If you are just starting out your business and planning to hire employees, your initial task on the checklist will be setting up a payroll system, classifying employees, and selecting pay periods i.e. determining how often you want to pay your employees.
In this article, we will help you understand what pay period is, different types of pay periods, their advantages and disadvantages, laws, overtime pay, etc.
What is a Pay Period?
A pay period is defined as a recurring period of time that determines how often your employees will be paid, how many paychecks they will receive in a year and the amount of tax withheld from their paychecks.
It’s one of the important decisions you need to make before you hire your first employee as it is crucial for smoother business operations.
Types of Pay Periods
There are several types of pay periods such as daily, weekly, bi-weekly, semi-monthly, monthly, quarterly, semi-annually & annually. But the most common pay frequencies are:
1. Weekly Pay Period
Employees will receive 52 paychecks per year and the payroll is processed on the same day every week – Thursday or Friday. The weekly pay is beneficial for both — employers and employees.
- Best option if you want to hire hourly employees.
- Employees love getting paid frequently, which will increase their morale, productivity, and efficiency at the workplace.
- Eases your employees’ finances and cash flow.
- Most payroll software charges you per pay run or monthly plus no. of employees. So, the payroll cost increases significantly if you run payroll every week. Fortunately, CheckMark Payroll allows unlimited employees and unlimited payrolls at no additional cost.
- You need to spend a lot of time collecting time cards and processing payroll every week. Employees expect to get paid on the same day, so you need to be prompt in paying them their wages on the same day every week.
Employees will receive 26 paychecks per year and the payroll is processed on a specific day every two weeks – Friday. According to the U.S. Bureau of Labor Statistics, biweekly pay is the most popular pay frequency in the United States.
- Best option if you have hourly employees.
- It will save you precious time when you pay your employees bi-weekly instead of weekly. You will be processing payroll every other week.
- Employees will receive paychecks more often in a month increasing their punctuality and productivity at the work.
- Significantly reduces the payroll costs when compared to weekly pay.
- During some years, there will be 27 pay periods so you have to pay your employees additional wages. Don’t worry; it occurs once in 11 years.
- Since payday occurs once every two weeks, some months will have three paychecks. So you need to be financially-prepared for a couple of months in a year where you have to pay your employees thrice in a month.
- Sometimes the first and the last pay period spans over two different months so there will be some complexity in payroll deductions.
3. Semi-Monthly Pay Period
Employees will receive 24 paychecks per year and the payroll is processed on 15th/16th and 30th or last day of every month.
- Employees receive two paychecks every month on the same date. So they always know the exact date they will get paid and plan out their finances.
- Suitable for salaried employees since you do not track their working hours.
- Simple and consistent payroll schedule as there will be no difficulties during leap years.
- Payroll processing cost will be lesser than other pay periods.
- Accruals & contracted benefits are easier to calculate and pay in the semi-monthly payroll schedule.
- Calculating overtime will be a big headache.
- Sometimes the payday falls on a holiday so you need to adjust them a day earlier to avoid inconvenience to your employees.
- Difficult to implement when your employees are non-exempt.
4. Monthly Pay Period
Employees will receive 12 paychecks per year and the payroll is processed on the 30th or last day of every month.
- You have to run payroll only once a month.
- Employees will know the exact date they will get paid every month.
- Employers find the monthly pay period easier to implement and manage.
- Suitable for salaried employees.
- Saves a lot of time and money.
- Eases calculation of deductions and payment of employer taxes.
- If you have a lot of sales agents, paying commissions will be easy with the monthly pay period.
- Similar to semi-monthly pay, you need to adjust the payday a day earlier when it falls on a holiday for the convenience of your employees.
- Employees will face difficulties with their finances since they are paid only once a month.
- Not suitable for hourly employees.
How Many Times Will Your Employees Be Paid?
Laws about Pay Periods
Although the federal law doesn’t force employers to adopt a certain pay period they require the business owners to pay their employees regularly at frequent intervals irrespective of pay frequencies. However, some states have their own laws to ensure the employees are paid frequently. In New Hampshire, you have to pay your employees weekly, while in Hawaii, you cannot pay your employees monthly. You have to pay them weekly, bi-weekly, or semi-monthly. So, it’s important to check with DOL in your state to know the payroll laws and regulations.
The Fair Labor Standards Act (FLSA) requires employees on hourly contracts who work more than 40 hours per workweek to be remunerated at a minimum of 1.5 times the employee’s regular pay rate for every extra hour worked. Some states have additional requirements and some employees are exempt from overtime pay. So, it’s wise to consult your regional DOL office for more information.
Here’s how the overtime pay calculation works:
If an employee works 45 hours a week at a normal pay rate of $20 per week. He or she is to be paid $800 for the 40 hours plus an additional $150 for the additional 5 overtime hours. This brings their income for the given week to $950.
What Type Of Pay Period Should You Use?
There is no definitive answer as to which pay period is best suitable for your business and employees. There are pros and cons attached to every pay period. You need to select the pay period based on your business requirements, state laws, and company size.
Regardless of which pay schedule you choose, we strongly believe that your employees deserve to be paid promptly, accurately, and without complications. CheckMark Payroll allows you to do exactly that. You can add any number of employees, run unlimited payrolls, print payroll checks, and pay employer taxes with ease and accuracy. Sign up for a free 60-day free trial now and run 4 payrolls free of cost.