What is the payment term?

A pay period is a regularly scheduled time period that determines when employees will be paid. The pay period also includes the time period during which employees' work hours are tracked and recorded. Having a regular pay period establishes a set schedule so employees know when they will receive their next paycheck.

Pay periods are typically on a set schedule, with the most common types being weekly, bi-weekly, semi-monthly, and monthly. How employers divide their pay periods depends on what works best for them and their industry.

How many pay periods are there in a year?

The number of pay periods in a year depends on how frequently you structure them. Here are the most common pay periods, along with their advantages and disadvantages to consider.

Weekly payment period

Paying employees weekly provides 52 pay periods per year. Although it is uncommon for salaried employees to be paid on a weekly schedule, many trades workers and hourly employees prefer this type of pay period because it provides a steady cash flow and makes budgeting easier.

Benefit

• Making budgeting easier for employees
• More pay days for employees

damage

Payroll processing happens more frequently - resulting in more expenses. It is a time-consuming task for managers to review payroll every week.

Bi-weekly payment period

Bi-weekly pay periods occur every other week, which equates to 26 pay periods in a year. However, every decade or so, leap years result in an extra pay day for the year. Bi-weekly pay structures typically involve 80 work hours for full-time employees and it is common for both salaried and hourly employees to be paid on a bi-weekly schedule.

Benefit

• Employees get regular salary
• Additional time for managers to review pay period hours
• Less time and money required for payroll processing

damage

• Pay period reporting can be difficult when pay periods extend beyond the end of the month or year
• The extra salary received due to leap year may create complications in determining the employee's annual salary, taxes and employer's contribution.

Semi-Monthly Pay Period

Semi-monthly pay periods typically run from the 1st-15th of the month and from the 16th to the end of the month and equate to 24 pay periods in a year. The average pay period on a semi-monthly basis is about 86 hours. Semi-monthly pay periods are typically used for salaried employees.

Benefit

• The working period always falls in the same month
• Streamlines payroll and reduces costs
• No complications due to leap year

damage

• Calculating overtime can be tricky
• Salary payments are not always made on the same day of the week
• Work week and pay cycle cannot be the same

Monthly payment term

Monthly pay periods are less costly for payroll, but make it harder to budget for employees because of cash flow. Employees who are paid monthly receive 12 paychecks per year. This method is almost exclusively used for salaried employees, but it is also common among freelancers and consultants who track hours and create their invoices monthly.

Benefit

• Convenient for freelance and contract workers
• Simplified Payroll and Accounting
• Saves management time and money

damage

• Not convenient for hourly workers
• It may be necessary to adjust payment dates due to bank holidays
• Salary payments are not always made on the same working day

What is the most common pay period for employees?

Although employers  prefer to process payroll less frequently to save on payroll service  costs, employees prefer weekly or bi-weekly pay. Thankfully for employees, weekly pay is the most common way to structure a pay period, followed by a bi-weekly schedule.

What type of payment term should I use?

The type of pay period really depends on what period works best for you. If you have been in business for a while, you probably have an idea of ​​which payroll schedule you prefer. However, if you are new to the business world, or in a new industry, you should consult your CPA or accountant about which payroll schedule will work best for your employees.

It’s important to understand what a pay period is and what pay period schedules you can use to keep your business organized and pay your employees on time.