Pay Period

What is Pay Period?

A pay period is a timeframe that determines how often employees receive payment for their work. This can include the length of time that you track and record an employee's work hours. A pay period usually has a recurring schedule that ensures employees receive consistent and predictable paychecks.

The frequency of the pay period depends on different variables. This can be in the form of the benefits a company offers its employees or deductions that federal or local law requires. Understanding these variables can help you make a better decision on how often employees should be paid.

What is the difference between Pay Period and Pay Day?

A pay period is a report that contains information that details exactly how much an employee receives on their paycheck within a given pay cycle. This can include worked hours, included benefits, and deducted taxes. The payday is the date an employee receives their salary, which can be up to two weeks ahead of a pay period's date.

What are the different types of Pay Periods?

There are four types of commonly used pay periods, and determining which one is right for a company is based on the type of business, how it is operated, whether the employees are hourly or salaried, and who handles payroll processing.

Each pay period type comes with its own pros and cons:

• Weekly pay period: This pay period consists of seven days. And for full-time employees, each weekly pay period reflects a 40-hour work week. This is preferred among hourly employees in general, as it simplifies cash flow and budgeting. However, this is the most time-consuming and expensive method of the four types, as there are 52 payroll cycles per year, and fees can add up fairly quickly.

• Bi-weekly pay period: Bi-weekly schedules consist of 26 pay periods each year, and consist of 80 hours per pay cycle. This is the preferred pay period for full-time employees, although it could also be chosen for hourly employees. Because there are fewer pay periods in the year, the payroll department has more time to review the timecards. Having said that, the processing fees are still higher, and it complicates the bookkeeping process when compared to weekly pay. Another disadvantage is that depending on when new employees begin work. They may need to adjust to longer pay periods.

• Semi-Monthly pay period: This schedule consists of 24 pay periods in a year. Each month will always have two pay periods. A company could have a pay period that runs from the 1st to the 15th of every month, with the second period of the 16th to the last day of the month following suit. Because of the reduced frequency in pay, it simplifies the company’s accrual expense reporting requirements. However, since the cycles often end on different days of the week, it can create complications. The payment schedules may confuse employees as the last day of each work period varies depending on the month and year. Some jurisdictions do not allow for semi-monthly pay therefore, it’s important to check if this option is available.

• Monthly pay period: This schedule consists of 12 clear-cut pay periods per year. Overall, this is the least costly method from a payroll point of view. It simplifies accounting and decreases the processing time. However, cash flow predictions can be a challenge for employees to only get paid once a month. Many may need to budget their salary on a more rigid schedule. Nevertheless, several consultants and freelance professionals also use this method.

Conclusion

Processing an employee’s pay correctly can be challenging without the latest information and the right experts who continue to monitor ever-changing regulations. Therefore, when it comes to employees’ pay, it’s important to be well-versed on all payroll terms and to explain how they work, while having a full understanding of the rules around them.

For additional information, see the terms entitled Payroll, Pay Group.