There are four main options that an employer has when deciding on a payroll cycle method.
These are monthly, semi-monthly, weekly and biweekly.
This determines when you get paid for your work and any benefits such as paid time off.
Monthly pay means being paid once a month (12 times a year) on the same date each calendar month (for example, on the first of every month).
A semi-monthly cycle is when you are paid twice a month on the same dates, 24 times a year (for example, the first and the 17th).
Weekly pay requires your employer to pay you on the same day each week (such as Friday), which equates to 52 paydays per annum.
Biweekly means 26 paychecks a year, receiving payment on the same day every fortnight.
A business will take many factors into consideration before choosing the best method for them:
- How many employers they have
- If they are paid hourly or on a salary
- Whether or not overtime exists for employees
- If it costs for payroll each time they put a payment request through
Another thing that may affect an employer’s decision is their industry and the nature of the business.
For example, the hospitality industry commonly pays by the hours and paychecks are weekly, whereas salaried hospital workers are likely to be paid monthly.
This article looks at biweekly pay, which is the most popular payroll option in the US, with almost 37% of private businesses using this method.
How Does Biweekly Pay Work?
When using this option, the business's payroll department or accountant will pay all employees once every two weeks, on a specific day.
The day will always be the same, perhaps every other Monday.
This usually means two pay packets a month but sometimes the business pays out three times if there are five Mondays in a given month.
There are always 26 paydays a year with biweekly pay.
What Is the Difference Between Semi-Monthly and Biweekly?
It can be easy to confuse biweekly and semi-monthly pay. However, there is a significant difference.
Semi-monthly only ever pays twice a month and it is on the same dates each month.
Unlike biweekly, there will never be more than two paydays in one month and employees can expect 24 paychecks per year.
Biweekly can pay two or three times a month, on the same day, two weeks apart (whether it is two or three depends on the number of, for example, Mondays in a month).
If an employer were to pay semi-monthly, it may be on the 1st and 15th of each month or 15th and 30th (the most common date options for this method).
There are, of course, similarities between the two payment methods:
- Most months, payroll will have to do two pay runs
- Employees only have to wait approximately two weeks between pay
- Both can be easier and cheaper for the employer than paying weekly
However, there are some important differences, generally negatively affecting semi-monthly receivers:
- They may have to struggle through an additional weekend before they get paid, as pay will generally only be processed Monday–Friday
- They may be affected by bank holidays too, which can be stressful for the employee who could have a direct debit scheduled for a certain date each month
- A biweekly employee can plan budgets better as they know they will receive funds on the same day every fortnight
Additionally, biweekly pay can make certain times of the year slightly less stressful as there is the guarantee of regular fortnightly pay, helping with budgets during holiday periods.
If you are paid semi monthly, the holiday season around December can sometimes mean getting paid early in the month and then not getting another paycheck until the end of January, plus perhaps spending one month’s budget on the festivities.
The main difference between the two payment methods is that biweekly works well and has a great benefit for staff paid hourly and those conducting overtime.
Payroll can work out hourly pay by setting it by the 40-hour working week then can deduct and add accordingly.
Salaried worker's pay is based on an annual amount that is divided into 12 months, so it makes sense that semi-monthly would work better for them.
Pros and Cons of Biweekly Pay for Employees
Biweekly is popular with many employees as it helps with bill paying, budgets and working overtime.
It could be the decision that determines jobs you apply for, but it is not for everyone.
Below sets out the pros and cons to biweekly pay:
Less time between paychecks – Monthly pay can become a burden as people try and manage their budgets to stretch a whole month (even harder on the long months). With biweekly pay this is not a concern; employees can pay bills over the two paydays and not have to struggle to find money to pay for day-to-day items.
Consistency of payments – Echoing the point about long and short months, employees know they will receive payments every two weeks, and it is not dependent on the length of an entire month.
Can get paid for overtime quicker – This benefits both the employee and the employers, as employees may be more willing to take on overtime during busy periods as they know they will receive the extra money no more than two weeks away. This is a huge benefit and incentive to employees.
Can be hard to calculate overtime – As there are more paydays each year, it could be hard to calculate what hourly overtime pay you should expect.
Tax and other deductions can be complex – With semi-monthly pay, it is easier to work out the appropriate deductions evenly for each calendar month. However, due to more paydays some months, biweekly pay can make monthly deductions more complicated to work out. The employee will need to ensure that they work out and process these deductions themselves and there may be the option to adjust deductions over 24 paydays for simplicity. This is dependent on the business, payroll system and the individual.
Take-home pay on extra months – In relation to the above deduction factors, there are two months a year where there will need to be extra calculations and budgeting to work out take-home pay. This could confuse your budget for those two months.
If you are an employee who is paid hourly and does overtime, biweekly pay can bring many benefits and seem the best option for payment.
What Influences a Company’s Payment Cycle Decision?
It is down to the employer and business on which route they take with paying their team.
Commonly, the employer is likely to do a checklist of pros and cons for each method when deciding which one to go for.
When looking at why they would choose biweekly over the others, there are benefits and disadvantages to the employer.
As touched on previously, an employer who pays most/all of their staff hourly may wish to choose this payment method. This is because it is easier to work out payments when dividing by hours in the week as opposed to monthly.
It can also help save time when working out the pay for hourly staff who have fluctuating pay packets and irregular overtime.
Another benefit of biweekly pay is the reduced chance of making errors as there is less work to do at once.
If the payroll is only done once a month it is likely to take longer and be more complex, therefore being susceptible to more human errors and mistakes.
There is also less time spent processing the payroll each time.
As well as benefits, there are other factors and some disadvantages to consider.
Some smaller businesses may conduct the payroll themselves, so in that instance they are likely to go for the fastest, easiest and most comprehensive pay cycle for them, which could be monthly if they do not want to spend time each week on it.
Another factor to consider will be the software program or process used to issue the payments. Some payroll programs charge per pay cycle, making biweekly pay more expensive for the company than monthly.
Further, biweekly pay may make calculating overtime, holiday and deductions more complicated for the employer, depending on the rhythm of those aspects of their pay system.
Once all these factors are considered, the employer can make the best decision for them.
As an employee, the way your employer pays will determine when and how your bills are paid, your budget and financial management.
Biweekly is a popular method of paying employees for many reasons; it gives the employee consistency, with less time between payments. It can make budgeting more manageable.
However, like everything, there are disadvantages to biweekly pay cycles, such as complex deduction calculations.
To conclude, personal circumstances and the business sector of your career will determine if biweekly pay is suited to you.