Different Types of Pay Periods Explained

All businesses must pay their employees. But what pay schedule is best? That depends on an assortment of factors. State laws require a minimum pay period – at least once a month – but there’s also semi-monthly, biweekly and weekly methods to consider.

Like everything, there are pros and cons to each. Here’s a brief breakdown of all four:

Monthly

For any payroll department, this schedule is appealing. They run payroll once a month, making it the cheapest and quickest method that doesn’t leave much room for errors. However, for employees,it’s the least popular method. It causes a financial strain, and is especially difficult for hourly employees. While it’s easy to remember how many times they’ll be paid a year, employees generally prefer more paychecks.

Semi Monthly

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. On a general employee level, semi-monthly schedules help workers plan for anything fiscally. But for companies with a large amount of hourly employees, a little backlash occurs when overtime comes into play, as calculations are more difficult when based on previous, stagnant pay periods.

Biweekly

What sets this schedule apart from semi-monthly is the days an employer pays their workers is not established – minus the fact payday is typically Friday. By the end of the year, there will be at least 26 pay periods with some years having 27. That’s right – some months will have three paychecks, but that can actually cause confusion for employees.

As noted, bi-weekly methods are less consistent, which can complicate the accounting process. Alternatively, the cost of processing isn’t typically too high and doesn’t take as much time as payroll departments churning out weekly payroll. Hourly employees who collect overtime prefer bi-weekly routines, and for all, there’s the comfortable feeling a paycheck is coming at least every two weeks.

Weekly

The least prevalent option – outside of trade industries – is weekly payroll. The main reason? The cost. Most payroll vendors charge each time payroll is computed. If a business has multiple employees on this schedule, the rates soar. It also puts pressure on payroll administers, and pulls them away from other tasks. 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.

No matter what route you pick, be sure to be confident in your selection. For extra guidance – or if you’re an employee curious about your next paycheck – don’t forget you can always use our calculators.