Pay Period

What is a “pay period”? 

A pay period refers to a specific, predetermined, and recurring length of time that an employee is paid by an employer. In a pay period, the number of hours that an employee spends on working is monitored and documented. This serves as the basis for wages.

A pay period is also commonly called a payroll period or payroll schedule. A company’s pay period structure provides employees a set schedule for receiving their paychecks so they can plan accordingly. There are several types of pay periods that companies can select. 

What are common examples of a pay period? 

An organization can choose the pay period that will best suit their company’s needs and the industry it belongs to. Each type of pay period has its advantages and disadvantages. The frequency of the pay period chosen will determine how many pay periods there will be in a year.

Here are the most common examples of pay period types: 

• Weekly. Companies that pay employees weekly have 52 pay periods per year. This is a common pay payroll schedule for hourly, trade, and part-time workers. Many people prefer a weekly payout schedule because it allows them to budget weekly. It also provides a steady cash flow with more paydays. In terms of drawbacks, having 52 pay periods in a year means more time allotted to payroll processing. This can be more time-consuming and expensive for employers. 

• Bi-weekly. This type of pay period yields 26 pay periods in a year. In a bi-weekly schedule, workers are paid every other week. This is common for both hourly and salaried employees and usually involves 80 work hours. A bi-weekly pay period also allows employees to receive frequent paychecks which help in budgeting. Because the pay is every other week, managers and payroll teams have more time to check and review employees’ work hours. Compared with a weekly schedule, this requires less time and expenses for payroll processing. 

On the other hand, a bi-weekly schedule may get complex when pay periods extend beyond the end of the month or during leap years. During a leap year, companies may need to have a 27th pay period. Payroll teams have to adjust considering annual pay, employee contributions, and taxes. 

• Semi-monthly. Having a semi-monthly pay period means employees are paid twice a month. This is a common pay period for salaried employees. In a year, a semi-monthly pay period results in 24 paychecks in total. Not to be confused with a bi-weekly pay period, companies that have semi-monthly pay period usually track the 1st-15th of the month and then the 16th to the end of the month. One of the main advantages of a semi-monthly pay period is that the work period always falls within the same month. There is no need to adjust during leap years. When it comes to possible drawbacks, paydays may differ and do not necessarily fall on the same day of the week. Overtime calculations can also be difficult. 
• Monthly. Companies that have a monthly pay period mean employees are paid once a month and there are 12 paychecks in a year. A monthly pay period is commonly used in paying salaried employees than hourly or part-time workers. However, a monthly pay period can also apply to freelancers and consultants. For employers, one of the advantages of paying employees monthly is that they save time and money on payroll processing. Consequently, paydays can fall on different days of the week. 

Each pay period structure has its benefits and drawbacks. It is up to the employer to decide which pay period will be most advantageous to the company and the employees. Generally, the fewer pay periods there are in a year, the less expensive it is for the employer. For employees, a weekly or bi-weekly pay period is deemed more helpful because there are more paychecks to receive. Budget-wise, it is easier to plan. Fortunately for employees, most employers use a weekly or bi-weekly pay period. 

I am an employer. Which pay period should I have in place? 

Before deciding the pay period that you will have, look at each type and try to understand its pros and cons. Next, determine your budget and employees. Do you have more hourly employees than salaried employees? What about your payroll service budget? Consider answering these questions before making a decision. Lastly, you can consult an accountant to help you determine what will work best for your business and employees. Remember, no cookie-cutter pay period works for all organizations.