Calculate Pay Periods: A One-Stop Guide For Employers

Understanding pay periods is crucial. Our guide helps employers to calculate weekly, biweekly, semi-monthly, and monthly pay periods to keep your payroll accurate and employees satisfied. Try it today!

Knowing how to calculate pay periods and report on your employees' wages earned can be tricky. In this blog, we take you through the process from start to finish.

Firstly, we explain the difference between pay periods and pay dates, before moving onto the different pay periods available to you, and how many paychecks they lead to each year. Then we explain how to calculate pay periods and determine employees' final wages.

The difference between a pay period vs pay date

First, it's important to decipher these two payroll terms: pay period vs pay date. Pay periods are the beginning and ending dates that represent the period in which employees worked or earned wages. A pay date, also known as pay day, is the date on which employees are paid and checks are distributed. The paycheck date is used to determine when payroll liabilities are due, based on deposit schedules.

For a more detailed example, please refer to the calendar above. Let's say your biweekly pay period is December 20th, 2024, to January 3, 2025. If your pay date is in January 2025, the wages should be reported in 2025. If your pay date is in December 2024, your wages should be reported in 2024.

Questions often arise at the end of the calendar year, or at the beginning of a new year, about the year in which the wages should be reported. IRS rules are based on pay date, not pay period, so any wages paid in January will be included in the new calendar year wages for tax deposit and reporting purposes, including annual W-2 forms.

It is important to plan accordingly for last-minute payments you may be paying out in December (for example, if your employees want to work overtime for extra holiday cash). It can take up to 72 hours to process and guarantee direct deposits. Your myPay Solutions payroll specialist can help if you have any further questions.

Types of pay periods

There are a few different pay periods at which employees' wages are paid, and they can vary depending on the company's policies and local regulations. Here are the most common ones:

Weekly pay period

With a weekly pay period, employees' wages are paid once a week on a designated day (Monday or Friday is most common). Although this pay frequency is sometimes preferred by employees and contractors, the associated time card management, tip importing, and other manual tasks can be more tedious without the support of a qualified payroll provider.

A weekly pay period requires employers to process 52 paychecks per year: the highest volume and frequency of the options we'll explore.

Bi-weekly pay period

A biweekly pay period means employees receive a paycheck every two weeks, usually on the same day of the week. This results in the employer processing 26 paychecks per year.

Employers should bear in mind that several months per year will require three paychecks due to pay date scheduling. Among full-time employees, paychecks will reflect 80 hours of completed work.

In most years, a biweekly payroll schedule only requires 26 paychecks each year – occasionally 27 based on the calendar year and the employer's designated pay day.

Semimonthly pay period

With semimonthly pay periods, employees are paid twice a month, often on the 15th and the last day of the month. This results in the employer processing 24 paychecks per year.

Often confused with biweekly payroll, semi-monthly payroll uses predetermined dates to pay employees twice a month. An employer could choose, for instance, the 10th and 25th of every month to process payroll, which eliminates the possibility of an extra third paycheck for certain months of the year. Using this payroll frequency, employees usually see higher paychecks, though the actual annual amounts remain the same as with a biweekly payroll schedule.

Of course, employers will need to be mindful of weekends and holidays and, when necessary, adjust certain pay days to the business day preceding or following the holiday/weekend. Semimonthly pay includes 24 pay periods annually.

Monthly pay period

Employees receive one paycheck per month with a monthly pay period, usually on the same date each month. This results in the employer processing 12 paychecks per year.

As with a semi-monthly pay period, a monthly pay period pre-selects a designated date each month to pay employees (the 15th of each month, for example).

This version of payroll requires only 12 pay runs per year to be processed by the employer, but it can be a challenge for non-employees and hourly employees who lack PTO or other benefits.

As a result, monthly payroll can sometimes be detrimental to employee satisfaction and retention.

Custom pay period

A custom pay period is chosen according to specific circumstances, instead of being fixed. For example, for terminated employees or for when an employee resigns.

A custom pay period can also be used for employees who work on a project basis, seasonal employees, or employees with irregular hours. It can help employers create customized pay plans for these kinds of employees on a case-by-case basis.

How do you calculate pay periods?

Regardless of which pay period you choose, these simple steps tell you how to determine wages per pay period:

1. Identify the start and end date of the pay period
2. Count the number of days/hours worked during that period
3. Multiply the number of days/hours worked by the employee’s daily rate/hourly wage to calculate your employee's gross pay
4. Subtract any pre-tax deductions, such as employee benefit premiums and retirement contributions, from the gross pay
5. Calculate federal, state, and local taxes, then subtract them from the remaining net pay to get your employee's final wage

How to choose the right pay period for your business

Federal law requires that employers sustain the same pay period frequency throughout the entire calendar year. Employers must also consider state laws regarding payroll frequency and, of course, employee preferences regarding pay frequency.

According to data from the Bureau of Labor Statistics, 36.5% of employees are paid using a biweekly payroll frequency, while 32.4% are paid using weekly payroll.

A common pay schedule is biweekly, as it offers greater predictability for employer and employees, but requires occasional extra hours of payroll processing for several months a year. It can make overtime processing and payment easier for full-time employees because each pay period represents 80 hours and is easier to quickly calculate. Similarly, pay for hourly employees is simply 80 hours multiplied by hourly pay rate for each pay period. Biweekly payroll also requires less payday adjustments due to weekends or holidays when compared to semi-monthly payroll.

Semi-monthly pay frequency provides consistency regarding date(s) of pay, but is less predictable regarding the day of week employees receive pay. It can also be more time-consuming when processing payroll for non-employees or hourly workers, where certain paychecks calculate pay for more or less work days each pay period. Employers must also consider the inconvenience and time spent adjusting pay days as needed for weekends or holidays.

As described above, there are various benefits and drawbacks to each type of pay period. The option your business chooses depends on a number of factors, including:

Employment tax and labor laws

When choosing a pay period, employers should consider laws like the Fair Labor Standards Act (FLSA), which requires timely payment of wages but doesn't specify pay frequencies. State labor laws may have stricter rules about how often employees must be paid. Payroll taxes also play a role, as frequent pay periods mean additional tax calculations and filings, adding to administrative work.

Other factors include ensuring overtime pay aligns with the workweek and meeting any pay schedules required by employee contracts or union agreements. While not a legal issue, employers should also consider how shorter pay intervals might impact cash flow. Consulting HR or legal professionals can help ensure compliance and sound decision-making.

Workweeks

If your employees don’t follow a traditional Monday-to-Friday schedule, a standard pay period might not fit their needs. Customized payroll options can align pay dates with unique work cycles, like rotating shifts or non-traditional hours. This reduces payroll confusion and ensures employees are paid accurately and on time.

Payroll costs

Frequent pay periods, like weekly, can increase administrative costs due to more payroll runs. Small businesses may save costs with bi-weekly, semi-monthly, or monthly schedules. Assess your budget by calculating the payroll cost of each option, including software fees, transaction charges, and staff hours spent processing payroll.

Employee overtime

Overtime must be calculated weekly, regardless of your payroll schedule. Mismatched pay periods can create extra steps to ensure compliance. For instance, bi-weekly cycles might need separate overtime tracking for each week. Choose a schedule that simplifies overtime calculations and ensures fair, timely pay.

Employee pay needs

Different employees have different pay preferences. Some may prefer more frequent paychecks for managing expenses, while others are fine with less frequent schedules. Consulting your team about their needs can guide you toward a payroll cycle that supports morale while balancing business efficiency.

Tax withholdings

Pay periods influence how tax withholdings are spread out. Monthly schedules deduct more at once, while frequent pay periods offer smaller, steady deductions. Consider how different schedules impact employees' financial planning, and consult a payroll expert to find a good balance.

Payroll reporting

Aligning pay periods with your reporting schedule can simplify both processes. For example, bi-weekly payroll might pair neatly with monthly or quarterly financial reviews. This reduces redundancy, saves time, and streamlines your financial tracking efforts.

By considering these factors, you can choose a payroll schedule that balances employee satisfaction with operational efficiency.

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