One of the first tasks of the payroll department in a new company is determining how to set up pay periods. A pay period usually starts and ends on the same day or date each month to help employees manage their expectations. For example, a weekly pay period could run from Sunday at 12:00 a.m. to Saturday at 11:59 p.m., while the 15th and last day of the month could work well for a bi-monthly pay period.
The Four Most Common Types of Pay Periods
Each schedule for paying employees comes with advantages and disadvantages. ASAP Payroll presents the four most common types of pay periods below.
Weekly Payroll
Paying employees weekly means receiving a check for all work completed within a seven-day period, resulting in 52 paychecks per year. Hourly workers tend to prefer weekly pay since it makes it easier for them to maintain positive cash flow. However, issuing employee paychecks every seven days is also more expensive for employers due to payroll processing fees.
Most employers that go this route issue paychecks on Fridays for work completed the previous week. Approximately 44 percent of employers pay their employees on a weekly basis.
Bi-Weekly Payroll
The bi-weekly payroll comes out every two weeks, usually on the same day of the week. Distributing paychecks every other Friday is common in this scenario, meaning employers run payrolls 26 times per year. This option is popular with both hourly and salaried workers. One advantage of bi-weekly payroll for employers compared to weekly payroll is that it gives them more time to review employee attendance records and personal time off requests to ensure accuracy.
On the downside, a bi-weekly payroll is more complicated for payroll employees to learn and process efficiently. Another potential downfall is that new employees may wait close to a month for their first paycheck, depending on where their first day of employment falls in the pay cycle. Bi-weekly payroll is slightly less popular than weekly payroll at a rate of 44 to 38 percent.
Semi-Monthly Payroll
Under this payroll system, employees receive a paycheck 24 times per year rather than 26 times per year, like the bi-weekly system. Employers divide the month into two pay periods: the 1st through the 15th and the 16th through the last day of the month.
Employers and employees must understand that paychecks will not always come out on the same day of the week. When the 15th or last day of the month falls on a weekend or holiday, employers typically distribute paychecks early to avoid employees becoming irritated.
Although a semi-weekly payroll simplifies reporting requirements for employers, it can confuse employees. The human resources and payroll departments should work together to ensure that all new employees understand the semi-weekly payroll during the onboarding process. Thirteen percent of companies distribute semi-monthly payroll checks.
Monthly Payroll
Employees working under this payroll system receive a paycheck 12 times per year, usually for all work completed during the previous month. This is the most cost-efficient method for employers, but employees often find it difficult to manage their bills and cash flow with such a long period between paychecks.
Freelancers and independent contractors receive monthly checks more often than traditionally employed people do. Even so, just five percent of businesses pay employees and 1099 workers only once a month.
How to Decide Which Payroll Frequency is Right for Your Business
Answering this question requires that you take a realistic look at several factors, including the type of business you operate, whether you manage payroll in-house or outsource it, and whether you have more exempt or non-exempt employees. ASAP Payroll can evaluate your current payroll situation or help you choose the best structure for your new company. We can also provide you with details about outsourcing your payroll processing to us.
