Advantages and Disadvantages of Biweekly Payroll
Biweekly payroll refers to the payroll payment that pays employees every other week on a decided day. The employees get paid every two weeks in bi-weekly pay. Every calendar year has 52 weeks, hence there are 26 payments applicable for bi-weekly payroll (52/2 = 26).
The following are the Advantages and Disadvantages of the Biweekly Payroll.
Advantages (Pros / Positives / Benefits) of Biweekly Payroll
Advantages for Employees
1. Employees Feel More Consistent
A bi-weekly pay schedule pays employees every two-week basis. Employees will know the payment will happen on the same day (e.x. Friday) every other week. This is pretty much consistent for the employees when compared with semi-monthly payment, which payment happens every month but the date will be different.
Employees can better consider how much they need to spend on routine household expenses like groceries, food, and gas for the coming two weeks. Bi-weekly payroll will help the employees to plan and manage the expenses & savings for the next two weeks easily.
2. Employees will Receive More Paychecks
The employees get a paycheck every two weeks basis in bi-weekly pay. Every calendar year has 52 weeks, hence there are 26 paychecks received for an employee on each year in bi-weekly payroll (52/2 = 26).
But in semi-monthly pay, the number of paychecks received is 24 (there are two payments applicable in each month, hence 2 x 12 = 24).
The employee will receive more paychecks in bi-weekly payments, even though the yearly total amount is the same. The employee will feel comfortable planning the expenses and saving money using the additional two paychecks received.
Employees can plan and avoid late charges with the more paychecks received.
3. Good Overtime Limit Coverage
For employers using the biweekly pay period, the overtime limits per pay period would cover both weeks instead of just one. This is another advantage for employees who can plan and cover more overtime.
Advantages for Employers
4. Easy Overtime Payment Calculation
In biweekly payroll, employee time entry verification for overtime calculation is easy because it is with a set duration of two weeks. When compared with the semi-monthly payroll which the time entry verification happens in the mid of the week (without a set duration), it is quite easy with biweekly payroll to handle the overtime payment-related calculation.
As an example, if semi-monthly payroll is used and employee overtime hours fall between two different pay periods, the company should make adjustments that are complex to manage.
5. Increase in Payroll Processing Efficiency
The company does the payroll processing every two weeks instead of one, which makes this more efficient. The HR department does the payroll processing steps consistently on the same day of each week. It is easier to plan and manage the administration work as a routine.
Disadvantages (Cons / Negatives / Drawbacks) of Biweekly Payroll
Disadvantages for Employees
1. Paycheck will be Comparatively Less
When compared with bi-weekly payroll, the value of the individual payment will be less. Employees receive two extra paychecks per year (26 – 24) as an opposite for this.
As an example, if the employee’s annual total payment is $78,000 then,
- If the employee receives the payment via a bi-weekly method he/she will receive $3,000 per paycheck ($78,000 / 26 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).
2. 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-weekly payment is there.
3. Promotes More Spending for Employees
Bi-weekly payments could encourage more spending for certain employees. As an example, the employee will feel that they will get the next payment in two weeks, hence rather than planning to save, the mindset could shift to spend more. This means the employee gets the payment on more frequent occasions hence unable to plan the savings properly.
Disadvantages for Employers
4. Complicated Cash Forecasting for Companies
In bi-weekly payroll, there are 26 pay periods in a year. This means there will be two months which has three pay periods. The company will be in a much more difficult situation to forecast the monthly cash flow to pay three times in a given month. Extra effort will be needed to plan exceptional situations like this.
5. Difficultly in Monthly Company Budgeting Process
There will be two extra paychecks on a given two months per year when using bi-weekly pay. The company finance department will be in a difficult situation with budgeting since there will be three paychecks given in two months per year. The company should verify in advance whether adequate money is there is planned properly to avoid any last-minute hassle.
6. High Expenses in Payroll Run Administration
Whether the company is administrating the payroll in-house or outsourcing, the bi-weekly payment will incur additional expenses in the payroll run, since there are two additional pay periods in bi-weekly pay. This will result in higher annual payroll management expenses for companies that use biweekly pay frequency.
7. Additional Paper Work Requirement
- Bi-Weekly Payroll
- Bi-Monthly Payroll
- Semi-Monthly Payroll
- Differences of Payroll Methods