Key Takeaways
1. Payroll models can vary across organizations and usually take the form of weekly, biweekly, semi-monthly or monthly payment schedules. There are certain factors that can determine which model is most appropriate for a business.
2. An explanation of bi-weekly payroll and examples of how a business may employ this method of payment.
3. An exploration into some of the key differences between a bi-weekly and a semi-monthly payroll schedule.
4. Further discussion into some of the advantages and disadvantages of employing a bi-weekly payroll schedule both from an employer’s and an employee’s perspective.
One of the key questions every new business needs to address is its payment schedule. On what basis should they pay their employees and does it make much difference whether it’s weekly, bi-weekly or monthly?
When it comes to choosing the right payroll model businesses must take into account the needs of their organization and establish a schedule that aligns with its cash flow rhythm, labor expectations as well as state and national regulations. Doing so will allow a business to manage its income and overall finances with greater predictability and ease.
This is of particular importance for the following reasons:
- Cash Flow Rhythm: Cash flow is essential for every business especially small businesses and payroll is often their largest expense. Ensuring they choose a payroll schedule that is in sync with their cash flow is, therefore, key.
- Labor Market Expectations: Certain industries expect payment schedules to be on a specific frequency. If a business does not match this expectation it may struggle to find suitable employees who are willing to work there.
- State Regulations: Most states have regulations in place which state the minimum amount of times an employee should be paid each month. Some states also have payroll regulations in place for various job classes. Before assigning a particular payroll schedule a business ought to check that it aligns with the regulations required by their state.
Payroll schedules can vary according to the business with the most common being weekly, biweekly, semi-monthly, and monthly payment schedules.
In this article, we will explore bi-weekly payroll in more detail, comparing and contrasting this with some of the other types of payment schedules and helping you decide whether this is the right model for your business.
What is Bi-Weekly Payroll?
Bi-weekly pay is the most common payroll schedule for businesses in the United States. According to the Department of Labor (DOL), the top three industries that use bi-weekly payroll schedules are Education and Health Services, Leisure and Hospitality, and Information Technology.
The definition of bi-weekly payroll is a payment schedule where employees receive their paycheck on a specific day of the week, every two weeks. For example, a business operating a bi-weekly payroll schedule might pay its employees every other Friday, irrespective of when one month ends or a new one begins. In a calendar year of 52 weeks, such a schedule will mean the business pays its employees 26 paychecks per year or 27 paychecks in a leap year.
Read here if you’re interested to outsource your global payroll functions.
Bi-Weekly Payroll Vs Semi-Monthly Payroll: What’s The Difference?
It can be easy to confuse bi-weekly and semi-monthly payroll schedules, however, the key difference between the two lies in how often payment occurs.
With a bi-weekly payment schedule employees are paid every other week, whereas a semi-monthly payment schedule pays employees twice a month on two specific dates each month. For example, the 1st and 20th of each month. This means employees will be paid twice a month, or 24 times per year rather than 26 times per year.
The key differences between the two are summarized below:
Biweekly Payroll:
- Employees are paid every two weeks
- Employees are paid 26 times per year
- Payment is on specific days e.g. every other Friday
Semi-Monthly Payroll:
- Employees are paid twice per month
- Employees are paid 24 times per year
- Payment is on specific dates e.g. the 1st and the 20th.
As some months are over four weeks long, an employee on a bi-weekly payroll schedule will be paid three times in that month, whereas an employee on a semi-monthly schedule would only be paid twice.
For companies with a global presence, or those who hope to have one, read our guide on payroll processing across international borders.
Video: Payroll Periods and Time Frames (bi-weekly payroll)
What Are The Benefits Of Bi-Weekly Payroll?
Given the ease of calculation and consistency, bi-weekly payroll schedules offer benefits for both employers and employees.
Some of the advantages of a bi-weekly payroll include the following:
1. Easier Budgeting: Having certainty around payment dates gives employers a clearer indication of their cash flow allowing them to budget more easily. Similarly, employees are also able to manage their finances more efficiently when they have clarity on when their paycheck will arrive.
2. Employee Morale: A bi-weekly payroll schedule can boost employee morale especially when they occasionally receive three paychecks in a month which can feel like a bonus. This can act as an incentive that motivates employees to give their best at work and also engenders trust in their employer. Having a set day of the week on which they will get paid can make employees feel more secure as compared to semi-monthly or monthly payroll schedules which can be on any day of the week. It also reduces the stress of having to stretch their income until the end of the month or on a certain date each month as may be the case with a monthly payroll schedule.
Make sure your business gets the most out of payroll performance and stay compliant by keeping track of your payroll performance.
3. Easier To Calculate Overtime: Since overtime is based on a work week, bi-weekly pay makes it easier for hourly workers to calculate their overtime pay as well as make up their hours. For example, an hourly employee who is absent from work for one week can work overtime the following week to make up for their lost time.
4. Fewer Payroll Errors: There is less room for error with a stable and predictable payroll schedule. This saves time in resolving mistakes for HR departments and payroll providers.
5. Cost-Savings: If a business incurs charges for payroll provision, it can save money by moving from a weekly to a bi-weekly payroll schedule.
These benefit are amplified when you outsource your global payroll to a local 3rd party.
What Are The Disadvantages Of Bi-Weekly Payroll?
A bi-weekly payroll schedule may work better for some businesses than others. It is also possible for employers to change their payday to a different day or change how often they pay their employees.
Before deciding whether a bi-weekly payroll schedule is a good option for your business it is worth considering the following drawbacks:
1. Take-Home Pay Calculation: Unlike semi-monthly pay schedules which are easy to calculate, a bi-weekly payment results in two extra paychecks each year (or three in a leap year). This makes it slightly more difficult for employees to take into account employment taxes and benefits deductions which are usually calculated on a monthly basis.
2. Payroll Complexity: A bi-weekly payroll schedule can make it more difficult to calculate payroll deductions as two months each year will have three payment periods. This can make the payroll process more complicated as well as making it difficult to project future cash flow. The two extra payments can create stress for a business as it needs to set aside sufficient funds to cover its payroll. It also means extra work for the payroll provider or HR department.
3. Increased payroll costs: A business that outsources its payroll services will be charged more for a bi-weekly payroll schedule compared to one that operates on a semi-monthly or monthly schedule.
4. Smaller paychecks: Although employees will receive frequent paychecks, the amount they receive will be less compared to a monthly payroll schedule. This can give the impression that they are not earning enough and may affect morale and productivity.
Read here to know more about employee withholdings for global employees.
How Horizons Can Help You Manage Your Global Payroll
Horizons manages payroll on behalf of companies in more than 180 countries and regions. Our ability to centralize and coordinate global payroll cycles allows you to streamline your international payroll, ensuring accuracy in payment and full compliance with local laws. Contact us today to find out more about our international payroll solutions.
Frequently asked questions
Bi-weekly pay is calculated by dividing an employee’s gross annual salary by 26. For example, an employee with a fixed salary of $50,000 will earn $1,923.08 on a bi-weekly basis.
Bi-weekly pay for an hourly employee is calculated by multiplying their hourly rate by the number of hours worked in a two-week period. For example, an employee who earns $20 per hour and works 60 hours every two weeks will earn $1,200 on a bi-weekly basis.
Bi-weekly payment is where employees are paid on a specific day of the week, every two weeks. However, bi-weekly does not necessarily mean you will get paid twice a month.
This is because two months each year have five weeks in them, which means you will be paid three times in those months. This totals 26 payments in a year (or 27 times in a leap year) rather than 24.
