Monthly Pay Period
What is a monthly pay period?
A monthly pay period indicates that a company pays its employees every month, resulting in 12 paychecks a year. The majority of salaried employees in European countries are on a monthly pay period. Typically, a monthly pay period results in employees being paid on the last Friday of the month or the last day of the month.
A monthly pay period is suitable for organizations offering professional and business services. Many contractors and freelancers also prefer to invoice once a month.
An employee who earns a salary and is paid on a monthly basis would divide their annual salary by 12. For example, if they were to earn $50,000 per annum and divide it by 12, this would result in a gross paycheck of $4,166.67 per month.
What are the other types of pay periods?
- Weekly: An employee on a weekly pay period is paid 52 times annually. This is usually the pay period used for employees that earn a wage. A weekly pay period is often paid in arrears a week later to give the payroll practitioner enough time to calculate the correct hours.
- Bi-weekly: An employee is paid every other week, resulting in 26 pay periods annually. Bi-weekly pay periods can be used for salaried employees or to pay wages. This is the most common pay period in the US. Over 45% of businesses pay their employees every two weeks.
- Semi-monthly: A semi-monthly pay period means an employee is paid twice a month, resulting in 24 pay periods annually.
Advantages of a monthly pay period
- Ease of use. Monthly pay periods benefit companies because withholdings and various benefits are easier to administer. It simplifies the budgeting process for future employees because the payment amount is known. Conducting a payroll audit also becomes easier.
- Flexibility. It gives businesses flexibility with cash flow.
- Minimize administration. A monthly pay period has the least amount of administrative work. It can be aligned with other payroll deductions because it is just one monthly deduction. This frees up payroll personnel for further work.
- Processing cost. Running payroll costs money. A monthly pay period has the least amount of payroll runs necessary, reducing your overall payroll processing costs.
Disadvantages of a monthly pay period
- Determining payday. The payday for a monthly pay period is usually on a different day each week. As a result, it can be challenging to deal with cut-off times and when to schedule the payday. If, for example, an employer usually pays its employees on the last day of the month, it can cause issues if the last day falls on a weekend.
- Employee experience. Some employees might experience financial difficulties if they are only paid once a month. For example, a factory worker who earns minimum wage and is paid monthly would struggle to cover their living costs throughout the month as expenses occur. A regular cash flow of being paid a wage might be more suitable in this instance.
- New hires. Depending on when a new hire's start date begins, they might need to wait until the following pay period runs before getting paid.
When to avoid a monthly pay period
A monthly pay period is not ideal for employees who earn an hourly wage because it keeps them waiting long. For example, restaurant employees who make minimum wage would be better suited for a weekly pay period instead of a monthly one. This is the least favored pay period for mid- to low-wage jobs.