December 11, 2024

What Are Pay Periods? Types, How They Work & Choose One

02 - Pay Periods Definition, Types & How They Work@1.5x

Payday is always a great day — whether it happens weekly, biweekly, or monthly (though we prefer every day).

How often employers pay their employees is called a pay ng speedperiod. For employers, it’s also dictated by factors like state regulations and industry. But for employees, pay frequency impacts your ability to pay bills on time or stick to your budget.

Let’s explore pay period types, how they work, and which are best.

What is a pay period and how does it work?

A pay period is the amount of time used to determine when employees get their paychecks. Every pay period has a start and end date that affects when employees start and stop earning wages. And when one pay period ends, the next one begins, meaning there’s a predictable payment schedule. Standard pay periods are biweekly, semi-monthly, and monthly.

From same-day pay to monthly wages, companies use different pay periods depending on their industry, employment type, and state rules. For example, salaried and hourly workers might have different pay periods because hourly workers’ wages might fluctuate more.

Pay periods vs pay dates

While a pay period represents how many days of work you’ll be paid for, the pay date is when a company actually distributes paychecks or deposits wages into its employees’ bank accounts. Also known as a payroll run or running payroll, the pay date processing typically takes a few days and starts early to make sure the money comes on time.

But that depends on what payroll software an employer uses, state requirements, and a company’s size. A company with few employees may have faster payroll processing than one with many types of employees and a complicated payroll calendar.

Types of pay periods

As an employee, knowing how each pay schedule differs is critical for building a budget and managing your finances. Let’s explore the most common pay periods.

1. Weekly pay period

Some businesses pay their employees weekly, which means employees receive their income the same day each week, like every Friday. This schedule is common among hospitality staff, contract workers, and trade industries like construction and manufacturing. These job types commonly have irregular hours, so it makes sense to pay workers more often.

Many employees like getting weekly paychecks because they have more regular access to their money. By providing steady cash flow, weekly pay periods allow you to predict your income consistently, making budgeting easier.

But most businesses avoid the weekly system because payroll vendors typically charge a company every time it runs payroll. Most companies avoid shorter periods to reduce costs.

2. Biweekly pay period

On a biweekly pay schedule, you get your paycheck every two weeks, meaning there are 26 paydays per year. Many businesses prefer biweekly pay periods because they save money processing payroll and can calculate overtime more efficiently, as each full-time employee’s paycheck will contain approximately 80 work hours.

While less regular than weekly paychecks, biweekly payroll results in larger paychecks. This creates a solid balance between payment frequency and amount, allowing employees to budget effectively. It also makes it easier to splurge on larger purchases between paychecks.

Managing a biweekly payroll schedule is usually easy, except for the few months each year with three paydays instead of two. That’s because some employee deductions become harder to calculate, either because they’re a flat rate or scheduled to alternate between paychecks. These charges might need to be manually reversed or removed, which can create confusion or additional costs for employers.

3. Semi-monthly pay period

If you have a semi-monthly pay period, you receive your income on the same days each month — usually in the middle and at the end (like the 15th and the 30th or 31st). This schedule means you have 24 paydays per year.

Semi-monthly pay periods vary depending on how long the month is. While one pay period usually equals 15 days, another may equal between 13 to 16 days. If the 15th or 30th falls on a weekend, your pay might have a delay before hitting your bank accounts. And semi-monthly pay periods also don’t align with workweeks, so you might get paid on a different day each period.

While the extra two pay periods of biweekly don’t make a huge difference, you do earn more for each bimonthly paycheck. For example, if you earn $45,000 per year on a bi-weekly cycle, your paychecks (not accounting for taxes and deductions) will equal around $1730.77 each, but paychecks equal $1,875 on a semi-monthly schedule. While you ultimately receive the same amount at the end of the year, budgeting might be easier with this schedule.

Many companies use semi-monthly payroll processing for salaried employees because you don’t need to calculate hours for salaried workers when processing payroll. This makes it much easier to calculate deductions and you don’t need to account for irregular timeframes.

4. Monthly pay

As the name suggests, monthly payroll means you receive a paycheck once a month. This format is ideal for businesses because it makes accounting simple and reduces the processing costs. But it’s disadvantageous for employees and contractors because they get paid less frequently.

Working a job that processes payroll monthly can make managing your cash flow challenging. When you receive only one paycheck, you have to closely follow a budget to ensure you don’t overspend and rely on credit cards or predatory loans to survive until the next payday. Receiving pay monthly is especially difficult if unexpected expenses occur late in the month, making it essential for all monthly payroll workers to keep a rainy day fund to cover emergencies and keep an Earned Wage Access app like EarnIn handy.

With EarnIn, you can use the Tip Yourself tool to automatically put money aside for a goal or a rainy day. You can tip yourself (aka save) up to $50 a day, up to $2000, so you always have some funds on hand for emergencies.

5. Custom pay period

A custom pay period refers to any payment schedule that falls outside normal payroll processing windows or uses multiple periods simultaneously. For example, companies may use custom pay periods when onboarding new employees or terminating existing employees. Bonus payments, commissions, and reimbursements for out-of-pocket expenses commonly get distributed via custom pay periods. And if you work as a freelancer or contractor, you might also receive payments when projects are completed, regardless of how long it took.

How does your pay schedule affect you?

Your pay schedule doesn’t affect how much income you receive in a year, assuming you work the same number of hours. But, although pay periods don’t affect your total compensation, they do influence how you manage your finances. Here’s how:

Access to pay. Your pay period determines how often you receive income. Weekly pay periods provide more consistent cash flow.
Budgeting. When you receive income determines how you structure your budget. The shorter the pay period duration, the easier it is to budget for unexpected expenses, since you don’t have to wait as long until your next payday.
Saving. Payment frequency impacts your ability to save. While it’s much easier to put money aside when you get paid more often, more frequent paychecks can tempt you to make additional purchases since you know you’ll get paid again soon.
Life choices. Your pay schedule affects your ability to cover unexpected bills or make major life changes like changing jobs.

Your pay cycle might not always work in your favor, requiring you to seek solutions to access cash as you work. You could ask your employer for an advance or apply for a payday loan, but these options can sometimes do more harm than good. This is where earned wage access apps like EarnIn can help.

With EarnIn, you don’t have to worry about missing a bill because you’re waiting for a pay period to end. EarnIn allows you to access up to $150/day or up to $750/pay period, without interest, membership fees, or credit checks.

Every day pay

Traditional pay periods leave workers with gaps in their budget between when bills are due or expenses arise and when payday hits. Earned Wage Access (EWA) apps like EarnIn help cover these gaps by getting you paid as you work — not days, weeks, or even a month later. By making every day payday, millions of EWA customers are successfully avoiding the late fees, overdrafts, and credit traps that typical pay periods drive people into. So whatever pay period your employer uses, if you have a W2 income, you can get paid as you work — up to $150/day — by using EarnIn.

Get paid when you need it with EarnIn

EarnIn’s Cash Out tool lets you access your hard-earned cash when you need it most. And you can get your money instantly with Lightning Speed.

Download the EarnIn app today and stop waiting for payday.

Please note, the material collected in this post is for informational purposes only and is not intended to be relied upon as or construed as advice regarding any specific circumstances. Nor is it an endorsement of any organization or services. EarnIn services may not be available in all states.

1. EarnIn is a financial technology company, not a bank. Tip Yourself Account funds are held with Evolve Bank & Trust, member FDIC and FDIC insured up to $250,000. Tip Yourself is a 0% Annual Percentage Yield and $0 monthly fee service. Your Tip Yourself Account and any Tip Jars are not Savings Accounts. Yeah EarnIn services may not be available in all states. For more information/details visit https://www.earnin.com/evolve-bank-and-trust

2. EarnIn is a financial technology company, not a bank. Banking Services are provided by Evolve Bank & Trust, Member FDIC. Subject to your available earnings, Daily Max and Pay Period Max. EarnIn does not charge interest on Cash Outs. EarnIn does not charge mandatory fees for use of its services. EarnIn services may not be available in all states. Restrictions and/or third party fees may apply. For more info visit earnIn.com/TOS

3. Fees and restrictions apply to use Lightning Speed. Lightning Speed may not be available at all times. See EarnIn Cash Out User Agreement. Expedited Transfer fee paid up front where applicable — see Evolve Deposit Account Agreement.