We break down the difference between pay periods, check dates and pay schedules.
All small business owners who run payroll follow regular guidelines on how often and how much to pay their employees. And once you hire your second employee, you need to make sure that your payroll process is crystal clear.
As a payroll provider, we thought explaining the process and terms associated with running payroll might be helpful. We’ll also introduce you to our automated payroll solution.
Before you process your first payroll, you need to do a few things:
- Get your Employer Identification Number (EIN).
- Establish state or local tax IDs.
- Collect your employee tax and financial information, including W-4 forms.
- Create a pay schedule and select the schedule that best fits your business.
- Establish tax payment dates.
Once you determine your pay schedule, you’ll be able to tell your employee three things:
- How they’ll be paid.
- How much they’ll be paid.
- How often they’ll be paid.
The terms that are most commonly used in the payroll process include pay period, payday or check date, and pay cycle or pay schedule. Here’s what they mean:
Pay Period is the length of time for which employees are paid, based on their pay frequency. For example, a weekly pay period may start on Sunday and end on Saturday. In other words, it’s the period of time that an employee’s check covers.
Check Date or payday refers to the day of the week that employees receive their paycheck based on the payroll schedule. Fingercheck uses the term check date.
Pay Schedule, pay cycle or pay frequency refer to the period of time between each payday. For example, a biweekly payroll has a 2-week pay schedule or the pay schedule is biweekly. Fingercheck uses the term pay schedule.
In most cases, pay schedules are completed on a weekly, biweekly or monthly basis. An organization’s choice of payroll frequency is largely dictated by factors that include convenience, business need or simply employee preference.
Many businesses still rely on manual processes to run payroll, but that’s not the most effective way. If you’re one of the more than half of all SMB owners who say payroll is frustrating, complicated and confusing, then let’s talk!
Here are the pay schedules:
- Daily pay schedules pay employees every day. This is popular among employees, but it’s a challenge for business owners. Fortunately, solutions that offer automated on-demand pay are rapidly increasing in popularity and help solve this issue. There can be up to 365 pay periods.
- Weekly pay schedules are popular, with nearly one-third of U.S. organizations following this plan, according to data from the U.S. Bureau of Labor Statistics (BLS). There are up to 52 pay periods in a year.
- Biweekly pay schedules compensate employees every two weeks. The same BLS data suggests that biweekly pay periods are most common, being used by almost half of U.S. organizations. A company may have as many as 26 pay periods in a year.
- Semimonthly pay schedules pay employees either on the 1st and 15th days of the month or on 16th and last days of the month. There are 24 pay periods when using a semimonthly pay schedule, which is most commonly used for salaried workers.
- Monthly pay schedules are favored by only about 4% of companies. The complexity of handling hourly wage employees means that they tend to be used by smaller businesses only. There are 12 pay periods when using a monthly pay schedule.
Creating a payroll system
Creating a payroll system seems simple at first, but it is challenging and problems might arise if employees don’t understand it. One way to avoid this is by adopting a transparent payroll policy. That means you share information about how the payroll process works; employee classification and salary determinations; procedures for handling payroll errors; vacation time earnings; and how wages, overtime, holiday pay and promotions are configured.
Then put the policy in writing and on display. Email the policy. Make sure everyone sees it and signs that they’ve read it. And add it to your employee manual.
While this seems simple, a lot of work goes into creating an effective pay schedule that runs as expected.
There are typically several steps involved in completing this task:
- Maintain accurate employee records, including salary amount, hours worked within a pay period and financial account information.
- Track hours correctly. Hours might vary due to contract terms, illnesses, vacations or other absences.
- Configure each employee’s net income based on their gross income and their hours worked.
- Determine each employee’s payment method whether by direct deposit, check, pay card/reloadable debit card, cash or another method.
- Run audits to ensure the process is running smoothly and there are no errors.
But maintaining a functional pay schedule is about more than simply defining a policy. This task can quickly consume a large chunk of your time each month if you’re not finding ways to manage payroll efficiently. Here are some pointers:
- Maintain regular, open communication: Ensure that your HR and finance teams communicate so that no important information is misplaced or forgotten. Changes to budgets and changes in employee pay are examples of key information that must be shared across teams.
- Use payroll software: Adding payroll software that securely stores sensitive employee data will streamline your pay schedule management and automate much of the manual work involved.
- Review your payroll policies: Government guidelines change, so it’s important to stay on top of payroll policies.
- Consider modern solutions: Automation and AI can help save you time, prevent mistakes and ensure that your employees are paid quickly.
According to a National Small Business Association study, 41% of small businesses spend more than 80 hours per year on payroll and HR tasks. Automated systems can process payroll much faster than manual methods, meaning that companies can pay their employees more quickly and accurately. This is especially important for companies with many employees or complex payroll needs.
Fingercheck can help!
Proper payroll processing and administration are essential parts of meeting legal obligations and keeping employees happy, but it can be a challenge, particularly for small business owners. The best payroll solutions can take much of the manual intervention, human error and stress out of the equation, freeing up time for small business owners to focus on other critical business issues.
Fingercheck offers desktop and mobile solutions that support Pay On-Demand and Next-Day Pay options. Our platform supports a range of other actions, including the ability to track time and attendance, hiring and onboarding, and employee reviews.
Take the stress out of employee pay. Try Fingercheck today to see how we can transform your payroll management.