Understanding Payroll Cycles, Schedules & Best Practices

Payroll schedules can be confusing, but understanding them is essential! Check out this handy guide on common payroll schedules.

In this article, you find a breakdown of key components of pay schedules, common pay cycles, and best practices to help ensure accurate payroll processing. Understanding your pay schedule is essential because it impacts payroll submission timing, compliance with overtime regulations, and your employees’ satisfaction with timely and predictable paydays.

Key Components of Your Pay Schedule

Let's begin with the Key Components of Pay Schedules. A pay schedule is made up of three main elements:

1. Pay Period: The timeframe your employee worked. This period determines the earnings for each paycheck.

2. Pay Date: The day employees are paid for that work. Paydays will always fall on a weekday, regardless of the payment method. If the scheduled payday lands on a weekend or bank holiday, it will automatically shift to the business day before.

3. Start of Workweek:  The beginning of a 7-day workweek, typically used to calculate overtime in compliance with the Fair Labor Standards Act (FLSA). With GoCo’s Time Tracking app, you can choose what you would like your first day of work week to be. If you are using a different time tracking system, then you may have restrictions as to what your first day of work week can be.

   1. To find your setup with GoCo's Time Tracking app, navigate to Time > Settings > Edit the Policy > Overtime Rules
   2. 

In addition to these 3 key components, you should also be aware of the following definitions when it comes to payroll timing. 

• Direct Deposit Payment Speed: The number of days before payday that payroll needs to be submitted, which varies by direct deposit speed.

  • For Embedded clients, the speed is 2-days.

  • For Payroll Sync Service clients, let us know what day you normally start running payroll, so we can ensure we are making updates before you start.

• Paying in Arrears: When there’s a delay between the pay period and the pay date, it’s known as “paying in arrears.” Commonly used for hourly workers, this allows time to accurately calculate hours worked before payroll submission.

  Example: If an employee works from January 1-7 and is paid on January 13, they are being paid in arrears.

• Benefit Deduction Period: The benefit deduction period determines the timeframe covered by a specific deduction. This usually aligns with the pay period but can vary depending on company policies and payroll schedules. The deduction period ensures that the correct amount is withheld to fund benefits for a defined coverage window (e.g., weekly, biweekly, monthly).
  
• Benefit Deduction Proration: Proration refers to the process of adjusting benefit deduction amounts based on the number of days an employee was eligible for benefits within a specific pay period. This ensures that employees only pay for the coverage they actually received, particularly if they start or terminate employment mid-pay period or experience a change in benefits.
  • Within GoCo's Payroll Settings you will see options to select from "Deduct to Current" or "Deduct in Advance". Please reach out to our team if you do not have access and would like to verify. Review the key differences between these two options below.
  •  Deduct to Current
    
    • Scenario: Employees are charged for benefits based on the coverage they’ve already received during a specific pay period.
    • Pro-Rating Example:
      • If an employee’s benefits started mid-pay period (e.g., on Nov 20, 2024, within the Nov 16–29 period), they would only be charged for the days of benefit coverage from Nov 20 to Nov 29.
      • The deduction is calculated by dividing the total monthly benefit cost by the number of days in the coverage period and then multiplying it by the days the employee was actually covered (Nov 20–29).
  • Deduct in Advance
    
    • Scenario: Employees are charged for benefits in advance, meaning the deductions cover a future period of benefit coverage.
    • Pro-Rating Example:
      • If an employee’s benefits are set to begin mid-pay period (e.g., on Nov 20, 2024, but the deductions cover Nov 16–29), they would only be charged for the days of benefit coverage starting from Nov 20.
      • Similar to the first scenario, the deduction would be based on the prorated cost of benefits for the days from Nov 20 to Nov 29.
  • Key Difference: Deduct to Current focuses on benefits already received, while Deduct in Advance prepares for upcoming benefit coverage. Both scenarios handle partial coverage periods with prorated calculations to ensure fairness.

Why Pay Schedules Matter

Understanding these pay schedule components helps you avoid issues like missed deadlines, overtime miscalculations, and unexpected delays. Accurate pay scheduling also allows our Payroll Support Team to assist you more effectively, as predictable and consistent pay cycles reduce errors and inquiries.

Common Pay Cycles

Here’s a breakdown of common pay cycles and how benefit deductions are applied in each:

• Weekly: Employees are paid on a weekly basis, typically weekly on the same day. Benefit deductions for employees on a weekly pay cycle are calculated and deducted from each paycheck.
  • Ex. Payday is every Friday

• Bi-Weekly: Employees are paid once every two weeks, resulting in 26 pay periods per year. Benefit deductions for employees on a bi-weekly pay cycle are also calculated and deducted from each paycheck. 

  • Ex. Payday is every other Friday

• Monthly: Employees receive their pay once per month, typically on the same day each month. Benefit deductions for employees on a monthly pay cycle are also deducted from each paycheck, but the deduction amounts may be significantly larger compared to shorter pay cycles, as they need to cover an entire month's worth of benefits.

  • Ex. Payday is the 15th of each month

• Semi-Monthly: Employees are paid twice per month, usually on specific dates such as the 15th and the last day of the month, resulting in 24 pay periods per year. Benefit deductions for employees on a semi-monthly pay cycle are deducted from each paycheck, but the deduction amounts may be larger compared to weekly or bi-weekly pay cycles since the total deductions need to cover a shorter time frame.

  • Ex. Pay dates are the 15th & 30th of each month

Best Practices for Managing Pay Schedules

To avoid payroll-related issues, consider these best practices:

• Plan for Holidays and Weekends: Submit payroll earlier when a payday falls near holidays or weekends to prevent delays.

• Maintain Consistency in Pay Periods: Establish predictable pay periods and stick to them for consistency.

• Use Direct Deposit Payment Speed: Ensure you understand your direct deposit payment speed and submit payroll with sufficient lead time.

If you have any other questions, please reach out to support@goco.io.

Published 11.7.2024