As a small business owner, knowing what pay periods are, their differences, and how they benefit your employees is necessary to keep your business compliant with local laws and regulations.
Several aspects of running a business are complicated, however, payroll is an essential piece of the puzzle that can be simplified. Consider this your guide to better understanding payroll periods.
What is a Pay Period?
A pay period is a time frame used to calculate an employee’s earned wages and when they receive their paychecks. During each pay period, an employee’s work hours and tracked and paid.
It’s strictly based on a schedule followed by payroll departments. The U.S. Bureau of Labor Statistics determined that the most common payroll schedule in the United States is bi-weekly. That said, the most common pay period length is two weeks.
Aside from bi-weekly, pay periods can occur on a weekly, semimonthly, or monthly basis.
How Long is a Pay Period?
Companies determine their pay period length on its selected pay schedule for the calendar year. Some common pay period lengths include:
Weekly
Weekly pay periods are one week long. The traditional work schedule is five days long, lasting Monday through Friday. However, a weekly pay period is seven days long.
Bi-Weekly
A bi-weekly pay period is two weeks long, or 14 days.
Semimonthly
The number of days in a semimonthly pay period is dependent on how many days there are in the month. A semimonthly pay period typically varies in the number of calendar days, unlike a bi-weekly pay period.
With a semimonthly payroll schedule, employees are paid twice every month.
Monthly
A monthly pay period is one month long. Depending on the month in question, the number of days in a monthly pay cycle can vary.
How Many Pay Periods Are in a Year?
Every company utilizes a different payroll schedule. With that said, the number of pay periods in a year depends on the payroll schedule you use. Observe the number of pay periods there are in a year based on common payroll schedules:
- Weekly: 52 pay periods in a year
- Bi-weekly: 26 pay periods in a year
- Semimonthly: 24 pay periods in a year
- Monthly: 12 pay periods in a year
Legalities
Labor laws vary by state, meaning every state has different payment requirements for manual workers and clerical workers. In the state of New York, the NYLL requires manual workers to be paid weekly, while clerical workers are to be paid at least twice per month.
Employers who fail to pay their employees within 30 days of the date they’re required to do so are guilty of a misdemeanor.
Pay Period vs. Pay Date: What is the Difference?
A pay period can be described as the length of time during which an employee works. A pay date is the day and time your employees receive their paychecks.
Pay Periods
During a pay period, employees are being paid for the work that is being done. This includes any time an employee is on the clock, including training time.
Pay Dates
Friday is the most common payday, regardless of the payroll schedule in place. On average, it can take a few days to process payroll. Hence, the final day of the pay period is usually not when employees are paid for their work from that pay period.
What About Overtime?
According to the Fair Labor Standards Act (FLSA), overtime should be paid at 1.5 times the traditional hourly rate for any number of hours worked over 40 in a week. There may be additional requirements depending on the state.
If your company has more non-exempt employees who are eligible to earn overtime, you may want to take this into consideration before choosing your pay cycle.
For example, if you pay your employees semi-monthly on the 15th and the last day of the month, each pay period may have a different number of days. Aside from this, the pay period will most likely end in the middle of the week.
With all of this in mind, you may find difficulty calculating overtime for hourly employees on a semi-monthly pay schedule.
How to Select the Optimal Pay Period for My Business?
Determining the most suitable pay period for your company involves considering various factors, including specific company needs and any legal or regulatory obligations. Additionally, some organizations take into account employee preferences regarding pay frequency. Here are key considerations when making this decision:
Cash Flow: Aligning your pay period with your company's cash flow is crucial. If there's a consistent slow period in the middle of the month, opting for a monthly pay period might not be the most advantageous choice.
Employee Preferences: Acknowledge that some employees might prefer more frequent pay, such as weekly or bi-weekly, while others may find a monthly pay period acceptable.
Payroll Processing: Evaluate the time and resources required to process payroll. Ensure that the chosen pay period is practical and manageable for your organization's payroll processing capabilities.
Legal Requirements: Recognize that different countries and states have distinct laws and regulations concerning payroll and pay periods. Thoroughly research the legal requirements in your area to guarantee compliance with all relevant laws.
Know Your Options
Regardless of the type of business you’re in, knowing the variety of scheduling options and their implications will help you determine which one works best for you and your employees.
In fact, there are online tools you can utilize to help make this process less stressful. FRIDAY is a software that was created to revolutionize team management for small businesses.
FRIDAY Helps Small Business Manage and Pay Their Team
When it comes to managing, tracking, and paying your employees, additional help goes a long way. FRIDAY is the simplest software created to help small businesses manage, track, and pay their team without any paperwork involved.
FRIDAY is an easy to use, yet powerful payroll and team management solution.
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