Bi weekly pay pros and cons are often a matter of perspective. One accountant’s preference can be another accountant’s nightmare! This article will help you understand whether or not bi-weekly pay is right for you.
Generally, bi weekly pay schedules offer employees and independent contractors the opportunity to receive paychecks on a more frequent basis. The three-pay cycle is biweekly, which means that if you are paid biweekly, you will get paid twice a month. This is better for people who have a hard time saving money because it gives them better opportunity to have more frequent access to their money.
How do bi weekly payments operate?
When choosing this option, the company’s accountant or payroll department will pay each employee on a set day once every two weeks. Maybe every other Monday, but the day will always be the same.
This typically translates to two pay packets per month, however if there are five Mondays in a given month, the company may occasionally pay out three times. With bi weekly pay, there are always 26 paydays per year.
What distinguishes semi-monthly from bi-weekly?
Semi-monthly pay and bi weekly pay are sometimes confused. There is a sizable difference, though. Only twice a month, on the same days every month, is paid by semi-monthly.
In contrast to bi weekly, there will never be more than two paydays in a single month, and workers may anticipate receiving 24 paychecks annually.
Every two or three weeks, on the same day, bi weekly pays can be made (whether it is two or three depends on the number of, for example, Mondays in a month).
If an employer chose to pay semi-monthly, they may do so on the first and fifteen or fifteenth and thirtieth of each month (the most common date options for this method).
The two payment systems are similar in certain ways:
- Payroll typically needs to conduct two pay runs per month.
- Only two weeks are required for employees to wait between paychecks.
- Compared to paying employees on a weekly basis, both options may be simpler and less expensive for the firm.
There are certain significant distinctions, nevertheless, that typically work against semi-monthly recipients:
- Due to the fact that compensation is typically only handled Monday through Friday, they might have to work through an additional weekend before they get paid.
- Additionally, bank holidays may have an impact on them, which can be irritating for the employee whose direct deposit may be scheduled for a specific date each month.
- Because they are aware that they will receive money on the same day every two weeks, bi weekly employees may better organize their budgets.
Additionally, having the assurance of a regular fortnightly salary might help with budgeting throughout holiday seasons, making certain times of the year a little less stressful when paid bi weekly.
When the holidays roll around in December, if you are paid semi-monthly, it may mean getting paid early in the month and not receiving another payment until the end of January, and possibly blowing one month’s budget on the celebrations.
The primary distinction between the two payment schedules is that bi weekly works well and has several advantages for hourly employees and those who work overtime.
That being said, there are a couple of disadvantages to this type of pay schedule as well – and this article will certainly cover those, too. For now, though, we’ll start with the pros. Without further ado:
Pros of Bi Weekly Pay
A Great Way for Employees to Manage Their Finances
Receiving more regular increments of payment can help employees to keep track of their income and therefore help them to budget appropriately. It is for this reason that bi-weekly pay is usually offered as a benefit to employees – which could possibly attract better employees to your team.
Examples of how it can help employees include:
- It can help them prevent them from overspending during the time between paychecks and help them to avoid financial disaster.
- This type of paycheck can also present issues with debt management or budgeting in that it might not afford the same flexibility as someone’s monthly schedule would for paying off debt or other financial commitments.
- More paychecks means that they may avoid late charges from utilities or certain retailers.
- With bi-weekly paychecks, people are more likely to spend their money quickly on what they really need. With biweekly, people can better assess how much they need to spend on gas or groceries for the coming two weeks, as well as more effectively manage their investments.
- Bi-weekly salary schedules can help employees to make the best use of money by helping them plan for their future and provide some cost savings on things like health care in retirement age.
- Bi-weekly payroll technically means you get a few “bonus” cheques per year!
Clearer Expense Calculation for Your Business
Another potential benefit is that bi-weekly payments can help to clear up issues related to business expenses and things like taxes. Since taxes are usually taken out monthly instead of quarterly when using this type of payment schedule, there is a greater possibility that you will miscalculate your budgeting for taxes and other expenses money overall at the end of each period. Bi-weekly pay is a great way to avoid this.
The 2 checks per month can help individuals save money on interest charges because there will be less time between payments. The end-of-month bonus check becomes discretionary income which may provide some relief from financial stress at the beginning of each month.
Cons of Bi Weekly Pay
While on the one hand it’s possible that bi-weekly pay could benefit budgeting, on the other hand, a lot of people don’t find it helpful whatsoever. Most of the time, this boils down to differences in personal budgeting style, but it’s worth going over. After all, there’s a reason bi weekly pay is not as common as monthly pay.
- Overtime calculations might be challenging – It could be challenging to determine how much hourly overtime income you should anticipate since there are more paydays each year.
- Tax deductions and other deductions might be complicated. It is simpler to determine the proper deductions evenly for each calendar month when paid semi-monthly. Bi weekly pay can make monthly deductions more challenging to calculate, though, because some months have more paydays than others. The employee is responsible for figuring up and processing these deductions on their own; for ease of use, there may be an option to adjust deductions across 24 paydays. This depends on the company, the payroll software, and the person.
- Take-home pay on additional months – In light of the aforementioned deduction variables, there are two additional computations and budgeting steps required to determine take-home pay each year. This can throw off your spending plan for those two months.
More Expensive to Administrate
The first problem and most obvious problem with biweekly pay schedules is that they can be expensive for the employer and the employee. Paying employees every two weeks instead of once a month raises costs considerably because an employer will need to hire or purchase more payroll equipment and software solution to cover the increased frequency of payment. For example, if an employer pays its employees monthly and one employee requests biweekly payments, they would need to buy software that allows them to process payroll once each month and every other week in order to cover the increased frequency of payment.
Encourages More Spending
Despite the potential for better budgeting, bi weekly pay can actually make budgeting more difficult for some individuals.
Biweekly pay schedules encourage spending at a higher rate because it is easier for people on this type of schedule to have access to their money on more frequent occasions. It can also be difficult for people with kids if they are paid biweekly because it requires weekly child care costs that could be too expensive for many families expecting every other paycheck.
For employees, biweekly pay can cause paycheck stress because some may have trouble making ends meet with two checks per month instead of one. Some jobs require payment for days worked regardless of whether or not an employee is paid on Saturdays or Sundays; if this applies to you, your income will be uneven throughout the year and your biweekly check will not help meet expenses. Similarly, if you do not receive a paycheck on Saturdays or Sundays, it may be difficult to know when you are paid.
Bi weekly pay is almost always a great option for businesses whose employees are freelancing, or performing irregular turnovers of work. Those types of workers benefit from the increased stability, and can use automated software to make invoices or generate pay stubs to further simplify the process.
But for businesses who hire employees full-time, it could become an unnecessary extra cost and job to implement bi weekly pay.
In order to decide whether this method of payment works for you and your business, analyze the needs of your business as well as the needs of your employees. Treat your employees well, and they’ll give you dividends on your investment!