What is biweekly pay?

Each company’s operational process and payroll frequency differ. Depending on cash flow, company size, preferences, and industry customs, various payroll frequency methods work perfectly in each scenario. As a rule, employers practise monthly, semimonthly, biweekly, and weekly pay without considering irregular payment methods. 

Biweekly pay occurs every two weeks on the same day of the week. Thus, some prefer to issue paychecks on Mondays or Tuesdays, while others do it every Saturday or Sunday. The choice of the day of the week is not defined by law for every company; it is more of a personal choice. If an organization opts for a biweekly pay period, then 26 or 27 pay periods occur in a year. 

Most of the companies find this frequency of payroll the most suitable for them and for the hired personnel. In Canada and the USA, this is also the most popular way of payment. 

Comparison of biweekly pay to other payment methods 

• Weekly pay. This method of payment is popular among companies engaged in providing services, namely restaurants, bars, and hotels. This results from the fact that most of the workforce involved in the service delivery has hourly rate payments, and also, there is a high level of staff turnover. Hence, to keep abreast, a company has to have a flexible payroll mechanism with regular and frequent payments. However, processing and carrying out weekly payroll is time-consuming and cost-intensive. A specialist has to do it 52 times a year, which can be a financial burden for an organization. 
• Biweekly pay. The golden mean between weekly and monthly payments is biweekly payroll. When a company uses this payment frequency, this means that its financial or HR department has to process two or three paychecks per month. In other words, there are two months in a year when employees receive three payments instead of two. This difference in calculating the frequency of biweekly payrolls may lead to mistakes. Also, some businesses find printing and mailing biweekly payrolls frustrating due to high operational costs. 
• Semimonthly pay. According to this type of payment, the recruiter pays twice a month. For example, each 1st and 15th of the month, or the dates may vary from company to company. Also, if it is a large-sized company, it may result in delayed payment on the 8th and 28th  day of the month, for example. In contrast to biweekly pay, there are only 24 annual payments. That means that paychecks are usually higher. Because the pay cycle is connected to months, it is easier to process monthly bills and pay suppliers. On the contrary, employees with hourly payment or with commission-based salary may cause complexity for a smooth payroll. 
• Monthly pay. Only 10% of the companies opt for this payment type in the USA. But if the cash flow is unexpected and the closing timeline is relatively long, the monthly frequency of pay can be a good option. The cost of the payroll is rather low, as there are only 12  pay slips and paychecks per year, and it is easy to make the payroll outsourced with monthly pay. However, this payment type decreases employees’ morale since many people live from paycheck to paycheck, and some countries and states ban that option. Advance payment is also popular when employers have a monthly pay schedule. 
• Daily or on-demand pay. Short-term positions or gigs require payment managed on the same day. When the scheduled pay day for other payment methods may be a few days or weeks after the worked time, daily pay is usually handled immediately. The daily payroll is mostly suitable for independent contractors or freelancers and is not covered with as many deductions as the other payrolls are. On-demand pay, on the other hand, applies to the employees in addition to other payment methods. For example, when a company has monthly pay and the pay day is on the last day of the month, employees may apply for on-demand pay and require a part of their salary earlier. On-demand pay is implemented by an application or software like DailyPan or Payactiv.

How does biweekly payment work?

The payroll in companies is normally done in-house or outsourced. If it is processed in the company, then a financial department, an HR specialist or a bookkeeper handle the pay slips and calculate the salary. While outsourced payroll is the responsibility of the recruited provider. Depending on the working agreements, there are two types of hired employees and, therefore, two types of biweekly pay calculations. 

Hourly paid employees

1. If a person is getting paid by the hour, then it is easier to figure out the exact hourly rate. In addition to this information, overworked hours, paid time off, and holiday days need to be taken into account, too. biweekly pay assumes that the pay period is the last 14 days, so a bookkeeper or a financial specialist has to gather information 14 days prior to the date. 
2. For example, Sarah has an hourly rate of $15, and she has worked 90 hours within 10 hours of overtime during the last 14 days. According to the labor law, the overworked rate is paid double.
3. Thus, $15 multiplied by 80 hours equals $1,200. And $30 multiplied by 10 hours is $300. So, Sarah’s gross pay is $1,200+$300= $1,500.
4. The pre-tax deductions and tax deductions must be subtracted from the gross pay on the next stage. For example, she has to pay $120 for the income tax and $85 for other deductions. As a result, she will obtain $1295 this week and every other week. 

Salaried employees

1. Salaries are usually counted yearly. For instance, James earns $210,000 before taxes per year. To find out the biweekly pay, you need to divide the amount by 26. Therefore, the gross pay is $8,076 per month, and this is the taxable income. 
2. To find out the net pay, you need to deduct taxes and other deductions. For example, the income tax and other deductions constitute $2,186 every two weeks, and by deducting them, the net income is $5,890.

Benefits of biweekly pay

• Elevated calculation process. Weekly pay is challenging and time-consuming, especially if payroll is done by an accountant manually with paper pay stubs. At the same time, biweekly payroll is easy to automate, and the data input could be followed up without any additional efforts. 
• Lower administrative costs. Statistically, counting semi-monthly pay is more time-consuming than counting biweekly pay. Biweekly pay is predicted, defined, and often intuitively clear to manage. Thus, the specialist may free the time and concentrate on more forward-looking and prestigious tasks rather than calculating each number. 
• Increase employees’ morale. Steady payments every two weeks influence the employee’s attitude because this payment method provides transparency over finances. The amount reflected in the paychecks is quite similar from week to week, and it makes it easy to track the finances. Also, paying checks that are handled regularly on time is a way to build a good atmosphere in the team and trust relations.
• Control over finances. For employees, it is easy to build their financial strategy when they know how much they receive every two weeks. And to track the finances is easier with biweekly pay periods. When employees know the defined amount they receive each month, then they can pay the mortgage on time, avoid unnecessary loans, and save up the rest of the money. For employers, biweekly payroll is more comfortable to forecast, too. Unlike the semimonthly payment, where the range of the net pay depends on the number of days worked, biweekly net pay is always the same. Therefore, employers may forecast future expenses, count the salaries upfront, and influence the cash flow. Also, as the pay day is defined, namely every Tuesday, it also facilitates financial planning.
• Extra money twice a year. A pleasant bonus for employees is to receive three paychecks a month twice a year. Although it does not require any additional efforts, it plays a role in forming a positive attitude toward the working process.

Disadvantages of biweekly payroll

• Increased cost of bookkeeping. Because there are more periods counted than in semi-monthly pay (26 versus 24) and then in the monthly pay (12), the cost of the payroll cycle goes up. 
• Financial dissatisfaction of employees. The amount shown in the paycheck is smaller with biweekly payment, and for employees who used to receive a larger paycheck, it may be upsetting. People who are not used to saving money, when they start having a constant cash flow they can spend the received payroll immediately and do not accumulate any money from work. By doing this, they may feel dependent on work and live from paycheck to paycheck. 
• The last week of the year will be separated into two periods. It is a challenge for the financial team to manage the gap appropriately. If the payment is handled the next year, then the employees will be disappointed by the absence of money they planned to spend on New Year’s Eve. But, on the other hand, managing the additional payroll till the end of the year can cause a financial strain for the company. 

Learn more about biweekly pay

How to handle biweekly payroll if the payday falls on a holiday?

Then, the best way to do it effectively is to handle the payment prior to the holiday. So, the employees would feel more financially secure working in the company.

Why does the size of the biweekly pay vary each pay period?

Even if you worked the same number of hours, the paycheck differs from week to week. There are different types of deductions that have monthly funds debited. For example, garnishments, union fees, loan repayments, and parking fees are usually charged monthly. And depending on the financial specialists, they may subtract the deductions once a month or equally every other week.

How are taxes withheld from biweekly pay?

Unlike the deductions, tax withholding must be applied equally to each payroll. So, the financial specialist has to determine the annual tax amount and divide it by 26. 

Conclusion

To sum up, biweekly pay periods are the most convenient method of issuing payrolls. It combines lower administrative costs, a flexible and transparent system of payment, and opportunities for sound financial planning. Although it is simpler to calculate biweekly pay for hourly rate employees, it is still a good approach to handle payroll for salaried contractors, too.