The Advantages of Bi-weekly Vs. Semi-monthly Payroll
One decision business owners or managers must make is the frequency with which they pay their employees. Common methods include paying bi-weekly, meaning every two weeks, or semi-monthly, meaning paying on predetermined dates twice each month. For some businesses, a bi-weekly payroll schedule can offer several important advantages over a semi-monthly structure.
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More Frequent Paychecks
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Employees may prefer a bi-weekly pay system because it means they receive 26 paychecks during the year instead of 24. With a company using a semi-monthly system where they pay employees on the first and 15th day of each month, for instance, the waiting period for the second check of the month is slightly greater than two weeks in most months. However, the bi-weekly checks are slightly smaller than the semi-monthly checks for salaried workers, as they represent a smaller proportion of the annual income.
Easier Planning
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A bi-weekly payroll system may make it easier for employees to plan and manage their finances, such as when paying bills. They will receive their paycheck on the same day of the week, every two weeks, with the possible exception of holidays. They won't need to consult a calendar, as may be the case with a semi-monthly system based on the date. Employees may also view the "extra" third paycheck they receive two months out of the year as a type of bonus.
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Paying Overtime
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The federal Fair Labor Standards Act stipulates that nonexempt hourly employees, who are eligible for a higher rate of pay when working more than 40 hours in a week, be paid at an overtime rate of at least 1.5 times their base hourly rate. As the FLSA determines a workweek based on a consecutive seven-day period, it is easier to calculate overtime payments using a weekly, or by extension, a bi-weekly payroll method than when paying on a semi-monthly basis.
Legal Compliance
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State law, as opposed to federal, dictates the minimum frequency at which employees must be paid. Laws regarding payment frequency can vary widely from one state to another. An advantage of bi-weekly instead of semi-monthly payroll is that if you operate or plan to operate in several states, you may have a better chance of being in compliance in each state due to the greater payment frequency. As a result, you may avoid the expense and hassle of having to change your payroll process to conform with the laws of each state.
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References
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