Payroll can be a complex and time-consuming aspect of managing any business. One critical element of payroll is determining the most suitable pay period for your employees. In other words, the period of time that each payslip will cover. If you pick the wrong payment schedule, it can have a negative impact on the financial stability of your employees and create payroll management issues for your business.
According to the U.S. Bureau of Labor Statistics, bi-weekly is the most common payroll schedule in the United States. However, there are various types of pay periods that businesses can choose from. In this article, we will explain what a pay period is and discuss the pros and cons of each type. We will also explore the key considerations that you need to keep in mind before deciding which pay period schedule is best for your organization.
How do you calculate a pay period?
How many pay periods are in a year?
What type of pay period is right for my company?
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What is a pay period?
A pay period is a designated timeframe in which an employer pays their employees for their work. The duration of a pay period can vary depending on the employer and their payroll system, but it typically ranges from weekly to monthly. By establishing a fixed, recurring schedule in this way, employers can establish clarity and structure and ensure that employees receive consistent and predictable paychecks.
During the payment period, employers maintain a record of the hours that each employee works. This can either be done with manual timesheets or by using a time clock, a time card app, or timesheet software. Employers also need to take into account any overtime or leave when they calculate an employee’s pay. At the end of the pay period, the employer processes payroll and issues paychecks to each employee for the amount they have earned during the established payment period.
How do you calculate a pay period?
Although there are many different types of pay periods, all schedules follow the same basic process for calculating pay:
- Determine the start and end date of the pay period.
- Count the number of days/hours worked during the pay period.
- Multiply the number of days/hours worked by the employee’s daily rate/hourly wage to calculate the gross pay for the pay period.
- Subtract any pre-tax deductions, such as retirement contributions or health insurance premiums, from the gross pay.
- Calculate federal, state, and local taxes and any other deductions from the employee’s net pay.
Alternatively, you can use a time-tracking app and payroll software to simplify the process of calculating pay periods. More on this below.
Types of pay periods
Businesses can choose from several types of pay periods depending on their specific needs and preferences. The most common pay periods include weekly, bi-weekly, semi-monthly, and monthly.
Some businesses opt for quarterly pay periods. However, this structure is typically only used by businesses that have a very small number of employees, such as family-owned businesses or those with seasonal workers. Another less common option is on-demand pay, which is where you give employees direct access to some or all of their earnings instead of waiting for a payroll cycle to end. But this system can be complicated, and it can be difficult to stay compliant with payroll laws, especially if you don’t use a comprehensive payroll software solution.
Let’s explore the most common types of pay periods in a bit more detail to help you identify the best structure for your organization.
Weekly pay period
A weekly pay period is where you pay employees on a weekly basis. This means that employees receive their paychecks every week, usually on a Friday, for the hours worked that week. This equates to 52 pay periods in a year.
There are a number of advantages to implementing a weekly pay period. Firstly, employees have access to their money more frequently, which can help with budgeting and cash flow. Secondly, it can help you pay employees in a timely manner, which is often seen as a perk by both employees and job seekers. However, the downside is that it can be more costly and time-consuming for employers to process payroll every week.
Biweekly pay period
A biweekly pay period is where you pay employees every two weeks. This means that employees receive their paychecks once every two weeks for the hours worked during that period. To calculate how many how many two week pay periods in a year, divide the number of weeks in a year by two. This equates to 26 pay periods in a year.
52 weeks/2= 26 two week pay periods in a year
As with weekly paychecks, biweekly payments can be appealing to employees as they have more frequent access to their money. Plus, compared to weekly payroll cycles, you have more time to review employee timecards. However, the downside is that it can be more time-consuming and costly for employers to process payroll every two weeks compared to monthly payments. Additionally, some employees may prefer a longer pay period as they get a larger paycheck.
Semimonthly pay period
With a semimonthly pay period, you pay employees twice per calendar month, usually on the 15th and last day of the month. This equates to 24 pay periods in a year.
The biggest advantage of this payment period is that it offers a balance between more frequent and less frequent pay periods. However, this system can be more complex to manage than a weekly or bi-weekly pay period. This is because it requires tracking employee hours and earnings for specific periods within the month. There can also be inconsistencies in paychecks due to variations in the number of days worked in each pay period. This can often result create confusion and frustration for employees.
Monthly pay period
With a monthly pay period, you pay employees once per calendar month. This equates to 12 pay periods in a year.
The advantage of a monthly pay period is that it can be less time-consuming and expensive for employers to process payroll. However, the downside is that employees may have to wait longer to receive their paychecks, which can impact cash flow and budgeting. Additionally, if there are any errors or issues with payroll, it may take longer to resolve them.
Quarterly pay period
A quarterly pay period is when you pay employees every three months. This equates to 4 pay periods in a year.
The pros are reduced administrative costs and workload for employers. The cons include limited cash flow for employees and potential issues with budgeting and financial planning. As a result, this payroll schedule is usually only used in small, family run businesses or for seasonal workers.
How many pay periods are in a year?
As we mentioned above, the number of pay periods in a year depends on the payroll schedule used by the employer.
Let’s recap:
- Weekly: 52 pay periods in a year.
- Biweekly: 26 pay periods in a year.
- Semimonthly: 24 pay periods in a year.
- Monthly: 12 pay periods in a year.
- Quarterly: 4 pay periods in a year.
How many biweekly pay periods in 2024?
Since a biweekly pay period occurs every two weeks, there are 26 two-week periods in a calendar year. In 2024, the first biweekly pay period started on January 1st. The last biweekly pay period will end on December 30th.
What type of pay period is right for my company?
Make sure you consider the following before picking a pay period for your workforce:
- Employee preferences. Hourly and commission employees may prefer more frequent pay periods. Salaried employees, in turn, may better benefit from set days in a month.
- Cash flow and budgeting. Frequent pay periods like weekly or biweekly can help employees manage their finances. However, it can put a strain on the company’s cash flow. Monthly pay periods can help the company manage its finances, but it may be challenging for employees to budget their expenses.
- Payroll system and resources. Weekly, biweekly, and semimonthly pay periods require more frequent payroll processes than monthly and quarterly pay periods.
- Employee schedules. If a business has a large number of employees who work varying schedules each week (a 9/80 schedule, for example), it might be more practical to choose a weekly or biweekly pay period.
- Compliance. The payment period must comply with state and federal labor laws. Check with your state’s Department of Labor to better understand any time-tracking regulations that might affect your pay period.
- Time tracking tools. The tools you use to track employee hours and overtime will also influence which schedule would work best for you. For example, if the employee time tracking system is unreliable or inaccurate (such as manual timesheets), it can lead to issues with payroll processing, especially if you hire remote employees. This is especially problematic if you have short pay periods as correcting errors leads to a lot of administrative work. In contrast, if the time tracking tool is easy to use and integrates with your payroll system, then data is more accurate and trustworthy. As a result, you have more flexibility in choosing your schedule.
Tracking time and calculating payroll with ease
Whichever pay period you choose, it’s essential that you have the right tools and software in place to manage employee time tracking and calculate payroll easily, accurately, and efficiently.
For example, Factorial’s time-tracking software is a powerful tool that helps businesses accurately track employee hours and calculate payroll with ease. Regardless of the payment period you opt for, the software ensures that employees are paid accurately based on their hours worked.
How?
With Factorial’s time card app, employees can easily clock in and out using their computer or mobile device, which is great if you hire remote employees. The software tracks their hours in real-time, making it easy for managers to see who is currently working and when they clocked in and out.
Moreover, one of the standout features of Factorial’s time-tracking software is its flexibility. Whether a business chooses to pay its employees weekly, bi-weekly, semi-monthly, or monthly, the software can be tailored to fit the chosen pay period. The software also offers features such as overtime tracking and vacation and sick day tracking.
Best of all, the time card app can be easily integrated with Factorial’s payroll software. That way, you can be sure that you have an accurate, real-time, and reliable record of all hours worked at the end of each payment period. As a result, you can pay your employees consistent and predictable paychecks at the end of each payroll cycle with minimal administrative effort, no matter which pay period you use.
