Pay periods refer to a recurring schedule that a new business creates in order to pay its employees, and are typically determined when a company sets up payroll. The frequency of pay periods varies from company to company, but they commonly occur on a weekly, bi-weekly, semi-monthly, or monthly basis.
How Pay Periods Work:
1. Weekly pay periods.
Employees who are paid weekly receive 52 paychecks per year. When setting up weekly payroll, payment should occur on the same day every week. These employees are sometimes paid in arrears, which means that their work time for the week is calculated and they are then paid the following week. Hourly employees are typically paid weekly.
2. Bi-weekly pay periods (every second week).
Employees who are paid bi-weekly receive 26 paychecks per year. Both hourly and salaried employees can be paid bi-weekly. Every 11 or 12 years, an additional week is added to the pay period resulting in a 27th paycheck due to the extra day in a Leap Year.
3. Semi-monthly pay periods (twice a month).
Employees who are paid semi-monthly receive 24 paychecks per year. When setting up payroll, two payment dates must be specified (usually the 1st and 15th of every month). Semi-monthly pay periods are also known as bi-monthly pay periods.
4. Monthly pay periods.
Monthly employees receive 12 paychecks per year. Salaried employees are typically paid monthly, either on the first or last day of the month.
5. Other pay periods.
Daily: Employees are paid every day.
Fixed Length: Pay periods are not specified by a calendar date, but rather by a certain number of days for each pay period.
Custom: Custom pay periods allow you to specify your own start and ending date for the period, and can be as long or as short as you need.
According to the Fair Labor Standards Act (FLSA), non-exempt employees must be paid time and a half for hours worked over 40 in a work week, i.e., 1.5 times the employer's regular hourly rate. Non-exempt employees refer to salaried or hourly employees who earn less than $455.00 per week.
Pay Periods FAQs:
How do I decide which pay period to choose?
This depends on the type of business you operate, whether you have salaried or hourly employees, and your state requirements.
How many pay periods are there in a semi-monthly payroll?
There are two pay periods in a semi-monthly payroll.
How do bi-weekly pay periods work?
Bi-weekly pay periods comprise two-week or 14-day pay cycles (typically 80 work hours). A bi-weekly pay period will always start and end on the same day during the pay period, e.g., period starts on Monday and ends on Sunday the following week. There are usually 26 bi-weekly pay periods in a year.
Are there any employment laws that dictate pay periods?
Each state has its own requirements when it comes to pay periods. To find out what your state requirements are, go to www.dol.gov.
Are federal pay periods bi-weekly or monthly?
Federal government pay periods are bi-weekly, meaning that federal employees are paid once every two weeks.