A pay period is the timeframe during which employees work and earn wages.
A pay period is a regularly scheduled time when employees earn their wages via a paycheck. The pay period determines when a company issues employee payroll.
Pay period vs. payroll cycle
While a pay period is a specific period in which an employee receives pay, a payroll cycle refers to the frequency of the company’s payroll processes.
A pay period is the timeframe for which an employee receives compensation. The pay period is an exact date range for calculating wages and salaries.
For example, a company pays its employees once a month. The pay period for January would start on January 1 and end on January 31.
A payroll cycle instead describes how often a company processes its payroll. The payroll cycle is the length of time between each pay period—which then determines the payroll cycle.
For instance, a monthly pay period results in a monthly payroll cycle. So a company that pays employees once a month would have 12 pay cycles in a year.
Pay period vs. pay date
A pay period is the duration for which employers calculate and distribute payroll, while a pay date is the specific day an employee receives their paycheck.
In other words, a pay period is the length of time that an employee works to earn the salary paid to them in their next paycheck, while a pay date is when employees receive that paycheck.
The payday may fall on the same days as the pay period end date and is usually the date that appears on an employee's paycheck.
How long is a pay period?
The length of a pay period depends on local payroll laws, the employer’s chosen pay frequency, and the pay period type. We discuss the common types of pay periods and their respective lengths below.
Types of pay periods
There are several types of pay periods employers use to pay employees, including weekly, bi-weekly, semi-monthly, and monthly. Employers may use different types of pay periods for different types of employees, such as salaried employees versus hourly workers.
Weekly pay period
A weekly pay period means that employers pay their employees on a weekly pay schedule. Employees typically receive their paycheck once a week on the same days each week. A business on a weekly pay schedule has 52 pay periods per year.
Employers commonly use weekly pay periods in industries where employees frequently work various hours or overtime to track fluctuating schedules from week to week.
Bi-weekly pay period
A bi-weekly pay period means that employees receive a paycheck every two weeks. Employees on a bi-weekly pay period schedule typically receive 26 paychecks yearly.
Semi-monthly pay period
In a semi-monthly pay period, employees receive payroll twice a month. For example, employees receive paychecks on the 1st and the 15th of each month. Employees paid semi-monthly receive 24 paychecks yearly.
Monthly pay period
A monthly pay period means employees receive pay on the same date each month. Employees on a monthly pay period schedule receive 12 paychecks yearly.
Custom pay period
A custom pay period occurs for circumstances falling outside of any of the above types of pay periods. For example, an employer may use a custom pay period to process payroll when terminating an employee.
Local payroll laws may require employers to pay terminated employees immediately or within a specific timeframe after their last day of employment.
How to determine a pay period
In general, an employer determines their pay period based on what makes the most sense for the business while maintaining compliance with local payroll and tax laws.
Some factors to think about when determining a pay period include the following:
Consider your employees’ pay types
A pay period depends on your employees' pay types.
Employers with employees receiving hourly or commission-based pay often compensate them more frequently, such as weekly or bi-weekly. This shorter pay period aligns with the nature of the employee's work, as earnings fluctuate based on hours worked or sales generated.
Employees on a fixed salary typically have a longer pay period, receiving semi-monthly or monthly paychecks. This less frequent pay period is often suitable for salaried employees who have predictable earnings and are not subject to significant fluctuations in their income. It also simplifies payroll processing and reduces administrative burden.
Take employee preferences regarding pay periods into account as well. Some employees prefer more frequent paychecks, while others prefer longer pay periods for convenience or budgeting.
Assess your budget
Consider your finances and how different pay period types may impact the company budget.
While frequent pay periods provide employees with a steady stream of income, they can increase payroll costs for employers. Weekly or bi-weekly pay periods may require more frequent payroll processing, leading to higher processing fees or increased in-house labor costs.
Less frequent pay periods, such as monthly payroll, may improve cash flow by reducing the number of payroll cycles and spreading out payroll expenses. Running payroll less often may help you save money, time, and resources.
Factor in your business size and industry
Business size, number of employees, and industry are all factors to consider when choosing a pay period type.
Smaller businesses with fewer employees may have fewer resources to manage frequent pay periods, while larger businesses with more employees and resources may be able to manage frequent pay periods more easily.
Also, consider industry norms when determining a pay period, as certain industries have customary pay periods. Many retail businesses pay their employees weekly, while tech businesses may pay their employees bi-weekly. Understand the industry norms and consider pay periods that align with these standards to attract and retain talent.
Read also: How to Create a Global Compensation Strategy That Boosts Talent Retention
Research employment laws
Payroll and tax laws are complex and vary from country to country. Businesses that pay international employees must understand and comply with the requirements of each market. Failure to do so can result in penalties, fines, and legal headaches.
Employment laws often regulate payroll tax, how frequently employers must pay their employees, or require specific pay dates. Global employee benefits, including social security and health insurance, may also impact the pay period. Determine a pay period that allows you to comply with all applicable local requirements in your employee’s location.
Pay periods can also evolve with any growing business. You may start out paying your employees every week but decide to switch to a bi-weekly or monthly pay period for a more streamlined payroll process as your business grows. However, you must ensure compliance with all local laws and regulations when making any changes to your pay periods.
Learn more: Global Payroll Compliance: How to Avoid the Risks
Many companies outsource global payroll to a trusted payroll partner to simplify the process, reduce overhead, and mitigate noncompliance risks.
Disclaimer: The intent of this document is solely to provide general and preliminary information for private use. Do not rely on it as an alternative to legal, financial, taxation, or accountancy advice from an appropriately qualified professional. © 2023 Velocity Global, LLC. All rights reserved.
