Pay periods are a vital part of ensuring your pay process runs smoothly and accurately. While it might seem like a straightforward process at first glance, there’s more to managing pay periods than initially meets the eye.
As a business, you want to get a handle on your pay period cycles as soon as you onboard your first real employee. It’ll always be an ongoing component of the employee lifecycle, whether it’s weekly, bi-weekly, monthly, semi-monthly, or a mix.
Regardless if you’re in HR, manage a team, or are a one-person startup trying to scale, knowing the basics of pay periods can potentially save you a barrage of headaches in the future. We dive deep into the ins and outs of pay periods and everything you need to know below.
Why Do Pay Periods Matter?
Put simply, determining a pay period system that fits your business’ needs will ensure your employees are getting paid on time and that you’re keeping accurate pay records for tax, insurance, liability, and expense tracking reasons. Implementing a reliable pay period process will help you commit fewer payroll mistakes that decrease productivity, keep you organized, and protect you from committing costly financial mistakes in the long run.
What Does Success Look Like?
At its most technical level, pay period success looks like every single one of your employees is getting paid accurately and on time according to their specific pay cycle. As a by-product, your business is that much closer to keeping a happier work environment with employees who have significantly less to complain about.
If they do, management can at least be sure that pay issues, inaccuracies, or late payment complaints are not reasons for complaint or lower team performance. Additionally, a business that’s on top of treating pay periods with the accuracy and attention they deserve undoubtedly saves money in the long run.
This can be due to many reasons, including lower employee turnover rates, fewer tax filing mistakes that can come back to haunt you, fewer liability issues, and ultimately more productivity for both management, HR, and employees.
Successfully managing pay periods also helps the onboarding process go smoother. With software and automation features to help, you’re able to process a new employee and set them up for success in no time.
Case Study
Ever wondered what the most popular pay periods are? Through a study conducted by the U.S. Bureau of Labor Statistics, they were able to find that most companies, regardless of size, pay their employees bi-weekly.
Image via U.S. Bureau of Labor Statistics
Generally, companies that pay lower wages tend to pay their employees more frequently than others. On the other hand, companies paying the highest average earnings pay their employees on longer pay schedules like semi-monthly and monthly.
Overall, the U.S. Bureau of Labor Statistics found that there isn’t a pay period trend that seems to work better for businesses than others. However, there are common ways of paying employees within each industry. This is a good signifier that, as long as you stick to the pay periods you designate according to your own business’ needs instead of relying on trends, you’ll have a solid payroll foundation as you onboard new employees and manage current teams.
One Secret Weapon To Master Pay Periods
Unfortunately, leaning on paper records or even an Excel spreadsheet isn’t enough to manage everything that comes with managing pay periods as part of the larger payroll system. However, Gusto is the not-so-secret weapon that can help you get every aspect of your payment process under control with ease.
With Gusto, you get to pick from a wide selection of automated pay period options to choose from that include weekly, bi-weekly, semi-monthly, monthly, quarterly, and annual schedules. It also allows you to determine how you want to create your pay periods—whether by compensation type, by employee, by department, or if you want to onboard every employee to the same pay period.
Fortunately, pay periods don’t have to be a confusing process once you take advantage of Gusto’s automation features. Once you’ve configured every part of your payroll process to the needs of your business, you can sit back and let it work in the background as it pays your employees on time every time.
Taxes are a significant component of managing pay periods. Gusto goes as far as automating the tax filing process for you as it processes every pay period regardless of whether you manage remote, in-house employees, or a mix of both.
While we highly recommend Gusto, it may not be the right tool for your needs. We have researched and reviewed many other payroll services and software, and you can use our guide to find in-depth reviews on our top five picks for the best payroll services and find one that suits your needs.
5 Essential Strategies For Successfully Managing Pay Periods
Once you know what pay periods are and how they work, it’s only a matter of creating a system and successfully managing your pay periods for best results. Below we go through a few strategies worth considering and integrating into your process.
Determine A Viable Pay Schedule
You can’t designate pay periods unless you’ve determined which one you want. Here’s a breakdown of the specifics for each to help you determine a schedule that’ll work for you:
Weekly: On weekly pay periods, your employees get paid on a designated day of the week every week of the month. This amounts to 52 payrolls per year.
Bi-weekly: On a bi-weekly basis, your employees get paid every two weeks on designated days for a total of 26 payrolls per year.
Semi-monthly: If your employees get paid semi-monthly, they’ll receive payments on two designated days of the month, which adds up to 24 payrolls per year.
Monthly: Your employees will get paid every month on a specific date for a total of 12 payrolls per year.
Quarterly: Paying quarterly means your employees get paid once every quarter for a total of four payrolls per year.
Annual schedules: Paying annually means you’re paying an employee for work done during January 1st and December 31st and is only one payroll per year on a designated date.
Quarterly and annual pay schedules are not particularly common.
Once you choose the pay period or set of pay periods of your choice, the next step is to automate the payroll process. You can do this with an easy-to-use tool like Gusto once you sign up and log on to your user account. Once you complete this crucial step, you should be able to refine and modify your payroll workflow as you move forward and your business needs grow more complex.
Automate Your Pay Periods
Taking advantage of any and all automation is a reliable way to streamline and refine the pay period process within the general employee management ecosystem.
The best way to take advantage of what automation can do for you when keeping accurate pay periods and pay records is to use software to make the process easier. Onboard payroll software that offers you the payroll tools you need with built-in automation features.
Automating your pay periods can look like designating recurring payment dates, defining the number of pay periods per year, or setting up PTO compensation.
Once you do this, designate your payroll preferences for employees based on whether they work on an hourly or salaried basis, contractors, or seasonal employees. If you fail to automate pay periods, you’re likely to end up with a confusing mess of inaccurate payment records that might not be paid on time. This is especially true as your team of employees grows.
Create An Onboarding Checklist To Determine Employee Pay Period
As you onboard new employees, it’s always a good idea to have a predetermined process for a smooth transition. This includes creating a payroll onboarding process that’s accessible to all involved.
With Gusto, you can easily create an onboarding process with a checklist for both employees and managers. For instance, while your new employees’ checklist might include things like:
- Filling out personal information through an employee self-service portal
- Providing bank information for direct deposit
- Filling out, signing, and submitting the appropriate tax forms
Your internal onboarding checklist might include:
- Determining their compensation and pay period schedule
- Revising personal information for accuracy and completeness
- Make them aware of legal documents like non-disclosure agreements
- Checking references and running background checks
Creating a verifiable onboarding checklist on both ends will save you time, money, and the frustration of having to hunt down key employee information later. While you can do all of this manually, payroll software like Gusto can help streamline the onboarding process by organizing and storing files in the correct format, keeping accurate records, and automating the compensation and pay period process for you.
Pay Similar Employees The Same Way
A no-nonsense way to manage pay periods is to pay employees working the same jobs on the same pay periods. This, as you can probably already guess, helps you avoid conflict, common payroll mistakes and keep accurate pay records across a set of employees.
You can designate salaried employees to a specific pay period. You can also assign hourly employees to a pay period that works for them and also make sure to set a pay period for any contractors or freelancers you might work with. There is no hard and fast rule that determines which pay period should be designated to which employee. But keeping order with how you compensate each employee will help you keep track of pay records much easier.
Be Aware of The Difference Between Pay Period and Pay Date
Pay periods and pay dates, though they might sound similar, are two different things. It’s good practice to be aware of what each is.
A pay date is the designated date your employees or group of employees receive compensation for their work, whether through a paycheck, direct deposit, debit card, or another compensation method.
A pay period generally ends a couple of days before the pay date and refers to the period of time for which an employee is being compensated.
For example, if the employee receives their paycheck on Friday, June 18th, and the pay period was for hours worked the previous week, June 7-11.
Check Periodic Reports
Software like Gusto can create optimized reports that inform you of the most crucial information, including how your pay periods are calculated and working out with your payroll process.
For instance, you can easily download a payroll journal report under the Reports section of your Gusto dashboard once you specify a date range, a year, and which employees you’re interested in including.
Most Common Pay Period Mistakes
Though setting pay periods can be pretty straightforward, there are still common mistakes to avoid. Here’s a quick list of some of the most prominent ones:
- Not monitoring pay period automation: While you can absolutely set your pay periods on autopilot, it’s always good practice to monitor their performance, especially through irregular years like leap years, for example. This way, you avoid overpaying or underpaying employees.
- Paying lower wages too infrequently: Your employee wages will depend on many factors, such as skill level, employment level, or business size. But some industries lend themselves to more frequent pay periods than others, like restaurant or construction industries. Designating more frequent pay periods that are on pace with the practices in your industry can help you maintain productivity as you keep employees happy.
- Falling to provide employee self-service: Are you providing your employees the ability to easily access their pay period records for reference? Too many business owners don’t provide a feature like an employee self-service portal that makes managing tax and payroll information accessible. You can remedy this once you onboard a robust payroll system with employee-facing features.
Getting your pay period cycles right can be the determining factor between a payroll system that thrives (especially with the help of automation) or a payroll system that fails to deliver accurate payments on time. Hopefully, this guide helped you get well-rounded insight into what pay periods are and how you can best handle them for a successful payroll system you can rely on.