Understanding Pay Options: What Is Bi-Weekly Pay and How Does It Work?

With so many different payment models, it’s hard to differentiate between the subtle advantages and disadvantages they present. If you’ve landed on this post, you’re probably wondering, “What is bi-weekly pay?” Don’t worry. Hubstaff is here to help.

We know remote business owners like you constantly face critical decisions to manage your company and cash flow efficiently. You also need to maintain productivity. Meeting all of these criteria requires paying people well and promptly.

Getting that right leads to questions on selecting the right payroll system. While you’ve got multiple pay options, bi-weekly pay stands out as a popular choice. 

In this post, we’ll delve into the intricacies of bi-weekly pay, exploring:

• What Bi-weekly pay is
• Its advantages and disadvantages
• A guide on how to calculate it
• An overview of other payroll periods 

Let’s get started. 

What is bi-weekly pay?

Bi-weekly pay is a payroll system where you pay employees every two weeks. This structure means employees receive 26 paychecks annually, as opposed to the 12 monthly paychecks in a traditional monthly pay system. 

Businesses favor a bi-weekly pay period due to its simplicity and ease of operation. You have more time to build up your cash reserves, and you don’t have as big of a chunk of money coming out of the bank at once.

Many employees like bi-weekly paychecks because they can make budgeting more manageable. This semi-frequent model helps people ensure they have money set aside for bills or recurring expenses.

Benefits of a bi-weekly pay period

One significant advantage of bi-weekly pay is its ability to streamline payroll. With only 26 payroll runs per year (versus 52 in a weekly pay schedule), businesses save time and resources. It also allows for a more efficient focus on other aspects of the company.

Cash flow management is another crucial benefit. By paying employees twice a month instead of once, bi-weekly pay spreads out the company’s cash flow over the whole month. This makes it easier to budget for payroll and other business expenses.

Disadvantages to a bi-weekly pay period

While bi-weekly pay offers numerous benefits, it’s essential to consider potential drawbacks:

• Budgeting issues. Low-wage employees may find it challenging to budget with smaller, more frequent paychecks.
  
• Higher payroll costs. The increased number of payroll runs can lead to higher payroll costs, impacting the company’s bottom line.
  
• Increased admin time. More pay periods can mean more administrative time spent on these employee paychecks. If you work with a payroll provider, there may also be additional costs with this pay frequency. 

Some organizations also face pushback when switching from bi-monthly to bi-weekly payroll. That’s because monthly payments tend to happen on specific dates each month. 

One of the most common systems is to pay people on either the first or fifth of each month, which typically aligns with due dates for home or rent payments. Switching pay schedules can disrupt employee lives. If you’re making a change, give people plenty of notice and think about ways to reduce strain ahead of your new payroll structure.

How is bi-weekly pay calculated?

Calculating bi-weekly pay is easy for hourly and salaried employees. Start by dividing their annual salary by 26 or multiplying their average weekly by two. That’s the simple and direct method.

However, if you’re reviewing bi-weekly pay calculations from a business perspective, there are a few additional elements to consider, such as when you note taxes or benefits.

Calculating bi-weekly pay: Your comprehensive step-by-step guide

Navigating the intricacies of calculating bi-weekly pay is essential for businesses seeking clarity in their payroll processes and overall costs. Whether dealing with salaried or hourly employees, understanding the methodology is paramount.

To start, you’ll determine if your employees get an annual salary or have an hourly rate. This may depend on your company, the type of employment, or business structure factors. If you pay someone per project, estimate the number of projects they complete in an average week.

We’ll note deductions as we look at different types of pay calculations. Understanding these can help with the financial management of your business and also give your team members a better way to estimate their take-home pay.

For salaried employees

• Calculate their annual salary. Salary should be listed on an employment agreement and tracked in your current HR and payroll tools.
  
• Divide the total by 26. When dealing with salaried employees, divide the annual salary by 26 to get the bi-weekly pay. This accounts for the 26 pay periods in a year.
  
• Note deductions and costs. Be mindful that this calculation doesn’t incorporate deductions such as taxes or benefits. These should be factored in separately when understanding how much a team member costs your business each pay period. Things like health benefits may not be listed on a pay stub, but HR and payroll tools should capture this data for you.

For hourly employees

• Determine hourly rate. When dealing with employees who are paid hourly, start by identifying their hourly pay rate.
  
• Count weekly hours. Calculate the average number of hours worked per week. Base the average on standard working hours or variations like schedules and shifts.
  
• Multiply by 2. Considering the bi-weekly schedule, multiply the weekly hours by 2 to establish the total hours for the pay period.
  
• Include overtime. If applicable, factor in any overtime hours and apply the appropriate overtime rate.
  
• Calculate gross pay. Multiply the total hours (including overtime) by the hourly rate to determine the gross bi-weekly pay.
  
• Note deductions. When estimating how much your business will pay, take taxes, deductions, and benefits into account. When helping employees predict their pay, remind them to account for these deductions. This way, they won’t be surprised when they receive their first paycheck.

Business notes on estimating bi-weekly pay for hourly employees

Hourly employees can throw a wrench into payroll considerations. You might give people different hours each week, or they trade shifts to cover for vacation or days off. These all can shift your costs. 

Those fluctuations require that you look at hourly employees across longer periods, such as a month, to get safer estimates for your business’s cash flow needs.

If you’re using a bi-weekly pay period, here are some things to consider for your financial estimates.

• Forecast a weekly hours average for the organization. To start, estimate the total number of hours your hourly employees work in an average week. You’ll want historical data to calculate this — plan for weeks that are typical, as well as those with higher demands.
  
• Consider fluctuations. Account for potential variations in work hours, especially in industries with fluctuating schedules. For example, peak season means you will face higher hourly employee costs as you scale up to meet year-end demands if you’re in eCommerce.
  
• Double it up. Multiply the estimated weekly hours by 2 to arrive at a close approximation of the bi-weekly pay totals.
  
• Check for promotions and raises. Many businesses give promotions or raises at specific times, such as the start of the year or someone’s work anniversary. Review your policies and determine how many promotions or raises you’ve given over the past year. Add a similar increase to your projections for the year so you plan to have enough to reward great team members.

Significance of Accurate Calculations and Estimates

Accurate bi-weekly pay calculations and estimates are pivotal in effective financial management for businesses. By ensuring precision in these estimates, companies can:

• Protect revenue. Accurate calculations prevent revenue leakage by guaranteeing that you compensate employees correctly, safeguarding against potential financial losses.
  
• Understand cash flow. Precise estimates enable businesses to understand and predict their cash flow more effectively. This insight is valuable for planning and budgeting as you consider growth or investment.
  
• Be proactive with financial management. Businesses can proactively manage their financial resources by clearly understanding upcoming payroll expenses. This proactive approach contributes to overall financial stability.

Mastering the art of calculating bi-weekly pay empowers businesses to make informed decisions, ensuring employee satisfaction and financial health.

A quick guide to payroll periods

Consider your business’s cash flow, employees’ needs, and administrative requirements when choosing a payroll period. In addition to bi-weekly pay, it’s worth considering one of several other payroll period options like:

• Weekly pay periods. Weekly pay periods are frequent but require more time and resources.
• Bi-weekly pay. As mentioned, bi-weekly pay reduces the resource demand by a small amount while giving employees faster access to cash.
• Semi-monthly pay. Semi-monthly pay periods balance frequency, simplicity, and cost savings.
• Monthly pay. Monthly pay periods are the most straightforward method, but they don’t suit all employees’ financial needs.

You want to pay employees in ways that support them and your business.

Bi-weekly pay schedule vs. other pay periods

Comparing bi-weekly pay schedules with other options like monthly and weekly reveals distinct advantages and challenges. Understanding these differences is crucial for making an informed decision tailored to your business’s unique requirements. 

Your employees may have different preferences or needs, so be sure to ask them before you make payroll changes!

Weekly pay periods

Weekly pay periods, while offering enhanced cash flow management, require more time and resources to manage. Using a weekly pay period can be a compelling choice for businesses that can handle frequent payroll runs.

Employees like getting paid sooner, which is often a benefit in hiring and retaining top talent.

Semi-monthly pay periods

Semi-monthly pay periods strike a balance between frequency and simplicity. With two monthly pay periods, businesses can maintain a manageable payroll schedule while ensuring employees receive timely compensation.

Monthly pay periods

Monthly pay periods are the simplest to manage but can be difficult for employees. Getting paid more frequently makes planning their finances easier, such as paying bills or having cash on hand for regular needs.

While monthly payments reduce the administrative burden, it’s crucial to consider whether this less frequent pay schedule suits your workforce. When opting for a monthly pay schedule, you’ll also want to consider state laws, specific pay dates, and industry standards.

Putting bi-weekly pay into practice

Bi-weekly pay is a prevalent payroll option, offering benefits like streamlined payroll processing. 

However, it may also present challenges and increased costs. When choosing a payroll period, carefully consider your company’s and employees’ needs. Understanding the intricacies of bi-weekly pay, its pros and cons, and how to calculate it allows for an informed decision on whether it’s the right fit for your business.

Additional considerations for bi-weekly pay

Understanding the intricacies of bi-weekly pay involves considering factors beyond simple calculations. Consider the administrative burden, impact on employee satisfaction, and potential adjustments needed to accommodate this pay schedule.

Bi-weekly pay and cash flow management

Bi-weekly pay positively impacts cash flow management by distributing payroll expenses evenly throughout the month. This steady cash flow facilitates better budgeting for both payroll and other essential business expenditures.

Your business can be more flexible with how it spends capital while still meeting your employee satisfaction obligations.

Administrative burden and bi-weekly pay

While bi-weekly pay reduces the frequency of payroll processing, evaluating the administrative burden is essential. Ensure your payroll processing system can efficiently handle bi-weekly runs without sacrificing accuracy.

Whenever you move to a more regular pay period, review the software you use. Automation can reduce payroll errors and expenses. You’ll want a human to give final approval for biweekly payroll, but tools can simplify and protect revenue whenever you process payroll.

Hubstaff’s payroll tracking software not only manages time tracking and supports verification but also makes it easy to pay people quickly based on your preferred pay schedule.

Impact on employee satisfaction

Employee satisfaction is crucial in any payroll decision. Bi-weekly pay may be well-received by some employees who appreciate more frequent paychecks. However, others may need help to adjust their budgeting habits if your previous pay period was more frequent. 

Always ask your people how they feel about a change.

Adjustments for changing pay

Transitioning to a bi-weekly pay schedule may require adjustments — the same goes for any payroll changes. 

Communicate changes effectively to employees, addressing any concerns and providing resources to help them adapt to the new schedule. People will be using their paychecks differently and may need to save differently. 

Your HR and payroll specialists will need time set aside to answer questions and review payroll. Support times will want to create documentation and explanations around changes and any impacts they have on expectations.

Here’s one crucial thing to think about. Does shifting to a bi-weekly payroll change the cutoff date of payments?

For example, a bi-weekly schedule may shift cutoffs from the 15th to a Friday. Or it may change how you treat weekends. Adopting a biweekly pay schedule requires you to specify if the week starts on Monday and goes through Sunday or if it is Sunday through Friday.

In the remote and asynchronous world, that can drastically change how and when your team works.

Conclusion: Asking informed payroll decisions

In conclusion, understanding bi-weekly pay involves a comprehensive analysis of its benefits, disadvantages, and how it aligns with your business and employee needs. While it offers simplicity and improved cash flow management, weighing these advantages against potential challenges such as increased payroll costs and employee budgeting difficulties is crucial. 

By considering factors like administrative burden, employee satisfaction, and communication strategies, you can make informed payroll decisions that benefit your business and your workforce.