Pay Periods Explained
All businesses that pay their employees much choose a pay period. But what pay schedule is best? State laws require a minimum pay period – at least once a month – but there’s also semi-monthly, biweekly and weekly methods to consider.
The pros and cons to each. Here’s are the details:
They run payroll once a month, making it the cheapest and quickest method but for employees, it’s the least popular method. It causes a financial strain, and is especially difficult for the hourly employees.
While semi-monthly and bi-weekly on the surface appear to be the same, they're not. Semi-monthly schedules equal 24 pay periods per year (the 1st and 15th or the 15th and 30th/31st), no matter how the months stack up.
Accountants in companies run monthly reports, so semi-monthly is inherently simpler. The last paycheck of each month usually ends on the last day of the month – unless that day is a weekend. Deductions are easier on this system, too. But for companies with a larger amount of hourly employees, the difficulty occurs when overtime appears, as calculations are more complicated when based on previous, static pay periods.
The difference with this schedule versus from semi-monthly is the days an employer pays their workers is not established – minus the fact payday that most employees prefer to get paid on Friday. By the end of the year, there will be at least 26 pay periods with some years having 27. Some months will have three paychecks, but that can cause confusion for employees.
Bi-weekly methods are less consistent, which can complicate the accounting process. Hourly employees who collect overtime prefer bi-weekly routines.
The least prevalent option – outside of trade industries – is weekly payroll. The main reason? The cost. Nevertheless, employees do like a constant paycheck and weekly payouts equate to 52 a year. They can manage their personal finances better and if they earn overtime, it's easier to see and understand.
Note: The easiest method for accounting. While employee's preference is important, you also want to keep your bookkeeper's patience in mind. Bi-weekly pay schedules can be complicated if there are 27 pay periods in a year (as opposed to the normal 26). This occurs depending on which day the year starts with, and how the days of the week fall. Semi-monthly pay schedules can be tricky for hourly employees, because there are 86.67 hours in a typical pay period. This makes overtime pay complicated, and could increase questions from your employees.