When business owners decide to branch out beyond themselves and hire employees, one of the key decisions they need to make is how often they are going to issue payroll. There are several different options available, so it’s easy to get stuck on how to choose a payroll schedule. We’ll help you answer the common question, “What does pay period mean?” and the pros and cons of different types of pay periods.

Creating a payroll schedule for your small business

Creating a payroll schedule is a vital step for your small business. Reliable paychecks are what your employees will count on to pay their bills, which is why it’s so important that the pay dates are consistent.

Different pay periods can also impact your business. You’ll want to identify the pay schedule that keeps your employees happy and taken care of, while minimizing any additional expenses for your business.

What does pay period mean?

You may be wondering what exactly does a pay period mean and how does it affect how I run payroll?

A pay period is essentially the time frame in which you issue paychecks to your employees. There are four schedules that most businesses in the United States use to pay employees.

These schedules determine when paychecks get into the hands of your employees, and can also affect the amount of the paycheck, so it’s important to choose an option that works for you and your employees.

Types of pay periods

There are four types of payroll periods that employees have come to expect. Each payroll period has different corresponding pay dates and is beneficial for different types of employees. Although some businesses have both hourly and salaried employees, almost all companies use the same pay period company-wide. Keep this in mind as you look at the types of pay periods and the pros and cons of each.

Weekly Pay Period

A weekly pay period is typically only usually for hourly employees. For this pay period, the employee receives 52 paychecks per year. One of the benefits of a weekly pay period is that it is easy to track how many hours the employee has worked in one week. If there are any questions about overtime, shift changes, etc. they can be handled in a timely manner.

A weekly pay period can also be beneficial for industries where commissions or tips are earned. This is because it’s easier for the employer and employee to track these and address any errors over a shorter period of time.

One of the downsides of weekly paychecks is that they put more work on the accounting department who has to run payroll. On the employee side, the check amount is smaller than it would be for a longer pay period.

Bi-Weekly Pay Period

Bi-weekly pay periods can be used for hourly or salaried employees and result in 26 paychecks per year. One of the benefits of a bi-weekly schedule is that it allows employees to still easily budget and manage their personal finances while getting a larger paycheck at one time. Bi-Weekly paychecks are also issued on the same day of the week each time – usually Friday – so employees always know when they can expect to receive their money.

The tricky part for employers is that pay periods often overlap into two different months, which can make things more complicated for accounting to accurately track the payroll expenses for the month.

Semi-Monthly Pay Periods

Semi-monthly pay periods are typically used by businesses who want to pay on the 1st and 15th of every month. This is usually used for salaried employees and results in  24 paychecks per year. One of the benefits of this type of pay period is that for accounting purposes, paychecks are issued in the month the work is done. That way January’s expenses correspond with January’s revenue.

Some employees may not be a fan of this type of pay period because they could get paid on a Monday one time and a Wednesday or other day of the week the next. This can be harder to financially plan or to remember to check your paystub for any questions or discrepancies.

Monthly Pay Periods

A monthly pay period is the least used by employers and may not even be eligible in some states. This type of schedule is typically only used for salaried employees and results in 12 paychecks per year. Although not official employees, some freelancers prefer to be paid on a monthly basis to make things more straight-forward for their personal tax purposes.

One of the benefits of a monthly pay schedule is that it makes the accounting easier for all benefits and deductions. Employees also receive a larger paycheck at one time, which may be desirable for some.

How to choose a payroll schedule

For the most part, the payroll schedule is up to the business owner. However, you’ll need to check your state laws to ensure your desired pay period is compliant with the Department of Labor. For example in Arizona, employees must be paid two or more days in a month, not more than 16 days apart. You can always pay employees more frequently than what is required by law, but not less.

How often do most employers pay employees?

Most employers process payroll on a bi-weekly or semi-monthly basis. Of course, there are always exceptions for different industries or different types of employees.

If your employees work on mostly tips or commissions, they could prefer getting issued these extra monies weekly so they can easily confirm they’re getting what they are owed. Managers or employees in the C-Suite may be able to stretch their dollar and prefer a monthly paycheck that rolls in all at once.

Working with a payroll services company can help you find the right solution for your unique business and employees.

Benefits and deductions

The pay period you choose will affect how benefits and deductions are taken out of your employees’ paychecks. For example, employees with a semi-monthly pay period will see the same total amount of deductions each paycheck.

Employees with a bi-weekly pay period, on the other hand, will have some months with three paychecks. In this case, they will see smaller deduction amounts on each individual paycheck check, even though the monthly total will remain the same as the months where they have two paychecks.

Payroll Solutions with Paytech

Paytech offers a variety of payroll solutions to help you pay your employees on time, every time. You’ll no longer have to worry about filling out the right forms for new hires, calculating overtime and paid time off, or missing a payday because of a holiday. Hiring Paytech for your payroll management means your employees are paid, your payroll taxes are calculated correctly, and you can focus on doing what you do best – running your business.

Get started today.

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