Payroll Cycle and its Types
What is the Payroll Cycle?
The payroll cycle refers to the regular interval or period in which an organization processes and pays its employees. It is the time frame or interval in which employees’ payroll is processed and the employees get their salaries. It defines the frequency with which employees receive their wages or salaries. Common payroll cycles include:
Weekly – Employees are paid every week.
Bi-weekly – Employees are paid every two weeks (26 pay periods per year).
Semi-monthly – Employees are paid twice monthly (typically on set dates, like the 1st and 15th).
Monthly – Employees are paid once a month.
The payroll cycle includes collecting work hours, calculating earnings, withholding taxes, and processing deductions to generate a paycheck or direct deposit.
During each cycle, the company calculates employee earnings in the HRMS software. It deducts taxes, benefits, and other contributions, and then issues payment via direct deposit or check. The payroll cycle ensures timely, accurate compensation for employees while also ensuring compliance with tax regulations and labor laws.
This also provides the employees with the salary breakup details which include their compensation, benefits, allowances and so with deductions details of taxes, provident fund contributions, etc. Hence maintaining transparency in salary disbursement.
What are the Types of Payroll Cycles?
Each payroll cycle has different advantages based on industry practices, payroll processing time, and employee preference. Also, the preference of payroll cycle is different for varied companies based on their company size, service provided, workforce range, contract, and so on.
The basic payroll cycle for significant companies is monthly and the employees are paid every month for their service rendered using payroll software. Yet, there are many companies whose work demands other types of payroll cycles such as bi-weekly, daily, etc.
Let us learn in detail about the types of payroll cycles:
1. Weekly:
Employees are paid every week, resulting in 52 pay periods per year. Common in industries with hourly workers. The weekly payments are made in cheques, NEFTs or other transaction ways depending on the payment provision of the organization.
Weekly payments to employees are mostly done to the workforce working in shipping industries, or retail, construction, hospitality, and manufacturing, where work hours may vary from week to week having shifts of working. In this cycle, payroll is processed and distributed on the same day each week, typically covering a fixed period (e.g., Sunday to Saturday). A weekly payroll provides workers with frequent, reliable income, which can be beneficial for managing short-term expenses and improving employee morale.
However, while weekly payroll is employee-friendly, it can increase administrative work and costs for employers, as it requires more frequent payroll processing, tax filing, and compliance checks.
2. Bi-weekly:
Employees are paid every two weeks (26 pay periods annually). Popular in many sectors for both salaried and hourly workers. One key benefit of bi-weekly payroll is consistency. Employees receive a paycheck on the same day every two weeks, providing them with a predictable income schedule, which helps with financial planning. Employers also appreciate the balance it strikes between weekly and monthly payroll in terms of administrative effort, as it reduces processing time compared to weekly payroll while still offering frequent payments to employees.
3. Semi-monthly:
Semi-monthly is a payroll system where employees are paid twice a month, typically on set dates like the 1st and 15th, or the 15th and last day of each month. This results in 24 pay periods annually. It is commonly used for salaried employees, though some companies may apply it to hourly workers as well.
4. Monthly:
Employees are paid once a month (12 pay periods annually). Common for salaried workers in certain countries. This is the most common and widely adapted payroll cycle by companies in which employees are paid at the end of each month for the entire month of work.
5. Daily Payroll:
Employees are paid at the end of each working day. Rare, but seen in industries where workers are paid based on daily contracts. In general, the construction laborers of construction companies are paid daily for their work hours as they mostly aren’t associated with any particular contractors and can take up work from other contractors too.
6. Quarterly Payroll:
Employees are paid every three months, resulting in 4 pay periods annually. Rare and mostly used for independent contractors or certain bonus payments.
7. Annual Payroll:
Employees receive one payment per year, typically for bonuses or specific compensation. Very uncommon.
8. Flexible Payroll:
Payment cycles are adjusted based on the needs of the organization or employee, often for freelance or contract work. The freelancers or third-party employees who are not bound by the company’s provisions opt for flexible payroll.
9. On-Demand Payroll:
Employees can access earned wages before the typical payroll date, facilitated by apps or employers offering flexibility in pay schedules. The advances or advance payment of to employees can be covered in on-demand payroll.
10. Split Payroll:
Employees are paid partially in one country’s currency and the rest in another, common in global or expatriate employee setups.
End Note
The payroll cycle is a time interval that not only pays employees for their dedicated service but also helps maintain clarity between the employer and the employee. While the cycle type may vary depending on the company’s requirement, the objective of the payroll cycle remains the same, which is to get the employees paid in a specific time frame.