Advantages and Disadvantages of Bi-Monthly Payroll
Bimonthly payroll refers to the employee payment method, that the company pays its employees once every two months. Employees in bi-monthly pay receive a salary every two months (six times a year).
Table of Content:
- Advantages of Bi-Monthly Payroll – For Employers and Employees Separately
- Disadvantages of Bi-Monthly Payroll – For Employers and Employees Separately
- Definition of Bi-Monthly Payroll
- How does Bi-Monthly Pay Schedule Work
- Tips to Implement Bi-Monthly Payroll
- Other Types of Payroll Schedules (Methods) Available
- Bi-Weekly vs Semi-Monthly vs Bi-Monthly Payroll Schedules
- How to Choose the Best Payroll Schedule for My Company?
- Pay Frequency Requirements in the US?
- Frequently Asked Questions (FAQs)
The following are the Advantages and Disadvantages of the Bi-Monthly Payroll, in the perspective of Employers and Employees separately.
Advantages (Pros / Positives / Benefits) of Bi-Monthly Payroll
Advantages for Employees
1. Paycheck Amount will be Comparatively High
When compared with semi-monthly payroll, the value of the individual payment will be high. Employees receive six paychecks per year in the bi-monthly payroll method.
As an example, if the employee’s annual total payment is $78,000 then,
- If the employee receives the payment via a bi-monthly method he/she will receive $13,000 per paycheck ($78,000 / 6 pay periods).
- If the employee receives the payment via a semi-monthly method he/she will receive $3,250 per paycheck ($78,000 / 24 pay periods).
Even though the individual paychecks may be larger, the same total amount will be paid end of the year despite the pay frequency.
2. Promotes More Savings for Employees
Employees receive a paycheck once in two months using the bi-monthly payroll method. This promotes employee savings with a large amount of paycheck received.
3. The Payment Plan and Method are Easy to Understand
The bi-monthly payroll method is very easy to understand. There is only one payment applicable in a given two calendar months. Simply, the payment happens on the last business day of the payroll period (two months). It is simple to understand by an average employee.
Advantages for Employers
4. Easy Payroll Cash Flow Forecasting for Companies
The company finance department and management will have two months to plan the cash flow forecasting to pay salaries/wages on the upcoming payroll. This will be a huge advantage for the companies to utilize receivables more instead of overdrafts.
5. Less Comparative Paper Work Requirement
When compared with semi-monthly pay and bi-weekly pay, there is less paperwork required for bi-monthly pay since there is less number of payrolls to be run per year.
6. Low Expenses and Processing Time in Payroll Run Administration
Whether the company is administrating the payroll in-house or outsourcing, the bi-monthly payment will incur fewer expenses in the payroll run, since there are only 6 pay periods in a year. In comparison, the bi-weekly method has 26 pay periods and the semi-monthly method has 24 pay periods. This will result in lower annual payroll management expenses for companies that use bimonthly pay frequency.
The company’s Finance and HR departments consume less effort/time on leave administration, overtime calculation, and pay processing administrative tasks.
Disadvantages (Cons / Negatives / Drawbacks) of Bi-Monthly Payroll
Disadvantages for Employees
1. Difficulty in Personal Budgeting
Some people are used to monthly budgeting like getting the monthly salary and dividing that by month-based payments like rental, utilities, gas, etc. In these cases, such employees may feel difficulties in personal budgeting when bi-monthly payment is there and they receive one payment only in two months.
2. New Employees Have To Wait Around 2 Months to Receive the First Paycheck
Unlike the weekly payroll method which pays employees every week, the bi-monthly payment happens around 2 months. The newly joined employee has to wait for around 2 months if he/she joins at the beginning of the month.
3. Inconsistent Payday
Payday of the bi-monthly method may occur on the same date each two months basis (ex. 30th) but not on the same day in the week. For some people, it could be challenging if they used to get the income on a specific day in a week.
4. Employees’ Motivation May Decrease
Employees have to wait for two months to receive the returns of what they have worked on. This will decrease the motivation of employees since they receive payments only for a quite larger duration.
5. Paycheck is Less Frequent
In the bi-monthly method, employees should wait for 2 months to get their paycheck. This means the employee will only get six paychecks throughout the year. This will be difficult for employees to manage their expenses with less frequent paychecks.
Disadvantages for Employers
6. Not Practical to Implement with Non-Exempt Employees.
Non-exempt employees are entitled to a minimum amount of compensation and on top, they will be entitled to overtime pay when they work more than agreed hours per week. It is not practical to implement bi-monthly payroll with non-exempt employees since the overtime payment will happen only in two months. Non-exempt employees will not like to wait that much time to receive the overtime payment.
Definition of Bi-Monthly Payroll
Bimonthly payroll means that the company pays its employees once every two months. Employees in bi-monthly pay receive a salary every two months (six times a year).
In many locations in the USA, Canada, and the world, the maximum payroll period allowed is a month. Hence, bi-monthly payroll is not very common in the world.
How does Bi-Monthly Pay Schedule Work
A bi-monthly pay schedule refers to a payment system in which employees receive their wages once every two months. Here’s how it works:
- Pay Frequency: Employees are paid once in every two months. This results in 6 pay periods in a year. This differs from a biweekly pay schedule, where employees are paid every other week which results in 26 pay periods in a year.
- Pay Dates: Employers usually set fixed pay dates for each period. For example, employees might be paid on the 1st or 15th or last day of every two months.
- Calculating Wages: To determine the amount of each paycheck, employers divide the employee’s annual salary or hourly rate by 6 (the number of pay periods in a year for a bi-monthly schedule).
- For salaried employees, the paycheck amount remains consistent each pay period, unless there are deductions or changes in benefits.
- For hourly employees, the paycheck amount varies depending on the number of hours worked during each pay period.
- Overtime Calculation: Overtime pay is calculated based on the hours worked in a single workweek, not across pay periods. If an employee works overtime hours during a pay period, they will receive the additional pay on the paycheck for that period.
- Benefits and Deductions: Like any pay schedule, benefits, taxes, and other deductions are typically taken out of each paycheck according to the employee’s preferences and applicable laws.
- Budgeting Considerations: Employees receiving bi-monthly paychecks may need to budget differently than those on other pay schedules. They may need to account for bills, rent/mortgage payments, and other financial obligations due for two months.
Payroll administrators can easily calculate the overtime with the weekly pay schedule since the workweek is the same as the pay period. Employees also can verify the overtime payment easily since calculation considered on weekly basis.
Tips to Implement Bi-Monthly Payroll
Implementing a bi-monthly payroll system requires careful planning and attention to detail to ensure a smooth transition. Here are some tips to help you implement a bi-monthly payroll effectively:
- Communicate Clearly: Inform your employees about the upcoming change well in advance. Clearly explain the new pay schedule, including the pay dates and any adjustments to payroll procedures. Address any concerns or questions they may have to alleviate confusion.
- Review Legal Requirements: Familiarize yourself with local labor laws and regulations regarding payroll schedules, wage payments, and tax requirements. Ensure that your new bi-monthly payroll system complies with these regulations to avoid any legal issues.
As an example: implementing a bi-monthly payroll in the USA must comply with Fair Labor Standards Act (FLSA) regulations, ensuring minimum wage, overtime pay eligibility, and accurate record keeping. Employers must also adhere to state wage and hour laws, tax withholding requirements, and provide clear communication to employees regarding pay schedules and deductions. - Update Payroll Systems: Update your payroll software or systems to accommodate the new bi-monthly schedule. Make sure that your payroll system can accurately calculate wages, deductions, and taxes based on the new pay frequency.
- Adjust Employee Records: Update employee records to reflect the new pay schedule. Verify and adjust employee information, including salary or hourly rates, tax withholding preferences, benefits deductions, and direct deposit details as necessary.
- Coordinate with Finance and HR: Work closely with your finance and human resources departments to coordinate the implementation of the bi-monthly payroll system. Ensure that everyone understands their roles and responsibilities in the payroll process and that any necessary changes to accounting or HR procedures are made accordingly.
- Test the System: Conduct thorough testing of your payroll system to identify and resolve any issues before the new pay schedule goes into effect. Verify that payroll calculations are accurate, and payments are processed correctly for all employees.
- Provide Training: Offer training sessions or resources to payroll administrators and managers responsible for processing payroll. Ensure they understand the new procedures, deadlines, and any changes to payroll-related tasks.
- Establish Contingency Plans: Develop contingency plans to address potential issues or delays that may arise during the transition to the bi-monthly payroll system. Have backup procedures in place to handle payroll processing errors, missed deadlines, or other unforeseen circumstances.
- Monitor and Adjust: Monitor the implementation of the new pay schedule closely during the initial months to identify any problems or areas for improvement. Solicit feedback from employees and payroll administrators, and be prepared to make adjustments as needed to ensure the system runs smoothly.
- Provide Ongoing Support: Offer ongoing support to employees and payroll administrators as they adjust to the new bi-monthly payroll system. Address any concerns or issues promptly and continue to communicate updates and reminders as necessary.
Other Types of Payroll Schedules (Methods) Available
1. Bi-Weekly Payroll Schedule
Biweekly payroll is when employees receive their pay every other week on an agreed day. There are 26 payments applicable for bi-weekly payroll, usually twice a month.
The entire year will be split into 26 separate pay periods in a biweekly schedule. Hence the employees get paid every two weeks instead of every week. In some months, the employees will get paid three times in one month with the payment schedule. There are always two months each year in which three paychecks are distributed and the other 10 months have two paychecks distributed.
2. Semi-Monthly Payroll Schedule
Semi-monthly payroll is when a business pays the employees twice a month, usually on the 15th and last day of the month. The payment generally happens out on the proceeding Friday if these dates fall on a weekend. Furthermore, employees’ annual salaries are split into 24 pay periods, results 24 equal payments throughout the year.
3. Weekly Payroll Schedule
Weekly payroll means employees are paid once every week on a specific day. This results 52 payments per calendar year. Friday is the most common day which the payment happens.
Bi-Weekly vs Semi-Monthly vs Bi-Monthly Payroll Schedules
| Biweekly Payroll | Semimonthly Payroll | Bimonthly Payroll | |
|---|---|---|---|
| Pay Period | Every Other Week | Twice A Month | Once Every Two Months |
| Number of Payments Per Year | 26 | 24 | 12 |
| Number of Payments Per Month | For 10 Months 2, For 2 Months 3 | 2 Payments Per Month | 1 Payment Per 2 Months |
| Payment Usually Happens on a Specific Day of a Week | Yes | No | No |
| Practical for Non-Exempt Employee Payment | Yes | No / Difficult | No / Difficult |
| Payment Amount Per Pay Period As Example. Assumption: Annual Salary of $78,000 | $78,000 / 26 = $3,000 | $78,000 / 24 = $3,250 | $78,000 / 12 = $6,500 |
| Best Advantage As an Employee | Employees Feel More Consistent | Payment Method is Easy to Understand | Paycheck Amount will be Comparatively High |
| Biggest Disadvantage As an Employee | Paycheck will be Comparatively Less | Not Practical with Non-Exempt Employees | Difficulty in Personal Budgeting |
How to Choose the Best Payroll Schedule for My Company?
Choosing the best payroll schedule for your company depends on various factors including your company’s cash flow, the frequency of your employees’ pay, administrative efficiency, and employee preferences. Here are some steps and tips to help you choose the most suitable payroll schedule,
- Assess your cash flow: You have to consider your company’s financial situation and determine how frequently you can afford to pay your employees. A more frequent payroll schedule, such as weekly or bi-weekly, may require a more consistent cash flow compared to a monthly or semi-monthly schedule.
- Consider employee preferences: You have to consider the preferences of your employees when choosing a payroll schedule. Some may prefer more frequent paychecks to better manage their finances, while others may prefer less frequent paychecks if they are used to monthly budgeting.
- Evaluate administrative efficiency: Consider the administrative workload involved in processing payroll. A more frequent payroll schedule may require more time and resources for payroll processing, whereas a less frequent schedule may be more efficient administratively.
- Review legal requirements: Make sure to comply with federal, state, and local labor laws regarding payroll frequency. Some jurisdictions may have specific requirements regarding the minimum frequency of paychecks. As example, in the United States, payroll schedules must comply with federal, state, and local labor laws
- Test different schedules: You can consider testing different payroll schedules on a trial basis to see which one works best for your company and employees, if possible. This can help you assess the impact on cash flow, administrative efficiency, and employee satisfaction.
- Consult with professionals: Consider consulting with payroll experts or financial advisors who can provide insights and recommendations based on your company’s specific needs and circumstances.
Ultimately, the best payroll schedule for your company will depend on a combination of factors, and it’s important to weigh these factors carefully to make an informed decision that meets the needs of both your company and your employees.
Pay Frequency Requirements in the US?
According to CPA Practice Advisor, there are no pay frequency requirements at the American federal level. But some U.S. states have specific pay frequency requirements as following examples,
In New Hampshire, employers must pay employees wages on a weekly or bi-weekly schedule. Semi-monthly and monthly pay frequencies must be approved by the New Hampshire Department of Labor (NHDOL).
In California and Michigan, the frequency of pay depends on the occupation. In California, wages must be paid at least twice during each calendar month on the days designated as paydays (with some exceptions).
Frequently Asked Questions (FAQs)
Q: Does bi-monthly payroll schedule famous in the world?
A: Bi-monthly payroll schedules are less common compared to bi-weekly and semi-monthly schedules globally. While bi-monthly pay periods involve paying employees once two months, it is not as widely used as other pay frequencies.
Q: What is the Most Popular Payroll Schedule in the US?
A: According to the U.S. Bureau of Labor Statistics, biweekly payroll is the most popular in the USA with an estimated 43% of U.S. private establishments paying their employees. Usually, bi-weekly payroll applies to non-exempt employees, casual hourlies, and undergraduate and graduate student workers.
Q: How should I communicate to my employees if I changing my payroll to bi-monthly?
A: First you should send out a clear announcement detailing the reasons for the change, the new pay schedule, and any adjustments to pay amounts or frequency of deductions. Provide ample notice period for your employees, address common concerns upfront, offer support channels for questions or clarifications, and update relevant documentation to reflect the new payroll frequency. Emphasize the benefits of bi-weekly pay and assure employees of your commitment to a smooth transition.
Q: What factors should consider when implementing bi-monthly payroll?
A: When implementing bi-monthly payroll, several factors should be considered. These include selecting specific pay dates, ensuring compliance with labor laws and regulations regarding pay frequency and holiday pay, communicating changes effectively to employees, and updating payroll systems and documentation accordingly. Additionally, it’s essential to anticipate potential challenges such as varying pay periods due to differences in the number of days each month and to establish processes for handling such situations to ensure smooth payroll processing.
Q: What is the best payroll schedule out of bi-monthly, semi-monthly, and bi-weekly
A: The best payroll schedule depends on factors such as company preferences, employee needs, and administrative feasibility. However, bi-weekly payroll is often considered the most practical choice for many businesses due to its alignment with regular workweeks, simplified payroll processing, and consistent pay frequency.
Q: What is the best payroll schedule for a small business?
A: For many small businesses, a bi-weekly payroll schedule tends to be the most practical choice. It strikes a balance between the frequency that employees appreciate for managing their finances and the administrative simplicity for the business. Bi-weekly pay periods typically align with regular workweeks and are easier to manage than weekly or monthly schedules, while still providing employees with a consistent and predictable payday.
Q: What are the challenges of processing bi-monthly payroll compared with other schedules?
A: Processing bi-monthly payroll can present challenges due to the variability in pay periods each month, as the number of days in a month can fluctuate. This variability can complicate payroll calculations, particularly for hourly employees who may work different hours each pay period. Additionally, bi-monthly pay periods may require more frequent adjustments to payroll processing schedules to accommodate weekends, holidays, or other factors, adding complexity to payroll administration.
Q: Are employees prefer to get paid on bi-monthly basis?
A: Employees’ preferences regarding bi-monthly pay vary. While some may appreciate the predictability of receiving single paychecks for two months, others may find it challenging to budget effectively due to the higher length in pay periods each month. Bi-monthly pay may not provide sufficient financial flexibility for those living paycheck to paycheck.
Q: How do I handle holidays on a bi-monthly payroll schedule?
A: Handling holidays on a bi-monthly payroll schedule involves adjusting pay dates accordingly. Employers may need to process payroll earlier to ensure employees receive their paychecks on time if a holiday falls on a regular pay date. Alternatively, if the holiday falls between pay periods, employees may receive their paychecks as scheduled. It’s essential to communicate any changes to pay dates to employees in advance and to comply with labor laws regarding holiday pay and payroll processing timelines.
Read More:
- Bi-Monthly Payroll
- Bi-Weekly Payroll
- Semi-Monthly Payroll
- Differences of Payroll Methods
