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“How Many Pay Periods in a Year?”

Wooden blocks with the word Payroll, money and a forklift. Payroll is the sum total of all compensation a business must pay to its employees for a set period of time or on a given date. Taxes.

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:

Weekly Pay

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.

Biweekly Pay

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

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.

Semi-monthly Pay

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.

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Exempt Employee – Meaning and Guide

Exempt employee concept written on a paper.

If you are in charge of determining compensation for full-time employees, it will be important for you to understand the difference between an exempt employee and a non-exempt employee. This classification plays a critical role in how you are legally required to pay your employees in the U.S., particularly in relation to overtime pay.

In this guide, we’ll answer the question, “what is an exempt employee,” and we’ll talk about what exempt status means, as well as help you determine when an employee becomes exempt.

What is an Exempt Employee?

In the U.S., employee compensation is regulated by the Fair Labor Standards Act (FLSA). This act establishes parameters around minimum wage, overtime pay, and the standards for employing youth. According to the FLSA, employees in the U.S. must be paid at least the federal minimum wage for all hours worked. However, once an employee reaches 40 hours of work in a single workweek, the FLSA dictates that they must be paid overtime pay equal to not less than time and one-half the regular pay rate.

In some cases, state laws actually provide greater employee protections, such as offering a higher state minimum wage. In these cases, an employer must follow state regulations along with federal regulations.

However, all of the above guidelines apply to what is considered a non-exempt employee. An exempt employee’s pay is regulated differently. The question “What is exempt employee status?”, is best answered by the exempt employee definition as outlined by the U.S. Department of Labor (DOL):

“Section 13(a)(1) of the FLSA provides an exemption from both minimum wage and overtime pay for employees employed as bona fide executive, administrative, professional and outside sales employees.”

Essentially, once an employee is considered exempt, their employer is no longer required to abide by the same minimum wage and overtime pay as they must for a non-exempt employee. Exempt employees are often referred to as salaried employees. These employees might work more or less than 40 hours a week, but their compensation remains the same.

Types of Exempt Employees

When determining whether or not an employee is exempt or non-exempt, it is important to first understand the types of exempt employees under federal law. Each type of exempt employee must meet a set of criteria in order to qualify for exempt status. For all exemptions, note that the salary compensation must not be at a rate of less than $684 per week.

Executive Exemption

To qualify for an executive employee exemption, an employee must meet the following requirements:

  • They must be compensated on a salary basis
  • Their primary work must be managing a department of an enterprise or the entire enterprise
  • They must be in charge of directing the work of at least two or more full-time employees
  • They must have the authority to hire or fire and/or the ability to provide recommendations regarding hiring, firing, promotions, and employment status changes of other employees

Administrative Exemptions

To qualify for an administrative employee exemption, an employee must meet the following criteria:

  • They must be compensated on a salary basis
  • Their primary work must include office or non-manual work that is directly tied to business operations or management
  • Their work must allow for independent judgment relating to matters in the business of significance

Professional Exemption

To qualify for a professional employee exemption, an employee must meet the following guidelines:

  • They must be compensated on a salary basis
  • Their work must require advanced knowledge, primarily considered intellectual in nature
  • Their advanced knowledge must be in a field of science or learning
  • Their advanced knowledge must be information that would generally be learned through specialized coursework

Creative Professional Exemption

To qualify for a creative professional exemption, an employee must meet the following criteria:

  • They must be compensated on a salary basis
  • Their primary work must require imagination, invention, or originality of talent in a field that is considered artistic or creative

Computer Employee Exemption

To meet the computer employee exemption, an employee must meet the following standards:

  • They must be compensated on a salary basis
  • The employee must be working as a computer programmer, software engineer, computer systems analyst, or another skilled job in the field of computers

Outside Sales Exemption

To qualify for the outside sales employee exemption, an employee must meet the following criteria:

  • Their work must be defined as making sales
  • They must be regularly working away from their employer’s place of business

It is worth noting that the above exemptions do not apply to blue-collar workers, police, firefighters, paramedics, and other first responders.

How to Determine if an Employee is Exempt or Non-Exempt

As you classify your employees and determine their compensation, it is important to make sure that if you do consider an employee exempt, they meet the criteria outlined by the DOL. Generally, an employee can only be considered exempt if:

  • They receive a salary equivalent to more than $684 per week
  • They are paid this salary regardless of the total hours worked in a week
  • They have duties that align with one of the above exemption statuses, such as professional, administrative, creative, etc.

Frequently Asked Questions

If you still have questions about exempt employees, here’s some additional information.

What does “exempt employee” mean?

An exempt employee is an employee that, due to their status, is exempt from normal overtime wage laws as outlined by the FLSA.

Does an exempt employee have to work a set number of hours?

An exempt employee is not required to work a set number of hours. These employees are paid a salary at a regular interval, regardless of the hours worked. However, many companies have policies requiring that an exempt employee works 40 hours a week. While employees cannot withhold pay if an exempt employee does not work 40 hours a week, they can take disciplinary action.

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What Is FTE (Full-Time Equivalent) – And How Do You Calculate It?

FTE image showing elements relating to Full-Time Equivalent

What is FTE? FTE stands for full-time equivalent. It is a measure used for the total of full-time employees—or part-time employees that add up to full-time employees—your organization employs.

An FTE calculation helps a company and its various departments determine hiring needs for the future. In addition, they help you forecast and track employee salaries and hours worked. FTE metrics are also used to ensure compliance with legal employment requirements, like those of the Affordable Care Act (ACA), as well as meeting the requirements for certain company tax credits.

What Is an FTE?

What does FTE mean? FTE indicates the number of hours a full-time employee works in a standard week for your business. The purpose of using FTE is to get to the number of total hours worked vs. the number of employees you have.

Utilizing the total hours worked vs. the number of employees allows you to forecast, budget, and calculate required staff and wages to pay them more easily. For example, if your company’s standard work week is 30 hours, then two employees that work 15 hours per week each or three employees that work 10 hours per week each would count as one FTE.

FTE standardized calculations like this are helpful for a number of reasons. For one, they allow for the evaluation of labor costs and workload requirements. For example, once a project manager estimates the number of full-time workers required to accomplish a project, they can calculate salary needs.

Or a business analyst can determine requirements to meet day-to-day business tasks for a new department, which allows them to determine the number of full-time employees to forecast and budget for that department. Managers and HR departments also apply FTE calculations to allocate department headcounts based on each department’s workload.

Budget analysts can use the FTE meaning job metrics for headcount analysis. They can quickly compare profits to headcounts or output numbers with FTE metrics. Employers also use FTE calculations for benchmarking profits or revenues per employee.

HR departments utilize FTE to standardize salaries and working hours for part-time employees. A quarter-time employee would be a 0.25 FTE since they work 25% of the hours of a full-time employee. As such, they would be paid 25% of a full-time employee’s salary.

When annual forecasts are necessary, the term work-year equivalent (WYE) is sometimes used in lieu of full-time equivalent, or FTE.

How Do You Calculate FTE?

You can technically break the FTA meaning down into two categories:

  1. The total number of part-time employees your company employs or requires that equate to a full-time employee
  2. The total number of full-time employees your company employees or needs to hire.

When you add up items 1 and 2, you get the total number of FTEs currently with or needed for your organization.

So, again, FTE calculations align with hours worked rather than the number of employees. You could have four employees and only have one FTE. One FTE would equal four 0.25 employees.

To calculate FTE for your company, follow these steps:

Step 1:

List all your employees and their weekly hours worked. Exclude independent contractors, as they are not considered employees.

Example: An employer has a headcount of five. Three employees work 40 hours per week. One employee works 20 hours per week. One employee works 30 hours per week.

Step 2:

Identify the number of work hours defined as a full-time position. Most employers define a full-time employee as one that works 40 hours per week, on average. Some organizations might use 30 or 35 hours to define full-time employees. Any employee that works an average number of weekly hours below the full-time employment definition would be considered part-time. The number of hours per week that defines full-time employment is the number that is used to determine one FTE.

Example: The company defines 40 hours per week as full-time.

Step 3:

Determine the total hours worked per year. Multiply the number of hours per week by 52, for 52 weeks in a year.

Example:

40 weekly hours per full-time employee: 40 X 52 = 2,080 hours = 1.0 FTE

20 weekly hours employee: 52 X 20 = 1,040

30 weekly hours employee: 52 X 30 = 1,560 hours

Step 4:

Add together all part-time hours worked by employees defined as part-time.

Example: 1,040 + 1,560 = 2,600 hours

Step 5:

Calculate your part-time FTE by dividing the total hours worked by part-time employees calculated in Step 5 by the total annual worked by full-time employees calculated in Step 3.

Example: 2,600/2,080 = 1.25 FTE

Step 6:

Determine your total FTE by adding your full-time FTE to your part-time FTE from Step 6.

Example:

Three full-time employees = 3.0 FTE

The part-time FTE = 1.25

3.0 + 1.25 = 4.25 FTE

In the example calculation, the headcount is five, and the FTE is 4.25

How Do You Calculate a Single Part-Time Employee FTE?

To determine an employee’s FTE, simply divide the employee’s scheduled weekly hours by the number of hours the employer defines as a workweek. For example, if you define full-time employees as working 30 hours per week, a part-time employee who works 18 hours per week would be 0.6 FTE.

What Is the ACA FTE Definition?

The ACA requires employers that have 50 or more FTEs to provide ACA-compliant healthcare benefits. The Affordable Care Act defines full-time employees as anyone working 30 hours per week or more on average. Even if your organization defines full-time employment as more, you must abide by the ACA definition to be in compliance with ACA requirements.

FTE calculations are necessary for employers to fully appreciate their workforce and budgetary needs. They are also useful in determining how well an organization is doing in regard to output per employee and the bottom line. You now have the basic calculation to determine the FTEs you currently have or to forecast future needs, among other reasons you might find the metric and FTE meaning useful.