Everybody loves payday, no matter what day it falls on, but there are many payroll processing schedule options to consider that are preferred by both employers and employees for various reasons.
In this article, we examine biweekly pay - what it is, what are its advantages and disadvantages, why businesses favour it, possible tax implications, and how to calculate it.
First, what is biweekly pay?
Biweekly pay is payroll that is processed and issued to employees every other week on a specific day of the week. Issuing paycheques or arranging for direct deposit every other Friday for example, is a biweekly pay schedule. Since a calendar year has 52 weeks, employers using a bi-weekly pay schedule issue 26 paycheques or arrange for direct deposits 26 times per year.
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Why use a biweekly pay schedule?
Biweekly and semi-monthly pay schedules are the most common payroll methods in Canada. Employers may adopt a biweekly schedule for the following reasons:
- It is convenient for employers and easy for payroll administrators, as payday always falls on the same day of the week every other week. It’s a simple mechanism for those on the administration, as well as for those on the receiving end.
- It’s a tried-and-true schedule that many employees often appreciate. For some, it is a great way to head into the weekend.
Benefits of biweekly pay
- It saves time and is most cost-efficient to the employer as opposed to weekly payroll processing, as the task is simply done less frequently by whoever runs payroll for the company. Additionally, since the frequency of running the task is reduced, the frequency of possible errors decreases as well.
- It contributes to the ease of money management. For instance, if an employee knows they are getting paid on a Friday and have a car payment coming out on a certain date, they will know it will be covered. This is better for managing finances, as opposed to a semi-monthly pay schedule when an employee will have to wait until the 15th of the month (whatever day of the week that may fall on) to get paid. This may leave them short when paying bills until the next payday at the end of the month.
- More paydays per year. With a biweekly pay schedule, some months can have three paydays. This can feel like a bonus to employees, even though their rate of pay or salary remains the same as it would be if they were on a semi-monthly pay schedule.
- The amount received each pay period differs. An employee’s pay will change to reflect the exact number of hours or days they worked during each pay period. If they worked overtime or on a public holiday, their pay may differ from what it ordinarily would be from a standard work week or pay period.
- Overtime pay is received sooner. Often with hourly-paid employees, the number of hours worked each week can fluctuate. When an hourly-paid employee works overtime, their employer can reimburse them shortly after the overtime is worked, rather than waiting as they would have to if they were on a semi-monthly pay schedule.
Biweekly and semi-monthly pay – what is the difference?
On a biweekly pay schedule, there are often two months in the year when employees receive three paycheques. On the contrary, employees who are paid semi-monthly always receive two paycheques per month.
Companies that issue paycheques or direct deposits biweekly administer a total of 26 paycheques per year, while companies that use semi-monthly pay provide 24 paycheques per year.
Biweekly paycheques or direct deposits are more frequent than semi-monthly schedules. This is because biweekly cheques are issued more frequently annually than semi-monthly cheques, even though the employee's earnings over the course of the year would be equal under each circumstance. Those paid biweekly receive two more cheques or direct deposit payments yearly than those on a semi-monthly pay schedule.
Types of businesses that use a biweekly pay schedule
All types of businesses in a wide array of sectors opt to use a biweekly pay schedule. Generally, companies that employ both hourly and salary-paid employees tend to favour this pay schedule for various reasons. For hourly employees, overtime is paid faster, and for both hourly and salaried employees, paycheques are received on the same day of the week, every other week, along with the two extra paycheques or direct deposits which are received every year.
How to calculate biweekly pay
For hourly employees, multiply the number of hours they worked over a two-week period by their hourly pay rate.
For example, an employee who worked 80 hours over a two-week period earns $25 an hour; 80 hours x $25 = gross pay of $2,000.
For salaried employees, whose pay is based on an annual amount, their annual pay is divided by 26 (for 26 pay periods over the course of a year) to calculate their gross biweekly amount owed. For example, an employee who earns $75,000 a year will earn $2,884.62 gross pay on a biweekly schedule. ($75,000 divided by 26 weeks = $2884.62).
Of course, standard pay deductions such as Employment Insurance and Canada Pension Plan must be applied. This is either done manually or in most cases, for the sake of accuracy, done by using a reputable payroll software solution.
Disadvantages of biweekly pay
As outlined in this article, biweekly pay does have its advantages. Two extra paycheques or direct deposits a year and being paid on the same weekday every other week gives consistency and, in some cases, money management peace-of-mind to employees. However, with every advantage, there is also a disadvantage, and a biweekly pay schedule is no exception.
Some of the drawbacks of a biweekly pay schedule are that it can be tricky for payroll administrators to issue three pay periods as opposed to two, for two months each year as dictated on a biweekly pay schedule. This means finance managers and accountants must accurately budget for the two months. Also, with the added frequency of payments processed, the cost to the company might be higher if their payroll provider charges per payroll run. These are points to consider and discuss internally or with an external payroll provider before deciding on a payroll schedule for your company.
Does biweekly pay affect taxes?
Biweekly pay does not affect taxes. For employees, the length of a pay period has no bearing on tax liabilities. Total tax obligations are based on the total amount an employee earns over the course of a year, not the frequency of their paycheque or direct deposit.
Whether you are paid weekly, biweekly, semi-monthly, or monthly, the taxes deducted will be the same based on your hourly wage or annual salary. The same applies to employers issuing paycheques or direct deposits. Pay frequency has no bearing on total payroll taxes paid over the course of the year.
Frequently asked questions
How frequently should I run payroll?
When you adopt a biweekly schedule, payroll needs to be run every two weeks. Weekly is favoured by employees as they don’t have as long of a wait in between paycheques. Monthly is usually the most affordable option for the employer. Biweekly, as discussed in this article, as well as semi-monthly is a happy medium that generally satisfies employer and employee alike.
How do I run biweekly pay?
There are three common options for operating your company’s payroll on a biweekly schedule:
- Run it internally and manually with your own payroll administrator and/or HR staff. This can become expensive though, as it requires you to pay an employee or employees to do the work.
- Running payroll yourself using reliable software. This is the least expensive option, as good software will integrate with other common systems for time tracking and human resources and is regularly updated with the newest tax codes and tables. Keep in mind that running payroll software can be time-consuming, especially if you have a lot of employees and a small payroll administration team.
- Outsourcing by hiring a payroll service is perhaps the fastest option. Payroll service providers have the latest tools and highly skilled and experienced experts who know the latest tax codes and tables to handle your payroll efficiently.
- Note that fees for payroll services vary based on the size of your company, deductions, and how you want to pay your staff.
Do contractors get paid biweekly like other employees?
In short, no. Contractors are not employees and therefore, may be paid with a different frequency and schedule than employees. These are determined between the contractor and the company that retained them and should be outlined in the contract. For instance, whether they will be paid in stages or upon completion of the job is a factor that should be mentioned.
When should biweekly payments be processed?
This depends on many factors, such as the number of employees, the method by which payroll is processed (manually, using software, or using an outsourced payroll service) and of course, the biweekly payment schedule.
Most companies that adopt a biweekly payment method issue payments the following week after the last week of work is complete. For example, if the biweekly payday is every other Friday, an employee who works Monday to Friday of the first two weeks of the month will be paid for those two weeks on the third Friday of that month.
Learn More
There are many pay schedule options for running your payroll to ensure your employees are paid accurately, fairly, and on time. Each one has its advantages and disadvantages and can be confusing - especially when you, as an employer or payroll/HR administrator, are trying to find the most efficient, cost-effective, and reliable method to issue payments in a way that will give your employees peace of mind. At ADP, we understand your concerns and offer payroll solutions for businesses of all sizes across Canada. Call 866-622-8153 and talk to our sales team to find the best solution for your business, or start a quote.
This guide is intended to be used as a starting point in analyzing biweekly pay and is not a comprehensive resource of requirements. It offers practical information concerning the subject matter and is provided with the understanding that ADP is not rendering legal or tax advice or other professional services.
