Bi-Weekly Payroll: A Guide For HR Professionals
Bi-Weekly Bliss for Payroll Peace: Bi-weekly payroll simplifies pay scheduling, ensuring consistent pay periods and ease of calculation, making it a popular choice for businesses aiming for efficient payroll management.
Fabulous Fortnightly Financials: Employees enjoy regular paychecks every two weeks, which helps with personal budgeting and financial planning, providing a steady income flow to manage monthly expenses smoothly.
Streamlined Salary Calculations: With bi-weekly payroll, determining pay is straightforward due to consistent pay days and periods, reducing administrative burden and the potential for payroll errors.
When it comes to payroll cadence, bi-weekly payroll is a popular choice among businesses. It offers some important benefits for scheduling and structure of pay and is one of the easiest ways to calculate payroll.
In this article, we’ll dig into some of the benefits of bi-weekly payroll as well as best practices.
(This article will only make sense if you have already covered the basics. Start by understanding how payroll software works.)
What Is Bi-Weekly Payroll?
Bi-weekly payroll refers to the process of paying employees every two weeks, typically resulting in 26 pay periods per year. A common practice is to pay employees every other Friday, creating a consistency to the pay schedule that makes it easy for employees to budget around.
This system contrasts with other payroll schedules, such as weekly, semi-monthly, or monthly. The bi-weekly approach is one of the most popular pay schedules, adopted across various industries due to its balance of frequency and manageability. Bi-weekly payroll can be easily managed with an automated payroll management system that tracks payment cycles.
According to the Department of Labor, the three most common industries which use bi-weekly pay are information services and technology, leisure and hospitality and education and health services.
Difference between bi-weekly and semi-monthly pay
Bi-weekly, as mentioned before, means that you pay employees every two weeks. This can happen on a day of the week of the companies choosing.
It’s possible that employees can be paid three times in a month depending on when the how early in a month the first pay day occurs.
Semi-monthly pay simply means twice per month. This sort of pay usually occurs on the first and the fifteenth of each month, meaning pay periods may vary in length depending on the month.
What Is Bi-Weekly Payroll Used For?
Put simply, a bi-weekly pay schedule is put in place to streamline the process of managing employee salaries and wages.
It plays a vital role in ensuring compliance with labor laws and tax regulations while also aiding in employee satisfaction and financial planning.
Regular and predictable paychecks help employees manage their finances more effectively. For this reason, it's one of the more popular choices for a payroll cadence, even if the payroll has one employee.
Which industries use bi-weekly payroll?
According to the Bureau of Labor Statistics, around 36% of US businesses opt for biweekly pay. The Department of Labor (DOL) identifies the top industries using this pay schedule as:
- Education and health services
- Leisure and hospitality
- Information
Before deciding on a pay frequency, review your state’s payday requirements on the DOL website, as some states mandate more frequent pay intervals.
What Are The Benefits Of Bi-Weekly Payroll?
The consistency of bi-weekly pay makes it easy for employees to understand and predict what they’ll receive in terms of funds.
For hourly workers, how you calculate overtime pay is somewhat simplified. This also makes payroll initiatives such as on-demand pay much simpler to manage.
Some primary benefits of biweekly payroll include:
- Predictability: Offers consistent pay schedules for employees and employers, making any budgeting process simpler.
- Simplified Time Tracking: Easier calculation of regular and overtime hours.
- Enhanced Cash Flow Management: Allows businesses to better manage financial resources.
- Cost Efficiency: Potential reduction in payroll processing costs due to fewer pay periods compared to weekly payroll.
Small businesses can further enhance these benefits by utilizing top-rated payroll services for small enterprises.
Bi-weekly vs other pay cadences
Other pay period options include:
- Weekly - While this can improve cash flow management, weekly pay can demand more time and resources. They are ideal for businesses equipped to handle frequent payroll runs.
- Monthly - While these are the easiest to manage, monthly pay periods can be challenging for employees who prefer more frequent payments for budgeting. While they reduce administrative work, it’s important to assess if this schedule suits your workforce and complies with state laws and industry standards.
- Semi-monthly - With payments typically made on the 15th and the last day of the month, semi-monthly payroll offers predictable pay schedules and reduced administrative burden compared to bi-weekly pay. However, it can cause budgeting challenges for employees as paydays are not always evenly spaced throughout the month.
Payroll Calculations and Tax Implications for Bi-Weekly Pay
The frequency of pay impacts how much is withheld for taxes, but it doesn’t change the overall tax liability for the year.
Let’s break down how to calculate bi-weekly pay for both hourly and salaried employees and explore the tax implications that come with it.
How to calculate bi-weekly pay
For hourly employees:
Hourly employees are paid based on the number of hours they work within a pay period, typically two weeks in the case of bi-weekly pay. The calculation for their pay is straightforward:
- Track Hours Worked: Record the total hours worked in the two-week pay period. For example, if an employee works 80 hours in two weeks (40 hours per week), this becomes the basis for the calculation.
- Multiply by Hourly Rate: Multiply the total hours worked by the employee's hourly wage.Example:
- Hourly rate: $15.00 per hour
- Hours worked in the two-week period: 80 hours
- Pay calculation: 80 hours × $15.00 = $1,200
So, the hourly employee would earn $1,200 for the two-week pay period before taxes and other deductions.
For salaried employees:
Salaried employees are paid a fixed amount per year, which is then divided into pay periods. Since there are 26 bi-weekly periods in a year, the salary is divided by 26 to determine the bi-weekly pay amount.
- Annual Salary: Identify the annual salary of the employee.
- Divide by 26 Pay Periods: Divide the annual salary by 26 to find the bi-weekly pay.Example:
- Annual salary: $52,000
- Pay periods in a year: 26
- Pay calculation: $52,000 ÷ 26 = $2,000
Therefore, the salaried employee will earn $2,000 every two weeks before taxes and deductions.
Tax implications of bi-weekly payroll
How payroll frequency affects tax withholdings:
The main tax implication of having a bi-weekly payroll is that it affects the amount of tax withheld per paycheck. The IRS determines withholding based on pay periods, so the more frequently an employee is paid, the less will be withheld per paycheck, but this does not affect the total annual tax liability.
- Bi-Weekly Withholding: For a bi-weekly payroll schedule, taxes are withheld for each pay period. This means that for each paycheck, a portion of federal, state, and possibly local taxes is deducted based on the employee’s income for that pay period, tax withholding elections (such as exemptions or allowances), and the applicable tax rates.
- Annual Tax Liability: Regardless of how often an employee is paid, their total annual tax liability will be the same. What changes is how the total annual tax liability is divided into smaller portions that are withheld from each paycheck.
For example, if an employee's annual tax liability is $6,000, the IRS will estimate how much needs to be withheld each pay period. With bi-weekly pay, that would be $6,000 ÷ 26 pay periods = $230.77 withheld per paycheck.
The impact of bi-weekly payroll on taxes:
While the frequency of payroll impacts how much is deducted each period, it doesn’t affect how much the employee owes for taxes over the year. For example:
- An employee who earns $30,000 annually would have tax withheld in smaller amounts on each paycheck, but the total amount withheld for taxes over the course of the year will match the employee's actual tax liability when their tax return is filed.
- However, employees may notice a slightly larger withholding in each paycheck if they are paid less frequently (e.g., monthly).
What Are The Challenges?
Managing a bi-weekly payroll system is not without its challenges. While it offers simplicity for employees and employers, there are several complexities around ensuring accuracy, compliance, and financial efficiency. These include:
1. Different employee types
Employees can have different payroll needs depending on their status. Full-time, part-time, and freelance workers often have different pay structures, benefit entitlements, and tax withholding requirements.
Hourly employees must be tracked accurately for hours worked, while salaried employees are often paid the same amount regardless of hours worked in a given period. This can introduce additional complexity when attempting to maintain accurate payroll records.
2. Regulatory adherence
Failure to comply with federal and state payroll laws, including those related to overtime pay and tax withholding can lead to penalties and audits. In the U.S. this may change depending on what happens with overtime pay under a new presidential administration, but for now the rules remain in place.
Bi-weekly payroll schedules add a layer of complexity when it comes to calculating overtime. For example, if an employee works over 40 hours in a week, overtime pay must be calculated for those additional hours, typically at the rate of 1.5x the employee's normal pay rate. The tax withheld per paycheck will vary based on exemptions, allowances, and the employee’s income for the period adjusted for overtime.
State-specific laws also require employers to adhere to rules governing leave policies, pay rates, and tax withholding adjustments. As regulations are subject to change, keeping up with these can be time-consuming but necessary to avoid fines and compliance issues.
3. Risk of payroll errors
Bi-weekly payroll demands precision in record-keeping, particularly for hourly employees who may have varying hours worked week to week. Miscalculations can occur if records are not meticulously kept, potentially leading to employees being overpaid or underpaid.
The complexity of accurately calculating deductions—such as taxes, benefits, and retirement contributions—further complicates payroll processing, although most of this is done with the help of software nowadays.
For example, if an employee worked irregular hours, missed some shift logs, or forgot to track overtime hours, it could lead to inaccurate pay. Similarly, misclassification of employees (e.g., salaried vs. hourly) can result in errors that affect tax withholdings or benefit contributions.
4. Holiday and closure adjustments
When business closures or holidays fall on or near payroll dates, adjustments must be made to ensure employees are paid correctly. Some employers may have to adjust work hours to accommodate holidays or closures, or provide holiday pay (e.g., time-and-a-half) for employees working on holidays.
Managing these adjustments across all employees in any payroll system, can create added complexity.
For example, if a holiday falls mid-week, employees may work reduced hours in one week and longer hours in the next, affecting total pay. Properly accounting for these fluctuations requires careful payroll management to avoid underpayment or errors in overtime calculations.
5. Bookkeeping complexity due to extra pay Periods
A unique challenge with bi-weekly payroll is the number of pay periods in a year. Since there are 52 weeks in a year, a bi-weekly payroll system results in 26 pay periods. However, this extra pay period creates some challenges for bookkeeping and financial forecasting.
Companies must account for one additional paycheck in the budget each year. This additional pay period can complicate budgeting and financial planning, as it can lead to fluctuating payroll expenses in certain months.
For example, in some months, employees will receive three paychecks instead of two, impacting cash flow. Companies need to plan for these “three-pay-period months” in advance to ensure they have the liquidity to cover these additional costs without negatively affecting other areas of the business.
6. Additional payroll provider charges
For businesses that rely on external payroll providers, bi-weekly payroll can lead to higher costs. Many payroll providers charge on a per-run basis, meaning that companies are billed every time payroll is processed. With 26 pay periods in a year, this could result in more charges compared to a monthly or semi-monthly system.
This adds to the cost of managing payroll for businesses, particularly smaller ones that may be sensitive to budgetary constraints. Additionally, the need for accurate tax filings and deductions could lead to the requirement for more frequent consultations with a tax advisor or additional payroll support, further increasing operational costs.
Best Practices for Implementing Bi-Weekly Payroll
As you put a bi-weekly pay cadence in place, there are few practices that will ensure a smooth transition and help your organization meet any compliance requirements as you scale.
- Training and Education: Educate HR staff and employees about payroll management systems and tools.
- Regular Audits: Conduct audits to ensure accuracy and compliance.
- Software Selection: Choose a payroll software solution that fits the business size and needs. Any payroll software costs are justified if the right tool leads to fewer payroll errors.
- Standardized Process: Follow a payroll processing step-by-step guide to ensure accuracy.
- Refer to Reliable Resources: The Department of Labor has created wage and hour guidelines for a variety of industries to use as a reference for compliance.
Best Payroll Software for Bi-Weekly Pay
To give you an idea of the best payroll software on the market, all of which can easily accommodate a bi-weekly payroll schedule, we’ve provided a shortlist below on some of our top choices for payroll solutions.
Bi-weekly Pay Schedule for 2024
Assuming that the bi-weekly pay period started on the first Friday of the year and continues every two weeks thereafter, there will be 26 pay periods per year. The following is a bi-weekly pay calendar for the year 2024.
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