Pay Period Definition & Frequency

Money and stethescope

What Is a Pay Period? 

Pay periods are defined as the periods that companies pay employees for their employment or services. They’re generally monthly, semimonthly, bi-weekly, or weekly. However, it’s essential to choose a workable pay period structure and maintain it appropriately to avoid costly late-payment costs and penalties. 

One of the first things you must decide when you begin payroll administration is how often your employees will be paid.

Types of Pay Periods and Schedules 

For the most part, businesses tend to stick to these standard payroll period lengths: 

Weekly 

A weekly pay period results in 52 annual paychecks. Weekly pay periods are just as popular as biweekly pay periods, with 32.4 percent of private companies paying people every week

A weekly pay period corresponding to a workweek may simplify fulfilling FLSA overtime payment requirements. Weekly payments can also be highly desirable amongst hourly workers. Therefore, weekly payment periods can boost retention and engagement in occupations with high turnover. 

Bi-Weekly 

A bi-weekly pay period is most common for salaried employees and produces 26 total paychecks annually. According to the BLS, the two-week pay period is also the most common pay duration, with 36.5 percent of U.S. private businesses using it. 

Employees will get paid twice a month instead of once, allowing them to plan their finances better. For example, workers may anticipate steady paydays every other Friday. Employees enjoy knowing that their compensation will be the same every month, and they appreciate the fact that certain months have three paydays rather than two. 

Semimonthly 

A semimonthly (two times a month) pay period is most common for salaried employees and provides them with 24 total paychecks per year. A semimonthly payment period lasts half of a calendar month. 

The payroll cycle is always the same, making it easier to handle for even-numbered months and leap years. The structure also has some degree of adaptability because wages must be paid twice a month rather than just once. This may make administering benefits and submitting employer tax payments and withholdings easier. 

Monthly 

A monthly payroll period results in 12 total payments over a year. Monthly pay periods are simple for businesses to manage in terms of tax withholding, benefits, budgeting, and they may be perfect for firms with salaried employees. Organizations have more financial flexibility and ease future planning by adopting monthly payroll intervals. 

To remain compliant, you must be familiar with federal and state payment frequency restrictions. Most states have a law that mandates the minimum number of paydays per employee, often known as state payday requirements

There is no federal legislation that requires you to pay employees regularly. They do, however, emphasize the importance of maintaining a consistent pay schedule. You can’t alter an employee’s pay cycle whenever you feel like it. You may not, for example, change the payment frequency to monthly and then back to weekly. 

In some instances, you may alter your pay schedule. You may revise your payment structure if you meet any of the following criteria

  • You have a legitimate business reason for wanting to change your payment structure;
  • It will be long-term or permanent;
  • You are not avoiding overtime pay or the federal minimum wage; 
  • You don’t hold wages for an unreasonable amount of time. 

It’s also worth noting that some states limit how often a company may change an employee’s pay schedule, while others require employers to give workers advanced notice before altering their pay structure in any way. 

Considerations for Different Types of Employees 

Even though pay periods are ultimately up to the business, this decision may be impacted by the types of employees you hire:

  • Salaried employees are paid once a month, although this may vary slightly depending on how frequently you distribute their bi-weekly paychecks. 
  • Hourly employees are often paid hourly wages or an hourly rate of pay through each workday. If you employ hourly workers, your company likely uses a weekly pay period. 
  • Contract employees are usually paid for how many hours they work or how much time they spend on a project. You typically use a daily or a per diem pay period when paying contract employees. 

If you’re still unsure how often to pay employees, consulting with a payroll accountant or company may be beneficial. They can guide you on how to comply with IRS regulations and state laws. 

Considerations for Unusual Work Hours 

Some years have an extra pay period, depending on how the employer has programmed payroll and when the employee’s last payday falls. This is known as a “pay period leap year,” a rare event that affects salaried staff paid bi-weekly who get their 27th payment during the year. 

A few ways to handle the leap year period can include: 

  • Slightly decrease every paycheck for the year. This way, you still pay the total yearly salary, and each paycheck is only a little less than before. To do this, take the salary total and divide it by 27 (for bi-weekly) or 53 (for weekly). 
  • A second alternative is to leave everything as it is. Not changing your system entails an extra paycheck for salaried workers. 
  • The final choice is to reduce the year’s last payment to make up for the difference. 

Overall, it is up to a business owner’s discretion how to handle the extra pay period. During this decision, simply consider how it might affect your employees. 

Furthermore, it is critical to know and be prepared for overtime. Overtime hours are hours worked beyond a set maximum, usually 40 in the United States. Overtime is not always paid automatically; it may only be provided if required by law or contract. 

If you have $500,000 or more in yearly sales, your company is generally protected by the FLSA. When employees operate in interstate commerce for a small company, you must pay overtime.

Choosing a Suitable Pay Period 

Once a pay period structure has been chosen, it’s difficult to change, so make sure the frequency of your payroll matches up with your business’s needs. 

There are several things to think about while deciding how to compensate your employees, including: 

  • Budget –– Assess how much money is available for employee compensation and how much you can afford to pay them regularly. 
  • Business demand — Evaluate how many employees you have, how many hours they need to work each week (for salary workers), or how often they get projects (for contract workers). 
  • Processing time between pay period and pay date –– Gauge how long it takes you to complete tasks related to staff compensation. 
  • Laws and regulations –– Research how often the IRS or your state requires you to file tax deposits. 
  • Employee preference –– Survey how often your employees prefer to be paid. 

Every business has diverse needs, so it’s essential to consider what works for you before compensating staff members with an appropriate payment cycle. 

For instance, someone starting a nursing staffing company has vastly unique needs than an established construction firm. Moreover, it’s also important to comprehend what payroll tax is and how it fits into determining pay periods and other elements of a business. 

How to Budget for Payroll 

If you need money for payroll, there are several alternatives available, including factoring. Various industries employ the use of factoring to help their businesses expand without hurting their budget. 

 Examples include but are not limited to: 

  • Medical staffing factoring –– Factoring in the medical industry allows businesses to access cash when they have slow payments from private insurance companies such as Medicare or Medicaid. Healthcare providers and specialists of all types frequently utilize this sort of financing. 
  • Nurse staffing factoring –– This system of factoring allows nursing agencies to get the financing they need quickly while continuing to provide paychecks on time. 
  • Home healthcare factoring –– Home care businesses understand cash flow may be unpredictable at times, leaving them in an inconvenient situation. These firms can get money promptly to help with purchase demands and employee payroll by taking advantage of factoring. 

Overall, several variables influence pay periods and the impact they have on your organization. Therefore, it’s up to you how much compensation they receive, and how often you pay your employees. Learn more about how payroll financing can help you manage your payroll and cash flow so that you can get through those challenging pay periods.