Pay period: Guide for small business payroll, plus examples

If you're planning to expand your business, you're not alone. According to Intuit QuickBooks Small Business Insights, 41% of companies expect to grow their teams in the coming months. And as your workforce gets bigger, it's more important than ever to have a solid payroll process in place. 

A key part of that process is your pay period. It's the foundation for everything, including calculating wages, processing payments, and keeping your records accurate. This guide will explain why the correct pay period is crucial for your business and how to choose the right one.

What is a pay period?

The 8 most common types of pay periods

Pay period examples

7 factors to determine which pay period is right for your business

Next steps for streamlining your payroll process

What is a pay period? 

A pay period is a specific, recurring time when employees record their work hours. Employers can pay employees for hours recorded during the pay period at the end of the pay period.  

Pay periods are essential for organizing payroll and ensuring employees receive consistent and accurate payment. Pay periods also help businesses manage cash flow, comply with labor laws, and keep clear records for tax and accounting purposes.

The "why" behind different pay periods

Pay periods have evolved from a mix of historical labor practices, industry demands, and business logistics, with the pay period changing depending on the business. 

The payment schedule for one company may also not work for others. For example, a weekly pay period might be a good option for a small restaurant that manages daily cash flow and tip distribution. 

On the other hand, a monthly pay schedule could be a better option for a consulting firm looking to reduce administrative overhead. You need to consider how many pay periods in a year you want to manage.

Employee preferences also play a role. Some workers would rather get smaller payments to help with day-to-day expenses, while others prefer larger, less frequent checks that simplify long-term budgeting. 

Balancing operational needs with employee expectations is key to choosing the right pay period structure. 

The legal implications of your pay period choice 

While your company has some flexibility in setting pay periods, you do have to comply with federal, state, and sometimes even local labor laws that regulate wage payment. Key areas where the law may impose requirements include:

• Minimum Frequency: Many states have rules for how often employees must be paid. 
• Timeliness: Employers must pay on the agreed-upon schedule. Missing a pay date can result in legal penalties.
• Final Paychecks: State laws often require that terminated or departing employees receive their final wages sooner than the next payday, sometimes immediately or within a few days.

What’s the difference between a pay period vs. a pay date?

The difference between a pay period and a pay date is fairly simple. A pay period is the recurring amount of time worked that an employee is paid for. A pay date determines the payroll tax deposit and tax filing deadlines and is used to determine when payroll liabilities are due.

How is the pay period calculated?

A pay period is the time interval that determines how often employees get paid. It can be weekly, biweekly, monthly, or any other frequency the employer chooses. 

The pay period affects how much income tax and other deductions are withheld from each paycheck. The pay period also determines the start and end dates of the pay stubs and the pay dates.

The 8 most common types of pay periods

There are various types of pay periods, but the most common are weekly, biweekly, monthly, and semimonthly. And each type has a different number of payroll periods in a year. 

The number of pay periods that will work for your business will depend on the payroll schedule, the types of employees you’re paying, and whether or not they receive overtime. Let’s look at each type to help you determine how to pay employees on a schedule that makes sense.

1. Daily pay periods

260 pay periods a year

Daily pay periods are a type of pay period that allows employees to access their earned wages on a daily basis. There are around 260 business days in a year, but the amount of pay periods can vary depending on what days employees work.

A company that hires day laborers would likely want to pay daily wages. For example, if you hire workers to do landscape cleanup jobs for a set daily fee, you could pay them at the end of each day they perform this work.

2. Weekly pay periods

52 pay periods a year

An employee with weekly pay will receive 52 paychecks a year. Hourly and part-time employees are typically paid weekly. A weekly pay period is ideal for employees who tend to work overtime or whose work schedules change weekly. However, a more frequent payroll schedule can also be more expensive for the business.

With this pay period, employees record their hours for the week and submit a timesheet at the end of the workweek. They are then paid the following week because it gives the payroll clerk time to make adjustments. Some employees enjoy a weekly pay period because it provides a more consistent cash flow.

If you run a small store and employees work a different number of hours each week based on company needs, paying weekly would be helpful so staff can get the money they need for ongoing expenses and make it easier for you to manage cash flow.

3. Biweekly pay periods

26 pay periods a year

An employee who is paid biweekly will typically receive 26 paychecks a year. Employees paid biweekly can be either hourly or salaried. Biweekly pay periods are more cost-effective than weekly payroll, but processing payroll for months with three pay periods can be confusing.

Employers who use this payroll schedule can benefit from a more cost-efficient way to pay their employees than weekly pay periods. However, pay periods can quickly become confusing.

Biweekly pay periods are very common since professional businesses with many salaried employees benefit from the predictability. Examples could include a law firm or small medical practice.

4. Semimonthly pay periods

24 pay periods a year

An employee who is paid semimonthly will receive 24 paychecks a year. Employees with semimonthly salaries will typically receive payments on the first and 15th of each month. Semimonthly payroll works best for salaried employees who have a consistent schedule. 

Semimonthly payroll is easy for both the employer and the employee. It’s easy for the employer to calculate employee costs. However, the semimonthly pay period can be confusing for hourly workers if overtime needs to be applied.

A professional services firm—like a small marketing agency or law office—would benefit from semimonthly pay periods because revenue tends to be steady and predictable. 

This schedule simplifies payroll budgeting and reduces processing costs compared to weekly payroll, while still providing employees with consistent income twice a month.

5. Monthly pay periods

12 pay periods a year

An employee who is paid monthly will receive 12 paychecks a year. Monthly pay periods typically only work for salaried employees with steady gross pay. Employees with monthly salaries usually receive payment on either the first or last day of the month. 

Monthly payroll is the most cost-effective option and is the easiest to calculate, especially when taxes are concerned. Employers can also rely on the consistency of this payroll schedule.

A boutique consulting firm with a small, salaried team would benefit from a monthly pay period. This setup is good for a business with predictable client payments. 

It minimizes payroll processing time and costs, freeing up resources for strategic planning and growth, while allowing employees to get paid larger lump sums at once for easy budgeting.

6. Fixed pay periods

A fixed pay period is a method of paying employees where they receive the same amount of money for each pay cycle, regardless of how many hours they work or how much they produce. 

This is great for a variable pay period, where employees are paid based on their performance, such as commission, bonuses, or overtime. Employers can also show their employees that they value them by offering consistent yet flexible pay.

A small retail shop with predictable worker schedules and consistent operating hours would benefit from a fixed pay period, such as paying every Friday or on the 15th and 30th of every month. This regular schedule makes it easier to manage payroll, track labor costs, and help employees understand when they'll be paid. 

7. Custom pay periods

A custom pay period is a type of pay schedule that is not fixed or recurring but rather determined by specific circumstances. For example, a custom pay period may occur when an employee resigns or is terminated, and the employer needs to calculate the final wages and deductions for that employee.

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

A seasonal landscaping business with part-time staff and inconsistent working hours would benefit from a custom pay period that adjusts based on the work available. 

The flexibility allows the company to adjust pay based on projects and work availability, ensuring workers are paid efficiently during peak times without overcomplicating payroll during slower months.

8. Instant pay periods

Instant pay period is a term that refers to a system where employees can access their earned wages before their scheduled payday. This means that workers do not have to wait for weeks or months to receive their income but can withdraw it as soon as they complete their work hours. This pay period can potentially reduce administrative costs and burdens for employers.

A food delivery startup or gig-based cleaning service benefits from instant pay periods, allowing workers to access their earnings immediately after each job. This model works well where companies need to regularly recruit workers for gig work, as it promises instant cash incentives.

Pay period examples

Consider if you have an employee who earns $50,000 a year. Here is how their payments might break down across each pay period—and how many pay periods to expect:

• Daily: $192 a day
• Weekly: $962 a week
• Biweekly: $1,923 every other week
• Semimonthly: $2,083 twice a month
• Monthly: $4,166 a month
• Fixed: Fixed amount at agreed-upon intervals
• Custom: Customized pay periods and amounts
• Instant: Instant payments for every workday

Although monthly paychecks may be larger, they’ll be less frequent than other pay period options. Consider these factors when selecting your pay period.

7 factors to determine which pay period is right for your business

One of the most important decisions you have to make as a business owner is how often to pay your employees. The pay period you choose can affect your cash flow, payroll costs, employee satisfaction, and compliance with labor laws.

There is no one-size-fits-all answer to this question, but some of the factors you should consider are:

1. Employment laws and regulations: Consider any local labor laws that could affect your payroll schedule choices.
2. Workweeks: If your employees don’t work traditional workweek schedules, a more customized payroll option may better benefit your team.
3. Payroll costs: Calculate the payroll costs associated with each type of payroll and determine which one your small business has the budget for.
4. Overtime: Factor in how your business will incorporate overtime pay into your payroll schedule to determine which type is best for your team.
5. Employee needs: Consider if your employees have specific payment needs or desired payroll schedules in mind.
6. Withholdings: Ask yourself if a payroll schedule will align with your employees’ tax withholdings.
7. Reporting: If your business already follows a set reposting schedule, consider aligning your pay periods with your reporting periods.

By carefully weighing these factors, you can choose a pay period that is best for your business and your employees.

Next steps for streamlining your payroll process

Setting the right pay period is critical to getting payroll right, which supports business operations and increases employee satisfaction. By identifying an understandable pay period schedule, you can make sure you always compensate employees on time. 

To help streamline the process, consider trying out payroll software that automates calculations, tax withholdings, and reporting, including tracking gross pay vs. net pay.

QuickBooks Payroll is an easy-to-use platform designed to help small businesses seamlessly manage pay periods, tax filings, and direct deposits. Take the next step toward streamlined payroll today.