Payroll cycle definition
/What is a Payroll Cycle?
A payroll cycle is the length of time between payrolls. Thus, if an entity pays its employees every Friday, this is a one-week payroll cycle, whereas paying them once a month is a monthly payroll cycle. Employers prefer longer payroll cycles, since a reduced aggregate amount of processing labor is required to calculate a smaller number of payrolls per year.
Steps in the Payroll Cycle
There are several steps in a payroll cycle that must be completed in order to pay employees both correctly and on time. The steps are as follows:
Collect time worked information from workers. This information may be collected through time sheets, time cards, biometric devices, phone apps, or other data collection systems.
Validate the time worked. This involves having supervisors review and approve time worked information.
Load time worked information into the payroll system. In addition to loading in this information, taxes and benefit deductions must then be subtracted from the calculated gross pay amount to arrive at the net pay for each person.
Pay employees. Payments must be distributed to employees, which may be in the form of cash, checks, direct deposit payments, or pay cards.
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Examples of Payroll Cycles
Here are several examples of payroll cycles:
Daily payroll cycle. Frequency is every day. It is common in the gig economy and businesses offering flexible payment options (e.g., rideshare companies). For example, workers can withdraw wages daily or as they earn them, using a mobile app.
Weekly payroll cycle. Frequency is every week, usually on a fixed day (e.g., Friday). It is commonly used in industries like construction, retail, and hospitality, where hourly wages are common. For example, an employee submits timecards on Monday, payroll is processed Tuesday to Thursday, and payments are issued Friday.
Bi-weekly payroll cycle. Frequency is every two weeks (26 pay periods in a year). It is used in many industries for both hourly and salaried employees. For example, the payday every other Friday for all employees.
Semi-monthly payroll cycle. Frequency is twice a month, often on the 15th and last day of the month (24 pay periods in a year). For example, payments are issued on the 15th and 30th, irrespective of the day of the week.
Monthly payroll cycle. Frequency is once a month (12 pay periods in a year). This is common in executive-level positions, certain international markets, or businesses aiming to reduce payroll processing costs. For example, employees are paid on the last business day of the month for that month's work.