What is a Pay Period?: How They Work and Why They Matter

A seemingly simple but impactful part of running your business is choosing a pay period schedule that aligns with employee preferences and applicable labor laws. Pay periods can vary in length and frequency, but they ultimately affect your business’ cash flow cycles and how well your employees can prepare and budget on a daily, weekly, monthly, and yearly basis.

Choosing the right pay period structure for your business can make payroll processing easier and improve employee satisfaction and retention in the process. In this article, we’ll explore the payroll cycles that employers can choose from and how to determine which pay period is best for your business based on its size, budget, pay structure, and other important factors.

What is a Pay Period?

A pay period is a set time frame that is used to determine hours worked, wages earned, and when an employee will receive a paycheck for their work. Employees receive their checks a set number of days after the conclusion of a pay period and the number of permissible days is determined by state law. As a general rule, HR experts recommend a period of five days between the end of the pay period and the official pay date per cycle.

The most common fixed and recurring pay periods are weekly, bi-weekly, semi-monthly, and monthly, though we will discuss other growing options like daily pay and custom pay periods. A pay period is distinct from a workweek, which employers must adopt to remain compliant with Fair Labor Standards Act (FLSA) standards that protect against unpaid overtime and other potential labor violations.

Types of Pay Periods 

As we discussed, state laws can directly impact pay frequency and pay date requirements for different businesses based on industry, employee classification, jurisdiction and other factors. Even so, a majority of employers still enjoy flexibility in their choice of pay period, which gives them more opportunity to discuss preferences with their workforce to determine an ideal solution. Employers should also consider which pay period helps them keep their business organized and streamlined for tax withholdings, overtime calculations, and the proportion of salary or hourly employees in their workforce. Regardless of which pay period an employer chooses, they must maintain that schedule for the full calendar year.

• Weekly Pay Period – A weekly pay period is the second most popular choice among employers, with nearly 32% of organizations choosing this frequency. It is particularly popular in industries like construction, transportation, utilities, trade, and manufacturing, where project-based or seasonal work is common and business owners must remain especially mindful of FLSA overtime laws. Employees are paid once a week on a designated day, usually a Monday or Friday. The downside of a weekly pay period is that it can make tip importing, timecard management, and other manual tasks more time-consuming and difficult without guidance and tools offered by a qualified payroll provider.
  
  
• Bi-Weekly Pay Period – A bi-weekly pay period is the most popular choice among employers, accounting for nearly 46% of organizations in the private sector. With this approach, employees are paid every two weeks on a designated day. This is an especially popular approach among mid-sized and large businesses, offering easy alignment with the workweek and simplified overtime calculations. The notable downside is that it can make payroll more complicated in months that require three rather than two pay periods. With advanced planning and support from a payroll provider, this approach can still be easily implemented.
  
  
• Semi-Monthly Pay Period – Using a semi-monthly pay period, employees are paid with the greatest consistency and predictability: typically on the 1^st and 15^th of each month, or on the 15^th and the last date of the month. This can be a good option for paying salaried employees, generating two equal (or close to equal) amounts and simplifying payroll for businesses, as well. A semi-monthly pay period can be more difficult for businesses that employ non-exempt employees, creating overlap between pay periods and workweeks, and payroll management challenges as a result. This is the third most popular pay period choice among employers.
  
  
• Monthly Pay Period – Monthly pay periods are declining in popularity each year, with under 4.5% of employers continuing to use this approach. Although this frequency can make payroll processing very simple and potentially work with small businesses with ten or less employees, it remains a challenging option for businesses with non-exempt or hourly employees. In some states, monthly and semi-monthly pay are strictly disallowed, especially among hourly and non-exempt employees.
  
  
• Other Pay Periods – Among other options, daily pay periods are growing in popularity, especially with the proliferation (and growing reliability) of instant pay apps that enable employees to withdraw from wages earned prior to their established pay date in exchange for a small transaction fee. This is an increasingly popular choice, especially for temporary workers or other workers who welcome early access to their wages to pay for emergencies or other daily expenses. Custom pay periods and fixed-length pay periods should also be considered in the event that your company needs to navigate special circumstances or provide payment to employees with unusual or fragmented schedules (in industries like education, as just one example).

How Pay Periods Are Determined

Each organization should carefully review its own local and state labor laws, its proportion of hourly, salaried, or non-exempt employees, and the preferences of employees before choosing a pay period that best addresses all of their concerns. It’s important to remember that many organizations pay hourly employees and salaried employees using different pay periods. This approach is legal and acceptable as long as the pay period is applied consistently across the calendar year and based on employee classification. Almost all organizations (with the exception of those with less than two employees and less than $500,000 annual business revenue) must abide by FLSA regulations and remain compliant with laws impacting overtime and acceptable pay dates following pay periods.  

How Many Pay Periods Are in 2023?

Many employers wonder how many pay periods (and paychecks) are required each year based on their chosen pay schedule. Our related resource discusses this topic in greater depth, but here’s a brief breakdown of the most common pay period requirements for 2023:

• Weekly – 52 payroll periods/paychecks in 2023
• Bi-Weekly – 26 payroll periods /paychecks in 2023
• Semi-Monthly – 24 payroll periods/paychecks in 2023
• Monthly – 12 payroll periods/paychecks in 2023

Common Pay Period Mistakes to Avoid

In order to avoid fines for noncompliance, employee lawsuits, reputational damage, and a decline in employee retention due to payroll inefficiencies, it’s essential for employers to choose the right pay period and payroll provider to support payroll processing. Here are some common issues that occur due to mismanaged pay periods:

• Overtime miscalculations or missing payments: A poorly implemented pay period strategy can lead to issues with unpaid overtime for your employees, or entirely missed payments. This is the fastest way to lessen employee retention, but it also can lead to lawsuits or recovered wage settlements that cost your business.
• Inaccurate Recordkeeping: In addition to local and state requirements, the FLSA mandates that employers keep pay records for up to three years. Organized recordkeeping not only aligns with FLSA standards, but simplifies employee classification, which is especially important among organizations with multiple employee types, contractors, and pay periods.
• Inaccurate or Missing Employment Tax Deposits – Each year, businesses must decide whether they will deposit FICA taxes using a semi-weekly or monthly deposit schedule. If deposits are missed or inaccurate, this can lead to late penalties and other tax issues surrounding the management of regular and supplemental pay.

Manage Pay Periods with Payroll Software

Gauging the pay preferences of your workforce while ensuring legal compliance and streamlined payroll processing is a tall order without the support of a qualified payroll provider. CAVU HCM can help you simplify pay period management and payroll by offering a comprehensive payroll solution that includes leading-edge software and access to HR and HCM experts with years of experience. We’re committed to helping you create and implement a payroll strategy that works for the specific needs of your business and employees.

Learn more about our innovative workforce management solutions and take the first step towards stress-free payroll today.