What is a pay period and how many pay periods are in a year?

Trying to settle on the best payroll period for your small business can come with a lot of questions. Your pay practices are an important part of employee management. Determining a pay period cadence will help ensure your employees are being compensated accurately. Furthermore, having a set payroll period will help with payroll processing and monthly reporting requirements (expenses, taxes, insurance).

A pay period, or payroll schedule, refers to the recurring amount of time that an employee is compensated for. As a small business owner and employer, you will have some flexibility in how long they will be. But when making the decision, you’ll want to consider your employees. Are they hourly or salaried? Do your employees earn overtime pay?

Answering the above questions will help you make the right decision for your business.

Types of pay periods

There are 52 work weeks in the year. However, the number of pay periods will depend on how your employees are compensated. When you’re choosing the optimal payroll period for your business, consider the types of employees being compensated (hourly or salary). Don’t forget to think about if they receive overtime, too. The most common types are weekly, biweekly, semi-monthly, and monthly.

Let’s take a look at each of these options:

• Weekly On a weekly pay schedule, employees are paid 52 times per year. Many businesses choose to pay hourly and part-time employees on a weekly basis. The weekly pay period is ideal for employees who frequently work overtime or whose schedules change regularly. Employees paid weekly usually log their hours for the week on a timesheet. They receive pay the following week so that payroll can make any necessary adjustments. Employees often like this setup because it lends a consistent cash flow. However, it is a more time-consuming option for administration.
• Biweekly An employee paid biweekly typically receive 26 paychecks per year. These employees can be hourly or salaried. Since this pay period option has fewer occurrences, it is sometimes more cost-effective than weekly. However, payroll processing may get complicated during months with three processing cycles.
• Semi-monthly With a semi-monthly pay schedule, employees are paid 24 times per year. Typically, payments happen on the 1st and 15th OR the 15th and last day of each month. This type of pay period works well for salaried employees who have consistent schedules. Semi-monthly payroll is simpler to process both for employees and employers. However, calculating overtime for hourly employees can be difficult.
• Monthly An employee paid monthly receives 12 paychecks per year. This schedule typically only works for salaried employees. They are usually paid either on the first or last day of the month. Because payroll processing happens just once a month, this is the most cost-effective pay schedule. But it’s often unpopular with employees because they see less frequent cash flow.

Payroll period FAQs

What is the difference between a pay period and a pay date?

A pay period is the recurring amount of time an employee is compensated for. The period may be weekly, biweekly, semi-monthly, or monthly. A pay date signifies when the employee receives their paycheck. Pay dates are coordinated with payroll tax deposits and payroll tax filing deadlines, depending on the size of the payroll and other factors.

What is the payroll period end date?

The end date determines the end of a pay period. With a semi-monthly term, for example, the end date would be the 1st and 15th of each month.

What is the difference between biweekly and semi-monthly periods?

The difference between these two periods can be confusing. A semi-monthly pay period happens twice per month – no more, no less. A biweekly pay period, however, happens every two weeks. Because of this, two months each year will have three paychecks. A semi-monthly term has 24 payroll periods and a biweekly term has 26.

Can a business change its payroll period?

Yes, but only in certain situations. It’s not a good idea to change it frequently and you cannot do it in a way that reduces your employees’ pay. For example, if you changed your pay period to avoid compensating an employee overtime, you’d be violating the Fair Labor Standards Act (FLSA). Changing the cadence will affect your employees so make sure to consider them when deciding.

What is the difference between a pay period and payday?

A pay period is the recurring amount of time during which an employee’s wages are calculated (weekly, biweekly, semi-monthly, monthly). A payday is the exact date an employee receives their paycheck.

Understanding pay periods – final thoughts

The most common pay periods are weekly, biweekly, semi-monthly, and monthly. But be sure to check with your state laws as they may have a required minimum term.

When choosing a payroll period, consider your employees. Also think about the impact to your payroll schedule – payroll processing can be a costly and time-consuming activity. Evaluate the pros and cons of each pay cycle option. Take a bird’s eye view and consider the ripple effect to other business factors such as finances, logistics, and HR.

Choosing a pay period and setting up an efficient payroll system can be complicated. Block Advisors offers payroll services so you can stop stressing about paydays. Meet with a certified small business tax pro to learn how we can help you streamline your payroll processing and get answers to your tax questions.

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