What Do You Mean by Payday, Pay Period & Pay Cycle?
If you’re creating paystubs or using paystub maker as an independent contractor then you must know the common terms. Even novice entrepreneurs should learn the basic differences between the key terms like payday, pay period, and pay cycle. These are the terms we will be discussing in this read.
What is Payday?
As the term suggests, payday is the specific day on which workers receive their remuneration. For instance, some firms that have weekly payday would process payroll every weekend like Jan 1st, 8th, 15th, and so on.
What is the Pay Period?
The pay period is the duration covered with the paycheck. In other words, the pay period determines the duration for which the worker is being paid. For example, firms having a bi-weekly pay period would process payroll for the pay period of Jan 2nd to 15th and Jan 16th to 30th, and so on.
What is the Pay Cycle?
The pay cycle is the one regulated by the firm for calculating and releasing payment to the workers. Most pay cycles are weekly, bi-weekly, semi-monthly, or monthly.
Besides considering these details in your paystub, you must also look out for withholdings and allowances while using a paystub generator.
Usually, the tax withholdings include federal and state income taxes, Medicare, and voluntary withholdings (insurance premiums and retirement savings plan).
Whether it is for calculating gross pay or net pay, the business will require basic details of the employees. Additionally, the pay cycle and pay period should be clear for calculating gross and net pay accurately. However, this calculation is limited to employees only. Independent contractors neither enjoy bonuses and allowance nor are they liable for withholdings.
How is the Net Pay Calculated?
Gross wages, the number of hours worked multiplied by pay rate, and tax deductions are the essentials for calculating net pay.
Firstly, the classification of employees is important for calculating gross pay. For instance, salaried employees are appointed on a fixed-pay basis while hourly workers are paid on an hourly basis. In both cases, overtime could be calculated differently. Besides this, bonuses, sick leaves, paid leaves, etc should be considered separately.
Secondly, hourly-paid workers are considered independent contractors too. Some might be paid double-time while some get their pay based on the service provided. See how your firm would manage such pay. You may simply select the type of employee in the check stub maker tool to ease this job.
Lastly, tax deductions are considered through IRS regulations. The firm has to abide by the percentage of tax the employee is liable to pay. This further decides the FICA tax, Social Security Tax, and Medicare be deducted from the paychecks.
Process Payroll in 3 Steps Now!
As you’ve learned the basics which are only necessary for payroll processing these days, why don’t you create a pay stub with us?! It’s as easy as 1-2-3. Just enter the employee and company details, preview the paystub, and download/send away to the respective entities. That’s it.
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