A pay period is a set period of time used to calculate wages for an employee’s paycheck. Following the end of a pay period, employees receive payment for the hours worked during that span of time.
A common pay period is two weeks. That means that all hours worked during that two-week period would be included in employees’ next payment.
Pay Period vs. Payday
Pay periods and pay dates (also known as paydays) are closely linked. Once a pay period ends, it is followed by a payday. On the payday, an employee receives payment for the hours worked during the preceding pay period.
There is usually a gap of a few days or up to a week between the end of a pay period and its corresponding payday. That’s because payroll administrators need time to calculate employees’ gross wages, subtract payroll taxes and shared benefit costs, and process payments.
Common Pay Periods
The vast majority of businesses select from a handful of common timeframes for paying employees.
Bi-weekly pay periods are the most commonly used in the US. More than 45% of businesses offer bi-weekly pay according to the Bureau of Labor Statistics.
Under a bi-weekly pay schedule, each paycheck covers two weeks. Typically, bi-weekly pay periods start on a Monday and end on the Friday (or Sunday, for businesses with employees who work on weekends) of the following week. Companies have the option to start and end bi-weekly pay periods on different days of the week, but this is relatively uncommon.
Depending on the year, paying employees bi-weekly may result in either 26 or 27 pay periods per year.
Weekly pay periods are the second-most common, with around 32% of businesses choosing this option. They typically start on Monday and end on Friday (or Sunday). There are always 52 weekly paychecks issued per year.
Semi-monthly pay periods are similar to bi-weekly pay periods, but are based on calendar dates rather than days of the week. There are two pay periods each month. The first runs from the first day of the month to the 15th. The second runs from the 16th to the last day of the month.
Around 18% of businesses choose semi-monthly pay schemes. This pay format is usually reserved for long-term salaried employees who receive consistent wages each half-month. There are always 24 semi-monthly paychecks per year.
Monthly pay periods run from the first to the last day of the month. There are always 12 monthly paychecks per year.
This type of pay period is relatively uncommon, with less than 4.5% of businesses choosing it. It results in a month passing between one payday and the next, which can cause financial problems for some employees.
Some businesses choose to pay workers on a daily basis. This is more common among independent contractors, freelancers, and gig workers, who work one day at a time, than for full-time employees. Running payroll on a daily basis for full-time employees can result in high payroll administration costs.
Fixed-term pay periods are common among school districts and seasonal businesses, but not among businesses that operate year-round.
As an example of how these fixed-term pay works, say an employee is employed on a nine-month contract. They can choose to receive their pay on a biweekly or monthly basis over the course of the nine-month contract. Alternatively, they can choose to have their pay distributed on a biweekly or monthly basis over the entire year. That way, they receive pay even during the months they are not employed.
How to Choose the Best Pay Period for Your Business
There are several important things to consider when choosing the best pay period for your business.
There are no laws that dictate what pay frequency your business has to choose. However, labor and compensation laws can make one pay period significantly more convenient for your business than another.
For example, the Fair Labor Standard Act (FLSA) requires that non-exempt employees who work more than 40 hours per week are paid overtime. If your business has non-exempt employees, it is much easier to calculate overtime payments if you pay employees on a weekly or bi-weekly basis rather than a semi-monthly or monthly basis.
Some states also have laws that limit how much time an employer has to pay employees after the end of a pay period. Some companies might find that processing pay on a monthly basis takes too long, and thus use a shorter pay period to comply with these laws.
A large part of choosing a pay schedule comes down to streamlining administration and reducing payroll overhead costs.
In theory, employees would be best served by being paid every day—but this is impractical for businesses, and processing payroll every day would result in high administrative costs. Weekly, bi-weekly, and semi-monthly pay periods represent a balance between paying employees more frequently and minimizing the time spent on payroll.
Payroll administrators at your company may also have preferences for week-based or calendar-based pay schemes depending on their other work. For example, if they have a series of tasks that must be completed by the end of each month, it may be more convenient for them to also use semi-monthly or monthly pay frequencies.
Your employees may have different preferences for how often they get paid. So, it’s important to think about what’s best for them and their personal finances.
In general, lower-income and hourly employees prefer to be paid more frequently. These employees may not have cash savings to draw on between paydays if their funds run low. Higher-income and salaried employees may not have a strong preference, but it’s worth getting their input.
It’s also important to consider whether your closest competitors use a standard pay frequency. It can be a challenge for employees to go from one pay period to another, especially if your pay period is longer than what they’re used to.
When choosing the start and end points for your business’s pay periods, it’s worth thinking about how your business operates. More specifically, when does it operate?
If your business is open Wednesday-Sunday instead of Monday-Friday, it may make more sense to have weekly or bi-weekly pay periods that also run Wednesday-Sunday. If your business has shifts that start early or late, your pay schedule should reflect this so that a single shift doesn’t straddle two pay periods.
Final pay requirements
Some states have legal requirements around how quickly an employee must receive their final paycheck after they leave your business’s employment. These final pay laws typically won’t have a major impact on your choice of pay frequency. However, it’s important to make sure that your payroll team has the ability to process final payments in the middle of an ongoing pay period if needed.
Multiple pay periods
It may make sense for some businesses to use different pay periods for different employees. For example, you could use weekly pay periods for front-line employees who are paid hourly and semi-monthly pay periods for back-office salaried employees.
Keep in mind that implementing multiple pay schedules can be confusing and is likely to increase your business’s administrative costs for payroll.
Changing Pay Periods
Businesses are free to change their pay periods at any time. However, this can be a significant undertaking and one for which payroll administrators and employees need to be well prepared. Be sure to communicate the change to employees ahead of time and consider offering advance payments for employees who may be negatively affected by longer pay periods.
Ideally, you should set a date for the pay frequency changeover such that there is as little impact to employees’ pay schedules as possible. For example, if you’re switching from a bi-weekly to a semi-monthly pay schedule, execute the changeover during a month when the bi-weekly pay period would have ended around the 15th or 30th.
Another way to change pay periods is to offer the new pay period into new employment contracts, but to leave the old pay frequency in place for existing employees. This works best for companies with relatively high employee turnover. Companies that have low turnover could end up operating multiple pay periods for years at a time.
A pay period is a set period of time that is used to calculate employees’ wages for their next payment. The most common periods are bi-weekly, weekly, semi-monthly, or monthly, although others are possible.
When choosing the one that is right for you, communicate with your payroll team and employees to determine what pay frequency and schedule will work best for everyone.
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