What is a pay period?
A pay period is a recurring schedule businesses use to calculate and distribute employee wages. It determines how often employees get paid and impacts everything from payroll taxes to employee budgeting.
Choosing the correct pay period for your business is important—it impacts cash flow, administrative workload, and compliance with labor laws. Pay periods also affect the morale of your team, and can assist with employee retention.
Common types of pay periods
Businesses typically use one of these standard pay periods:
- Weekly: Employees are paid once a week, usually on the same day (e.g., every Friday). This results in 52 paychecks per year.
- Biweekly: Employees are paid every two weeks on a fixed schedule (e.g., every other Friday), resulting in 26 paychecks per year.
- Semimonthly: Employees are paid twice a month, often on the 1st and 15th or 15th and last day of the month, totaling 24 paychecks per year.
- Monthly: Employees receive 12 paychecks per year, typically on the same date each month.
Each option has advantages depending on your business size, industry, and cash flow needs.
How to choose the best pay schedule for your business
When deciding on a pay period, consider:
- State laws: Some states regulate how often employees must be paid.
- Payroll costs: Processing payroll more frequently can increase administrative costs.
- Employee preferences: Some employees may prefer more frequent paychecks to manage their expenses better.
- Industry standards: Some industries, like construction, use weekly pay, while office jobs often use biweekly or semimonthly schedules.
With all these things to keep in mind, it’s easy to understand why many business owners opt for payroll software to help automate payroll processing and ensure compliance.
How pay periods affect payroll taxes and overtime
Your payroll schedule determines how you calculate overtime pay and tax withholdings:
- Overtime tracking: Non-exempt employees who work more than 40 hours in a workweek must be paid overtime (time-and-a-half). If you use a biweekly or semimonthly schedule, tracking overtime correctly is crucial.
- Tax withholdings: With each paycheck, employers must withhold federal, state, and local taxes based on the pay period’s earnings.
- Benefit deductions: Some benefits, like health insurance premiums, may be deducted monthly, meaning employees on biweekly pay schedules may see smaller deductions each check.
Calculating overtime for different pay periods can require special attention to detail. For example, calculating overtime for biweekly payroll or factoring in holidays may be more complex than if you were to use weekly payroll. This is why using a payroll app can help you pay your team accurately and on time.
How to avoid payroll mistakes
Managing payroll comes with challenges, and choosing the wrong pay period can cause issues. Some common mistakes include:
- Miscalculating overtime: If employees work over 40 hours in a week but are paid biweekly, overtime must be tracked correctly to comply with labor laws.
- Not considering payroll processing time: If you pay employees weekly, you need to ensure enough time to process payroll and fund direct deposits.
- Inconsistent payroll schedules: Employees rely on a predictable schedule, so missing paydays or changing pay periods unexpectedly can impact morale.
You can also automate payroll processing to avoid these mistakes, since pay periods can be scheduled and run automatically, and payroll software can help track whether pay is compliant with regulations around overtime, holiday pay, and tips.
How Homebase simplifies payroll and pay period management
Manually tracking payroll and pay periods can take up valuable time, but Homebase payroll simplifies the entire process. With Homebase, you can:
- Set up automatic payroll schedules that fit your business needs.
- Ensure timely and accurate tax withholdings and filings.
- Track employee hours, overtime, and benefit deductions effortlessly.
- Pay employees via direct deposit, making payday smooth and stress-free.
Sign up for Homebase today to take the hassle out of payroll and pay period management so you can focus on growing your business.