Biweekly payroll definition
/What is a Biweekly Payroll?
Biweekly payroll refers to a payroll under which employees are paid once every two weeks, which generally means that there are 80 regular hours of work incorporated into each payroll. The concept is used by payroll managers who want to reduce the total amount of effort expended processing payrolls over the course of a year.
Since payments are made once every two weeks, this means that there are 26 biweekly payrolls per year. This translates into ten months per year that contain two payrolls, and two months per year in which there are three payrolls.
The amount paid to an hourly employee can vary from payroll to payroll, since the number of hours actually worked may vary. The amount paid to a salaried employee is unlikely to change from payroll to payroll, since the amount paid is simply a person's annual salary, divided by 26.
The date on which cash is actually paid to employees will be delayed several business days after the two-week period covered by the biweekly payroll, so that hours worked and other information can be compiled and converted into net pay information.
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Disadvantages of a Biweekly Payroll
There are a few disadvantages associated with operating a biweekly payroll, which are as follows:
More administration. With 26 pay periods instead of 12 (monthly) or 24 (semimonthly), payroll needs to be processed more frequently. This can increase administrative workload for HR and payroll teams.
More errors. More frequent processing can lead to a higher risk of payroll errors, such as incorrect deductions, overtime miscalculations, or misaligned benefits.
Cash flow challenges. In months with three payrolls (which occur twice a year in biweekly systems), businesses may face cash flow difficulties, especially small businesses or organizations with tight budgets.
Cash forecasting issues. Irregular cash outflows due to those "extra" pay periods can complicate financial planning and budget management.
Employee confusion. Employees may find it difficult to plan their finances with biweekly payroll, as pay dates change from month to month rather than being consistent.
Benefit deduction issues. Since benefits like health insurance are often calculated on a monthly basis, coordinating deductions for 26 pay periods (instead of 24 or 12) can be tricky. During months with three paychecks, employers may need to skip deductions, which can confuse employees.
These disadvantages can make a biweekly payroll less suitable for some organizations, particularly smaller ones or those with cash flow constraints.
Biweekly Payroll vs. Semi-Monthly Payroll
A more efficient payroll system is semi-monthly, where there are always two payrolls in every month, or 24 payrolls per year. Under a semi-monthly system, the information recorded through the payroll system more closely aligns with the monthly reporting period, which makes it easier to close the books and issue financial statements. This differs from the biweekly payroll, where two extra payrolls must be processed per year, and a month-end compensation accrual will probably be required.