A payroll cycle, also called a pay cycle, is the time between two payroll runs. Put another way, it describes the act of paying employees on a recurring basis, no matter the schedule. Payroll is often run through a company’s human resource department, an accounting organization, or a third-party payroll platform.
What is a typical payroll cycle?
Employees can get paid:
- Weekly (once a week)
- Bi-weekly (every other week)
- Semi-monthly (twice a month)
- Monthly (once a month)
What are the steps of a payroll cycle?
Payroll processing requires several steps:
- Gather the employees’ information using forms W-4 and I-9
- Choose a payroll schedule (monthly, semimonthly, biweekly and weekly) and note important quarterly tax dates, holidays, and annual tax filing dates
- Calculate gross pay
- Determine deductions for every employee
- Calculate net pay, and pay employees
- Keep payroll records and adjust the process as necessary
What to consider when choosing payroll cycles
When choosing a payroll cycle, there are several factors to consider in order to meet the employer’s and employees’ needs:
Employment laws and regulations
To ensure compliance, employers will need to stay up to date with local and national employment laws and regulations. In the U.S. for instance, the Department of Labor enforces the Fair Labor Standards Act (FLSA) to mandate labor regulations and standards.
Employers and employees must understand the workweek to calculate pay. Typically, the workweek is a period of five consecutive days with a set number of hours.
Payroll costs, including wages, salaries, bonuses, reimbursements, and more will impact the pay cycle. Costs can also depend on factors such as the number of employees, their level of experience, and their role.
Employee overtime is paid at higher rates than regular pay. Employers can determine overtime based on employee function and level of experience.
Employee needs can influence the pay cycle. For example, some may prefer to receive payment on a bi-weekly basis in order to budget their finances.
The pay cycle can impact the amount of money withheld from an employee’s paycheck, as the pay period describes how much time is between each paycheck. Withheld funds can also depend on the employee’s income, tax status, and number of dependents.
Reporting refers to providing government agencies (e.g., the IRS and U.S. and state tax agencies) with information about employee pay and withholdings.
Employers must typically report employee pay and withholdings on a regular basis, to ensure employees are properly taxed and that the government has accurate tax information.
Why is the payroll cycle important?
Payroll cycles help HR departments pay employees accurately and on time. This helps the company maintain good relationships with employees and keep retention rates high.
The payroll cycle also helps manage employee benefits compliance according to employment laws and regulations.