Bi-weekly payroll refers to when employees receive paychecks every two weeks.
On a bi-weekly payroll schedule, employees typically receive pay on a specific day every other week, regardless of when the month ends. This schedule results in 26 pay periods per year or 27 pay periods during a leap year.
Bi-weekly payroll vs. semi-monthly payroll
Bi-weekly and semi-monthly payroll are often mistaken for having the same pay frequency. However, bi-weekly payroll means employees receive pay every other week, while semi-monthly payroll means employees receive pay twice a month.
Employers using a semi-monthly pay typically set two specific days to pay employees, such as the 1st and the 15th of every month. Semi-monthly payroll results in 24 paychecks in a year.
Bi-weekly payroll occurs every two weeks for 26 total pay periods per year. Employers typically set a specific day of the week to distribute payroll, such as every other Friday.
Benefits of providing bi-weekly pay
There are several key benefits to providing a bi-weekly pay schedule, including:
- Consistent payments. Bi-weekly pay arrives on the same day every other week, so everyone knows when to expect payroll. This frequency makes it easier for HR to administer and for employees to budget and plan.
- Easy overtime calculations. With a bi-weekly schedule, employees calculate their weekly overtime hours and receive their corresponding overtime bonuses with each paycheck.
- Fewer payroll errors. Bi-weekly pay saves HR time and reduces the chances of mistakes compared to more frequent payroll processes, such as weekly payroll.
- Better budgeting. A bi-weekly payroll process is more cost-effective than a weekly payroll process for HR to administer when using a payroll provider that charges per payday. It also helps employees better plan their expenses and budget when they know to expect a paycheck every other week.
Challenges of providing bi-weekly pay
Despite the benefits, bi-weekly pay also poses challenges for employers and employees, including:
- Smaller paychecks. While an employee’s annual salary or hourly rate stays the same, more frequent yet smaller paycheck amounts create the illusion of earning less.
- Complex payroll processing. Holidays, weekends, and two months of each year having three pay periods can complicate payroll, making monthly payroll deduction calculations more difficult.
- Increased costs. Bi-weekly schedules come with more paydays than semi-monthly payroll, which can increase costs if HR uses a payroll provider that charges per payday.
How to calculate bi-weekly payroll
To calculate the bi-weekly payroll for hourly workers, multiply the employee’s hourly rate by the hours worked during a pay period. For example, an employee who works 80 hours in two weeks with an hourly rate of $30 will receive $2,400 for that bi-weekly pay period.
For salaried employees, take the annual income divided by the number of pay periods in a year, which is 26. For example, if an employee's gross annual salary is $70,000, their gross annual salary divided by 26 paychecks is $2,692 per paycheck.
Remember that these calculation examples don’t include payroll tax deductions.
When to use bi-weekly payroll
Bi-weekly payroll is the most popular payroll method in the U.S. It’s often used by businesses that have a mix of hourly and salaried employees. Bi-weekly pay is common in many industries because it is a consistent cycle for employers and employees.
However, bi-weekly payroll is not the standard worldwide, and choosing your ideal pay schedule depends on various factors. Opt for the payroll cycle that makes the most sense for your company and team, not just what is popular in your industry or region. You must also abide by local payroll regulations.
How to choose the right payroll cycle
Determining the best payroll cycle for your company and employees depends on several factors, including your industry, employee preferences, budget, payroll software, local payroll regulations, and HR requirements. Payroll also becomes more complicated when hiring and paying international employees.
Consider the following guidelines for choosing a payroll cycle:
Research local employment laws
Governments often regulate payment frequency and establish specific requirements for payroll processing.
For instance, the U.S. Fair Labor Standards Act (FLSA) dictates minimum wage, overtime pay, and employee data accuracy. Employers must understand and adhere to these payroll compliance regulations when planning payroll periods for U.S. employees.
Consider payroll and business costs
Ensure there are enough funds in any given pay period to pay employees. Businesses must maintain sufficient funds to cover all employee payroll costs for each pay period, such as wages, salaries, bonuses, and commissions.
Check industry competition
Payroll frequency may impact your ability to attract and retain talent, as certain industries may have established expectations regarding pay cycles. Consider industry norms and employee expectations when deciding if a bi-weekly schedule is most appropriate.
Prioritize employee needs
When selecting a payroll frequency, consider employee needs and preferences. Many employees favor weekly or bi-weekly pay cycles for more regular paychecks and predictable income streams. Consider surveying employees to understand how they feel about different pay cycles.
Many companies choose to outsource global payroll to a trusted payroll partner to simplify the complexities of accurately and compliantly paying their distributed workforce.
Disclaimer: The intent of this document is solely to provide general and preliminary information for private use. Do not rely on it as an alternative to legal, financial, taxation, or accountancy advice from an appropriately qualified professional. © 2024 Velocity Global, LLC. All rights reserved.
