What is a pay period?
A pay period is a fundamental aspect of payroll, referring to the range of dates used to calculate an employee’s income. For example, if a worker earns an hourly rate, the number of hours worked during a pay period determines their gross pay for that period.
Companies may pay employees weekly, biweekly, semimonthly or monthly, and their pay periods correspond to how often they conduct payroll. To reduce manual adjustments and minimize payroll errors, finance and human resources (HR) departments can align pay period end dates with their timekeeping systems.
In most cases, employees aren’t paid immediately after the end of a pay period. A delay of one or two weeks is common, giving payroll departments time to calculate income and withhold payroll deductions for payroll taxes and voluntary programs. Companies with longer pay periods may have longer delays.
What is a payday?
A payday is the day employees receive their checks or direct deposits. In some cases, direct deposits may be processed earlier than paper checks, and an employee who receives a direct deposit might have their pay before those who receive paper checks.
Employees may see funds available at slightly different times depending on their bank, even when the employer’s pay date is the same. One bank may make the funds available a day or two sooner than another.
“Direct deposit timing depends on both the employer’s payroll submission timing and the employee’s bank policies. Including a note that National Automated Clearing House Association (NACHA) Automated Clearing House (ACH) rules generally require settlement within one to two business days adds authority.”
—Tarik Griffith, accountant
What are payroll runs?
A payroll run is the date your business processes payroll for a given pay period, which includes approving, finalizing and submitting tax remittances. Depending on the type of payroll software or service your company uses, your payroll runs may occur two to four days before a pay date.
For example, you might submit your payroll runs on Monday, knowing that it takes four days for the payments to process. This is common when businesses have paydays that occur on Fridays.
Due to the processing time required to deliver payments, businesses that pay weekly may pay for the period that ended two weeks before the pay run. This gives the payroll department a week to verify payments are accurate before initiating the payroll run four business days before payday.
Companies that pay biweekly or semimonthly might have more employees and need the extra time to verify the payroll is accurate.
To help reduce issues during payroll runs, employers can also implement pre-processing audits to review hours, commissions and deductions before submitting them. This may reduce the risk of costly corrections, such as voided or off-cycle checks.
What happens when a pay date occurs after a new year?
Income taxes are calculated on money earned and received during the calendar year. If an employee earns money but isn’t paid until after Jan. 1, the income earned during the last week or two of the year might not appear on their W-2 or 1099 for that year.
For example, if your business uses biweekly pay periods and it takes two weeks from the end of the pay period for the payroll department to initiate a pay run, payment for a pay period ending Dec. 17 won’t be received until January. The income for this pay period won’t be reported for this year, nor will income be earned for the rest of December.
Income paid the next year is reported for that year instead. Most employees only notice this discrepancy during their first year with an employer. There may still be some minor discrepancies in later years, but they tend to be less noticeable due to the carry-over into January’s income.
Companies offering employment bonuses at the end of the calendar year can pay attention to payroll run dates when issuing them. If year-end bonuses are intended for the current tax year, companies may verify that the pay runs are processed with a December pay date. Delays into January shift tax liability to the next year.
Communication with employees about payroll
Payroll processing involves many details, and the occasional error can occur. Educating your employees about your payroll practices may help them understand these issues. Transparency during onboarding can also help explain how payroll works in your organization, so new employees understand how to review their pay stubs and verify their pay is accurate.
Distributing an annual payroll schedule during onboarding and posting it in an accessible HR portal can be helpful for new employees. This schedule can include pay period start and end dates, processing cutoffs and pay dates.
Pay stubs that include as much information as possible can help employees compare their checks with their own records and confirm their pay is accurate. For example, employers can print the pay period, hours or salary, withholding and deductions for other purposes on the paycheck or pay stub. This level of disclosure helps employees self-audit and can reduce payroll mishaps if they arise.
Distinguishing pay periods, paydays and payroll runs helps prevent confusion and disputes. Employers may educate staff through clear communication, annual schedules and detailed pay stubs to promote accuracy, transparency and trust, especially around year-end tax reporting.
