What is a pay period?
A pay period is simply the set frame of time an employee’s hours are tracked and paid out for each paycheck. While pay periods can have different lengths, they should be recurring, with one beginning the day after the previous one ends so all working time is accounted — and compensated — for. Pay periods also determine most payroll factors, such as payment schedules, how many paychecks in a year are to be expected and how much money gets taken out of each paycheck to go toward employee benefits and payroll taxes.
It is extremely important to consistently pay your employees according to the agreed-upon schedule, not only does it help you recruit and retain talented staff, but it can also prevent potential legal issues. Missing scheduled payment dates by even a couple of days can lead to FLSA complaints and hefty legal penalties for wage violations.
Related: How to Communicate a Pay Raise
Types of pay periods
When it comes to pay period schedules, there are a number of commonly used options that you can choose from depending on your financial situation and business type. To determine the best pay period type for your company, you will need to consider factors like your company’s finances, income patterns, legal requirements and agreements you make with your staff. You may also choose to use a different pay period length for different types of employees within the same company.
It’s important to keep in mind that while employees generally prefer frequently scheduled payments, each payroll round will have a certain administrative cost for you. You should balance between these two considerations when choosing.
With the above in mind, here are the four types of pay periods your business may choose to use to pay employees for their work:
- Weekly – 52 pay periods per year (53 in leap years)
- Biweekly – 26 pay periods per year
- Monthly payments – 12 pay periods per year
- Semi-monthly payments – 24 pay periods per year
A weekly pay period is common for many manual labor focused sectors such as construction and manufacturing. It’s also useful for hiring low-wage employees during periods of high demand because the frequent pay periods offer better cash availability. This schedule requires employers to pay their employees at the end of each week. This means that you as the employer need to schedule 52 (or 53 for leap years) payroll runs per year. As there is a certain administrative cost per run this may not be ideal, depending on your needs.
Employers using a biweekly pay period pay their employees on a specific day every two weeks. For example, employees might get paid every other Wednesday. This pay schedule means that employees normally get 26 biweekly pay periods in a year. This is the most popular payment schedule among mid-sized to large companies because it balances reasonable pay frequency and administrative costs for payroll management.
Monthly pay periods require that employers pay their employees on a particular date once a month. For employers, this is generally the easiest and least costly pay period schedule there is. However, for many employees, especially in mid to low-wage industries, it’s the least popular because of the long intervals between payments.
On a semi-monthly pay period, employees are paid two times each month. Normally, these are scheduled on the 1st of the month and the 15th of the month, regardless of what day these dates fall on. One challenge with this system is those pay periods don’t always coincide with weekdays. On the other hand, semi-monthly pays can help to avoid the dilemma of extra paychecks due to extra paydays for certain years.
Years with extra pay periods
The number of pay weeks in a year is normally fixed when it comes to biweekly or weekly paychecks. However, in some years, such as 2021, there are 27 biweekly pay periods. This is because January first was a Friday, resulting in a total of 53 Fridays in 2021. This can happen for other days and years as well and can particularly affect companies that deliver biweekly or weekly paychecks on those particular days.
The next year with 53 Fridays expected will be 2027 and for organizations that pay their employees on Fridays, either weekly or biweekly, it will also be a year with an extra pay period.
Pay period calculations can be complex and, depending on your business size and resources, you may find it beneficial to consult with or outsource a payroll firm to assist with your company’s payments.
How do I determine which pay period is best for my business?
First, consider your company’s cash flow. When in the month does your company have the most revenue at hand to put towards employee payroll? It makes more sense to have payments set for high flow times. If you’re uncertain of these times, speak with your accounting department about which days are the best for completing payroll.
Also, keep in mind your company’s size. If you are a smaller business with 100 employees or less, a biweekly pay period schedule might work the best. In contrast, if your company has 100 employees or more, a semi-monthly or monthly pay period may be better for your employees. Small businesses should keep the costs of payroll runs in mind when choosing pay period frequency.
FAQs about pay periods
Here are some more frequently asked questions about pay periods from employers like you:
- Can I choose any day of the week as a pay period date?
- What is the difference between a pay period and a pay date?
- Can I change my company’s pay period during the year?
- Can I use different pay period schedules for each of my employees?
- How can I keep track of my employees’ pay periods?
Can I choose any day of the week as a pay period date?
You can indeed choose any day of the week as a regularly scheduled payday but you have to make sure that you then follow up with prompt payments on this scheduled day. Failing to do so can cause FLSA complaints and fines or state payday law penalties.
What is the difference between a pay period and a pay date?
Very simply, a pay period is the range of time in which you work between the payments you receive, while a pay date or payday is the scheduled day on which you’re paid your wages or salary. Most companies choose to pay biweekly on Fridays, but as described above, this can vary depending on pay period schedules.
Can I change my company’s pay period during the year?
You can technically change your company’s pay period during the year, but there are specific laws and regulations set in place by The Fair Labor Standards Act (FLSA) that you should review before you proceed. First, you need to provide a written notice to your employees of the intended changes at least a month before you plan to switch pay periods. Additionally, the FLSA states you’ll need to pay employees in accordance with the old pay schedule until the new one comes into effect. This helps ensure that there are no significant gaps in pay for your employees.
Can I use different pay period schedules for each of my employees?
Yes, you can set up different pay periods for employees if you determine that it is the most beneficial method. For example, you could set up a semi-monthly pay period for upper management employees, a bi-weekly pay period for salaried employees and a weekly pay period for hourly staff. Take company size and employee type into consideration. Too many different pay periods could be confusing for a small business, whereas larger companies with more than 100 employees might need to use more than one pay period to organize employee payroll by location, department or job title.
How can I keep track of my employees’ pay periods?
A popular choice, especially if your business is too small for an in-house payroll manager, is to enlist the help of a payroll service. These payroll services help employers like you track employee hours, set up automated payments and other payroll activities, all in accordance with employee rights. Some payroll services even have HR and accounting specialists to handle employee onboarding, taxes, benefits, paid time off and other factors that affect payroll.