When it comes to keeping a workforce in order, determining the most effective pay period for you and your staff should be a top priority. Not only does the right pay period benefit your employees, but it’s also an essential part of payroll management and keeping your business compliant with local laws, regulations, and regulatory bodies. However, to be compliant, you have to understand the ins and outs of a pay period.
So how do pay periods work, and why are they so important? Here's a quick crash course to get you moving in the right direction.
What Is a Pay Period?
A pay period is a timeframe for calculating each employee's compensation. For instance, suppose that you were trying to compute how many hours each of your team members worked. Your payroll system might do so according to a weekly, biweekly, or monthly pay period by counting the hours they put in during that particular window.
What Determines a Pay Period?
Pay periods vary depending on the job, location of operations, and business model.
You might offer different pay periods for different roles – as long as you can do so fairly and compliantly. For instance, in some countries, it wouldn't be too unusual to keep your regular employees on a biweekly pay period while computing pay on a weekly basis for apprentices and interns who fulfill irregular roles or only work part-time. In some cases, such as when you're working with an independent contractor or temp who only joins your company for a specific task, you might have to accept a pay period stipulated within their employment terms.
Of course, it's not just up to you and your employees to hash out the details. Different jurisdictions may have strict labor rules that govern pay periods. Always review local laws thoroughly before choosing an option – especially if you want to establish a footprint in a new locale.
If you’re building a global team and you don’t have international expertise, it may be best to work with a global employment expert like Omnipresent in order to stay compliant.
What's the Difference Between a Pay Period and a Pay Cycle?
Even though people often use the two terms interchangeably, a pay period and a pay cycle (or pay schedule) are two distinct things. A pay period is the timeframe in which employees worked for their wages, while a pay cycle specifies how frequently you disburse them. A pay cycle informs the pay period.
Also, remember that your pay cycle isn't quite as official as the pay period. For instance, you typically don't need to report the pay cycle with your payroll taxes; and if you've been doing things correctly – by maintaining comprehensive records and paying compliantly – it won't affect your calculations or deadlines.
What's the Difference Between a Pay Period and a Pay Date?
A pay date, commonly known as a payday, is the day on which you distribute paychecks to your employees. In most cases, the date on the check should match the pay date – depending on where your business is located, you'll need these dates to line up precisely to avoid tax filing and deposit trouble.
How Long Is a Pay Period?
The length of a pay period will vary from business to business and depends on factors like local regulations, the cost of running payroll, and business cash flows. Let’s take a look at some of the most common pay period lengths:
Understanding the Weekly Pay Period
When operating on a weekly pay period, you calculate pay every week. Shorter pay periods are more common in part-time and seasonal jobs.
How Do Biweekly Pay Periods Work?
As its name implies, biweekly pay periods involve computing pay every two weeks. This is one of the most common options in the modern business world and is often used to pay salaried employees.
The Bimonthly Pay Period Demystified
A bimonthly – or semimonthly – pay period occurs twice per month. Be careful with this one – while it may appear to coincide with biweekly periods during shorter months, it's not an exact match. A biweekly pay period means that there will be 26 pay periods per year, whereas a bimonthly pay period will have 24.
What Is a Monthly Pay Period?
Monthly pay periods involve computing pay each month. This option may be more common with higher-compensation jobs where employees can manage comfortably for longer periods between checks.
How Many Pay Periods Occur in a Given Year?
To compute how many pay periods occur each year, divide the year by the pay period length. For example, if you operate on a weekly period, you could reasonably expect to tabulate wages 52 times each year. A biweekly pay period would come around 26 times annually, while a bimonthly period would occur just 24 times per year.
What Pay Period Should Your Business Use?
As we mentioned above, aspects such as tax rules, labor laws, employee satisfaction, and your organizational revenue streams can impact how you choose your pay schedule and, therefore, your pay period.
In the end, you ought to seek out a middle ground that lets you satisfy the rules, minimize stress, and keep your workers happy.
Other Common Pay Period FAQs
Here are some of the most frequently asked questions about pay periods:
Can I Adjust My Pay Period Freely?
Barring local requirements, your pay period is up to you. Remember, however, that you won't win any fans by springing new changes on your staff without considering their circumstances. If you fail to provide written notice, you may even fall into legal jeopardy.
How Close Should My Pay Dates Fall to the End of the Pay Period?
Local laws, regulations, and customs often determine when pay dates fall. In some instances, pay dates can be a fixed date(s) in the month driven by a business decision, but that pay date covers the entire pay period.
How Are Payroll Numbers Related to Pay Periods?
A payroll number doesn’t refer to the number of pay periods. Instead, payroll numbers are a unique identifier that employers use to keep track of employees. As a result, payroll numbers help streamline the payroll process by maintaining continuity for employee records and ensuring confidential data is kept secure.