Operating a business comes with various tasks and responsibilities. As an HR or finance professional, one of the jobs you may have to deal with, depending on the structure of your company, is managing payroll. You need to have a system in place to ensure that all the employees get a regular paycheck on time.
Employers can choose how and when they pay their employees, but must keep a few things in mind:
- Pay your employees in a consistent manner. Select a payday frequency and stick with it.
- Adhere to any specific state laws pertaining to pay period frequencies.
- Communicate the payday frequency with your employees.
- Be punctual in distributing the paychecks.
- Follow the Fair Labor Standards Act (FSLA) when managing payroll.
If you follow the FSLA and any state regulations, you can choose the type of payday frequency and pay periods that work best for your business type and structure. Assessing the type of people you employ, how large your company is, how many pay periods in a year you’ll need, and what the schedule will typically look like can help you make the right decision when setting up the payroll.
This guide answers questions you may have about this topic as you prepare to pay your employees.
The Importance of Understanding Pay Periods
Your employees will want to know the frequency of their paychecks. So, it’s vital to establish a pay period upfront. A pay period consists of the following components:
- Hours the employee has worked during a set timeframe.
- A beginning date and end date.
- A consistent pattern of beginning and end; the next period begins where the last one left off.
- The same amount of time for each pay period.
The key to creating a payroll that works is to be consistent. Then you’ll know how many paychecks in a year they’ll get and how often they will receive one. You can pay your employees differently as long as the employee’s pay period remains consistent. For example, you may choose to pay the salaried workers less frequently than the manual laborers. Typically, low-wage earners are paid more regularly since they may rely on their paycheck from week to week.
What Are the Different Pay Periods in a Year?
There are four main pay periods from which to choose. These are as follows:
A weekly pay period is on a schedule that comes out once a week. Employers need to pay their employees at the end of every week. As a result, if you choose this pay method, you’ll need to schedule 52 or 53 payroll disbursements, depending on if it’s a leap year or not.
The weekly pay system is common for companies that employ manual labor workers and low-wage employees. However, keep in mind that since you’ll be running payroll more frequently, you’ll also have more administrative work and costs per year.
The bi weekly pay period is the most common and popular. When using this system, you’ll pay employees every two weeks instead of every week. It needs to be on the same day every two weeks, though.
Since you will be only paying every other week instead of each week, you won’t have as many payouts per year. So, how many biweekly pay periods in a year are there? There are 26 bi weekly pay periods in a year as opposed to 52 (or 53) with a weekly pay period system.
This pay schedule may work out well for mid-sized to large companies because employees get paid regularly, and employers see a reduction in administrative costs for payroll management.
Monthly pay periods must be paid once a month and follow the same date every month. This pay period may be the most convenient for employers, but low-wage earners are not too keen on it. If the company employs mostly high-wage earners, it would be an ideal pay period because of the reduction in administrative costs.
A semi-monthly pay period provides a paycheck for employees two times each month. This differs from the bi weekly pay period. Semi-monthly is scheduled on the same two dates of the month, usually the 1st and 15th or the 15th and 30th. However, the day could (and will) vary.
A bi weekly pay period will be on the same day every other week, but the dates will vary.
Which Pay Period Works for Different Businesses?
You can use whichever pay schedule and pay period that works best for your business model. Some companies prefer one pay system over another based on the structure of their business. Here are some tips to help you determine which method is best for your company:
Consider whether you have mostly high-wage earners or low-wage earners. The employees’ needs are important to consider. Since you want to attract and retain top talent, you’ll need to think about how your employees will want to be paid.
Think about the company’s cash flow so you don’t get into a tight jam every month. You need to be sure you can keep things operating smoothly from a financial standpoint, too.
Assess whether your employees are salary, hourly, or both. If you have employees in both categories, you may decide to split the pay periods between the two groups of employees.
Look at the size of your company. How many employees do you have to pay? If you have a large number of employees, it may make sense to pay less often because of the amount of administrative time it will take to process payroll. Keep in mind that you must balance this need with the needs of your employees.
Whatever pay period you decide to use for your employees, it’s essential that you stick with it. Why is this so vital? If you are haphazard in paying your employees, it won’t look well for the company. You also may be in violation of the Wages and the Fair Labor Standards Act. Not paying on a regular basis could result in missing a payment, which could cause serious legal problems.