, and December are the three pay months. For businesses that processed their first payroll of the year the following Friday, April and October will be the two pay months.

Conclusion

Understanding the differences between pay periods and how they relate to your business model is crucial for making larger financial decisions.

The good news is that once you choose a method and begin using it, payroll is not all that complicated, and there are numerous resources available to assist with any issues that arise.

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