Payroll Basics: What is a Pay Cycle?

When starting a business, there comes a point when you need to begin hiring proper staff. But if you’ve never been a boss before, it can be challenging to know how to pay your employees professionally.

However, once you know the fundamental principles of a pay cycle, you should feel ready and confident to pay your new staff members.

So whether you’re a business owner or starting in HR, we’ll now run through some payroll basics. More specifically, let’s look at a pay cycle and an example of how one is set up.

What is a Pay Cycle?

The intervals in which you pay employees are determined by pay cycles.

A pay cycle establishes the frequency businesses process payroll and the days they should pay employees. Employees are paid on the month’s final day, for example, if the pay cycle is monthly. On the other hand, a weekly pay cycle means that employees get paid on the Tuesday following the conclusion of the pay period.

Companies allocate payroll cycles into certain positions to help manage when employees in specific roles are paid. The payroll calculation frequencies, which establish the timeline for processing payroll items such as benefits or recurring earnings, are also allocated pay cycles.

You can construct pay periods for each cycle after you’ve created pay cycles. A default payment date is set for each pay cycle, depending on the information you submit. Exceptions, such as a payment day that falls on a holiday, can be handled by changing the default payment date in a pay cycle.

Types of Payroll Cycle

As discussed, the payroll cycle is one of the most prominent parts of running a business. However, it is not linear in any way. Here are some of the most notable types of payroll cycles that you might encounter.

Daily

This is one of the oldest and simplest forms of the payroll cycle. Still, it is pretty popular, and people still use it. Daily payroll is all about EOD payment. Once the work is done, you get paid. There is no waiting time and no hassle. You get paid if you work.

Weekly

This is a step up from the daily payroll cycle. It is a weekly payout cycle where you get paid at the end of the week. This is also a critical payout cycle that has become very popular recently. However, this is only very popular in the US.

Bi-Weekly

Bi-weekly is similar to weekly, but employees get paid every other week. You can expect to receive at least two monthly cheques in this method. Hence, this is an essential and valuable means of obtaining a salary.

Semi-Monthly

Bi-weekly and Semi-monthly variants are very similar to each other. However, Bi-weekly can be problematic as some months have three whole weeks. Semi-monthly works purely every month. If a month has 28 days, the cycle is reset at 14 days.

Monthly

Finally is the monthly payroll cycle. Here, you are paid a salary at the end of every month. This is the most prominent and popular payroll cycle that one might come across. It is trendy and a staple across industries.

How to Choose a Payroll Cycle?

Choosing the proper payroll cycle is very important as it can affect the quality of your work and employee satisfaction. Therefore, if you set a new pay cycle, ensure everyone is on board and understands the decision.

Also, take advice from other people as they provide insights you might have forgotten. Therefore, be proactive and choose a payroll cycle that suits your needs effectively.

How to Set Up a Pay Cycle

Determine how many different combinations of payroll cycle frequencies and pay dates your company has before setting up pay cycles. Each unique combination necessitates its pay cycle. For example, your company’s pay cycle frequency and pay dates are as follows:

• Management – Paid bi-monthly on the 1st and 15th days of the month.
• Salaried workers – Paid on the last day of your pay period weekly.
• Hourly Workers – Paid on Fridays after the last day of your pay period.

So in this example, three different types of pay cycles are running within the company.

Specifically, specific pay dates may apply to different positions with the same pay cycle frequency. Both hourly and salaried employees, for example, are paid biweekly. You can employ the same pay cycle for hourly and salaried roles if you pay for all positions on the Friday following the last working day of the pay month.

What if you have hourly positions paid on the Friday after the last working day of your payment period? Still, salaried positions paid on the previous working day of your payment period? Then, you can have a biweekly payment cycle for all your hourly employees and a biweekly payment cycle for your salaried ones.

And, of course, you’ll need a paystub maker to pay your new employees. When you have an easy-to-use paystub maker, a changing payroll cycle shouldn’t cause you much bother. Instead, it should make the payroll cycle process straightforward and fast.

Establish Your Pay Cycle Process

Whether you’re new to HR or setting up your own business, it is crucial to understand the pay cycle process. Now, you should have a much better grasp of how pay cycles work.

Thanks for reading, and good luck with setting up your pay cycles! Please check out some of our other informative articles on our blog.

Summarizing

In summation, the payroll cycle is an essential part of the detail. However, it is also a dynamic area of study that requires understanding and clarity. As a result, you need to be very careful about the correct cycle for your company and your employees.

Keep following us for more such content on the payroll cycle that you need to understand and more business content that you need. Thanks, and have a great day ahead.

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