A Closer Look: Types of Pay Periods And Which One is Best for Your Business

How often you pay your employees is about much more than workplace morale. The type of pay period you select can impact your cash flow and your administrative workload. Choosing the right one can streamline your operations and place you in a position to succeed.

Because there are so many factors to consider, a partner like CAP3:Reveal can provide the information to help determine which type of pay period would be best for your business.

At CAP3:Reveal, we provide a full suite of accounting services, including extensive expertise in payroll management. You can also leverage our fractional CFO expertise so you can have the accurate, timely data needed to guide strategic decisions that drive growth. We see ourselves as much more than a vendor–we want to be your partner in success. Learn more about our services by scheduling a consultation today.

In this article, we’ll break down the most common types of pay periods, highlighting the pros and cons of each. We’ll also look at which pay schedules align best with specific industries.

What Are the Different Types of Pay Periods?

Following are the different types of pay schedules:

Weekly 

Employees are paid once a week. In the U.S., an estimated one-third of workplaces have a weekly pay period. You’re more likely to find weekly pay periods:

• In companies with fewer than 50 employees
• In the following industries:
  • Construction
  • Manufacturing
  • Transportation
  • Utilities

Bi-Weekly

Employees are paid every other week. This is the most popular pay period in the U.S., with around 42% of private businesses implementing a bi-weekly pay period. As businesses grow, they tend to gravitate toward establishing a bi-weekly system. In fact, 70% of businesses with more than 1,000 employees pay in this manner.

Semi-monthly

Employees are paid twice a month. This is the third most common type of pay period for businesses. You’re more likely to see semi-monthly pay periods in industries such as:

• Professional Services
• Distribution
• Information Systems
• Finance

Monthly

Employees are paid once a month. This is the least common type of pay schedule, utilized by only 5.4% of businesses. Typically, monthly pay periods are favored by companies that have fewer than nine employees.

What Are the Pros and Cons of Each Type of Pay Period?

When we work with clients, we help ensure they understand the advantages and disadvantages of each pay schedule. We also provide detailed data on how each pay period can affect factors such as your cash flow. 

We’ll briefly review some of these pros and cons below.

Advantages and Disadvantages of Weekly Pay Periods

Pros: 

• It can be easier to comply with overtime laws
• Employees may prefer it
• Can also be an attractive option for seasonal employees

Cons:

• It is often more time-consuming
• It is often more expensive
• Must consider the frequency of:
  • Ensuring proper tax withholdings
  • Benefits administration
  • Paid time off
  • Holidays

Advantages and Disadvantages of Bi-Weekly Pay Periods

Pros:

• Employees appreciate the consistency of being paid every other week.
• Reduces the amount of times payroll must be processed, which often leads to reduced cost when compared to weekly.

Cons:

• Harder to compare month-over-month performance since some months will have two periods and others will have three. 

Advantages and Disadvantages of Semi-Monthly Pay Periods

Pros:

• More consistent and can easily adapt
• Flexibility in overall budgeting
• Easier administration of benefits and withholding employment taxes

Cons:

• Can be more difficult for FLSA compliance
• Some states may prohibit paying hourly employees on a bi-monthly basis

Advantages and Disadvantages of Monthly Pay Periods

Pros:

• Easiest to administer in regards of tax withholdings and benefits
• Works well for salaried employees
• More cash flow flexibility
• Simplifies budgeting

Cons:

• Can be complicated to implement with hourly employees (and may not be allowed for hourly employees in certain states)

How Do I Choose the Best Pay Period for My Company?

This can be a complicated question, and to find the right answer, you have to have a clear, accurate representation of your company’s complete financial health. That’s why, at CAP3:Reveal, we believe clarity produces reliable decisions. 

We can help you evaluate how these pay periods can affect every aspect of your operation, from employee retention to tax implications. 

Following are some important factors to consider:

• Cash flow: Be sure to select a pay period that aligns with your organization’s cash flow. If you’re not clear about the implications involved, please reach out to us. We’ll be happy to work out the details and provide clarity to pave the way for informed decisions. 
• Employee preferences: What does your team prefer? The right answer could go a long way toward employee retention.
• Payroll processing: How much time do you need to process your payroll? Do you have the resources for it?  You may find that partnering with a company like CAP3:Reveal can streamline your operations. Let us handle the payroll processing so you can allocate your resources to other areas where they may be needed. 
• Laws and regulations: Different states have different regulations regarding pay periods. It’s vital to be informed in order to comply with relevant requirements. 

Are There Legal Implications to Be Aware of When Choosing a Pay Period?

Yes, and you should be keenly aware of the state and federal labor laws. Many of these center around pay frequency, and this can vary from state to state. Most employers are required to pay workers all wages earned at least monthly, according to the U.S. Department of Labor.

As we mentioned earlier, some states may have requirements about how often you can pay hourly workers or exempt employees. You can get a general idea of some of these regulations from the U.S. Department of Labor’s informational table.

Because laws are all subject to change, it’s vital to be informed of the latest updates. 

CAP3:Reveal Has a Payroll Team That Is Invested in Your Growth

Payroll is a major part of your business, and in order for your company to make better financial decisions, you need clarity from accurate data. 

At CAP3:Reveal, we form a true partnership, helping you manage payroll with confidence so you can plan for what’s next. But our support for your business extends beyond the paycheck. With accounting and fractional CFO services, let us handle the extensive details so you can concentrate on leading. 

Contact us today to schedule a consultation.