How to Change Pay Periods

How often you pay your employees can be just as important as how much. Pay frequency is a sensitive issue for both employees and management. All companies need to find a pay frequency that works for them, which minimizes expense and abides by state law. Employees will rely on the payroll schedule you choose and build their monthly budget around it, so striking the right balance is key.

Changing your pay periods is not a decision to be taken lightly. If you’re sure it’s necessary, the least you can do is be fully informed about all the implications.

How Often Should You Pay Employees?

The term “pay period” refers to the frequency with which an employer chooses to pay employees and contractors. Common pay periods include weekly, bi-weekly, semi-monthly, and monthly, with the most common frequencies being bi-weekly and semi-monthly. Preferred pay periods vary from business to business, but are often mandated by state law. Currently, six states (Alabama, Montana, Nebraska, North Carolina, Pennsylvania, and South Carolina) do not mandate specific pay schedule requirements. Whatever your state requires, it is still important to weigh the advantages and disadvantages of each pay frequency option.

Common Pay Period Frequencies

Let’s break down the most common pay frequencies.

Weekly Pay Period

Payroll processed weekly results in 52 pay periods each year, and since most payroll providers charge per cycle, this is probably not the preferred choice for most companies. Employers also spend proportionally more time working on payroll in this scenario. This pay frequency is,however, one of the most attractive for employees, especially hourly employees. Many employees like weekly paychecks because it best meets their cash flow needs.

Bi-Weekly Pay Period

In this schedule, payroll processing occurs every two weeks, resulting in 26 pay periods per calendar year. Paychecks are calculated based on the last two weeks of work, with a full two weeks being 80 hours. Taxes are computed on a bi-weekly basis based on two weeks of pay. This frequency is preferred for companies with both salaried and hourly employees because it is easier to process both groups at the same time with this schedule.

Semi-Monthly/Bi-Monthly Pay Period

This schedule typically processes payroll on the 1st and 15th of the month or the 15th and the last day of the month. Many companies choose this option because there are only 24 pay cycles rather than the 26 cycles on the bi-weekly schedule, so it can be less expensive for companies using a payroll provider who charges per payroll cycle. Check amounts in this schedule may vary because payroll may be processed on different days of the week, and pay periods have variable lengths because months have varying numbers of days. This pay frequency is typically used for salaried employees who receive a set amount of pay for each pay period. This frequency is not preferred for hourly employees because amounts are not fixed. To be considerate, many employers give employees a payroll calendar to help them keep track of their pay schedule.

Monthly Pay Period

Monthly pay cycles are the least expensive to administer; however, most employees don’t like this schedule. For many, it can be difficult or impossible to budget a full month ahead of time. So, it is relatively rare to see this pay frequency, especially for hourly employees.