What Is A Payroll Cycle? Types Of Payroll Cycle

Mastering the payroll cycle is important for employers aiming to maintain a smooth and efficient payroll system. For any growing business, refining and optimizing the payroll cycle is not just an option, it is essential for success.

A payroll cycle refers to the regular intervals at which employees are paid, and it can vary depending on the employer’s preferences and industry standards. From weekly to monthly cycles, each type has its own implications for both payroll processing and personal budgeting. 

In this guide, Aniday breaks down the different types of payroll cycles and how they impact both employers and employees.  

What Is A Payroll Cycle?

A payroll cycle is the frequency at which the employer pays its employees for the work they do based on a recurring schedule or as per the terms. A pay period is the time for one paycheck and one payroll cycle.

Companies should follow a specific pay cycle to ensure timely payments, fair compensation, and ideal reporting. The human resources department primarily maintains the payroll cycle through an in-house method, accounting department, or third-party provider.

What Are The Types Of Payroll Cycles?

When managing payroll, employers have several payroll cycle options to choose from. Here are the main types of payroll cycles as Aniday has observed:

1. Weekly Pay Cycle

In a weekly pay cycle, employees are paid their paychecks once a week. Generally, employees are paid every Friday in this type of pay cycle. So, there will be 52 total payments per year. Here are some key features of the weekly pay cycle:

• Suitable for employees who work overtime or have irregular schedules.
• Expensive pay cycle method due to weekly payments.
• It is time-consuming for HR or administrative teams.

2. Bi-Weekly Pay Cycle

In a Bi-weekly pay cycle, the employers pay once every two weeks. Hence, the payments are made at the end of the second week of Friday. In this case, employers would pay 26 times a year in this type of pay cycle. Here are some key features of the bi-weekly pay cycle:

• Suitable for employees who require frequent payments.
• Easy and effective to maintain by the payroll team.
• Less expensive payment method.
• It may complicate the tax and deductions calculations.

Semi-Monthly Pay Cycle

In a semi-monthly pay cycle, employees are paid twice a month. Hence, the payments are made on the 1st and the 15th or the 15th and the 30th of every month. In this case, employers would pay 24 times per year. Here are some key features of the semi-weekly pay cycle:

• A stable payment method for employees.
• Effective to calculate tax and deductions calculations.
• Complex in some situations, such as overtime and commission calculations, as to who is paid hourly.

Monthly Pay Cycle

In a monthly pay cycle, employees are paid once a month. Hence, the payments are made on the last day of every month. A monthly pay cycle is an easy pay option for employees as they make payments only 12 times yearly. Here are some key features of the monthly pay cycle:

• An easy and effective method for the payroll team to handle payments.
• Ability to effectively calculate taxes and deductions with no complications.
• Not an expensive payment method.
• This may complicate the process of managing the expenses.
• Employees have to wait longer to obtain their payments.

What Is The Most Common Payroll Cycle?

Now you know all the payroll cycle types, but the biweekly method is the most common one. This method is mainly used in the United States, but it also depends on the country and the industry.

For example, countries in the Middle East, Europe, Africa, Asia Pacific, and more commonly use a monthly payroll cycle.

What Are The Steps Of A Payroll Cycle?

When managing the payroll cycle, employers must know and handle the ideal steps systematically. Aniday offers a step-by-step guide to streamline the payroll process and make it as seamless as possible:

• Update the employee's information: Collect all the required information, including employee identification, government information, personal information, and more, and update it in your payroll system.
• Enter the hours worked: The HR team should enter the employee's hours worked.
• Calculate the gross pay: The gross pay needs to be calculated based on the hourly payment or agreed payment rates, including benefits such as bonuses and commissions.
• Tax and other deductions: The HR team should include the payroll deductions based on the employer's and government policies.
• Calculate the net income: Net income is simply what remains after subtracting all deductions from the gross pay.
• Make payments: Once the pay is finalized, you can distribute it to employees either through paper checks or by making direct deposits into their bank accounts.

How To Choose A Payroll Cycle

When deciding a payroll cycle for a company, it is important to look into different aspects based on the employer's country and industry. Here are the factors to consider to narrow down your decision-making:

• Check the local employment laws: Certain countries have rules on how frequently employers should make payments. Hence, labor laws should be checked, and the payroll cycle should be arranged accordingly.
• Payroll costs: Employers must have funds in their accounts to make payments. So, identify the available funds and whether the payroll cost can be made according to the payroll cycle.
• Identify the industry competition: Many industries may follow a standard payroll cycle and try to meet the same cycle to retain employees in the long term.
• Prioritize employee requirements: Identify their requirements and preferences while deciding on a payroll cycle.
• Workweeks: A workweek is essential as it helps to identify overtime pay and regular pay. Generally, a week consists of seven consecutive days.
• Withholdings: The withholding amount may vary based on different factors such as tax, number of dependents, employees' income, etc. Hence, the pay cycle will also reflect the withholding amount based on the frequency of a paycheck.

Final Thoughts

In conclusion, it is essential that both the employer and employee are aware of the payroll cycle and how it works. Thus, it helps to maintain a smooth pay cycle and enhance employee satisfaction effectively.

If you need help with Employer of Record (EOR) services, you can contact Aniday for the best services. We're always here to assist you with your requirements. Reach out to us directly or through our headhunting today!

We hope this guide was helpful to learn about the payroll cycle in detail!