Bi-Weekly Payroll

Why don’t workers get paid every day? Employers use a lot of different schedules to pay their employees. They generally try to balance their employees’ needs to access their wages against the cost of processing payroll.

One common pay frequency is bi-weekly payroll. In short, it helps workers get their money relatively soon while creating only a moderate administrative burden. Many employers and workers prefer this payroll frequency and is particularly common the United States, Canada and Mexico, though it’s not an accepted practice everywhere. This article will define what bi-weekly payroll is, how it’s calculated, and how it compares to other frequencies.

Bi-weekly payroll means calculating payroll and paying employees every two weeks.

As there are 52 weeks in the year, this frequency means that there are 26 pay periods annually, so employees get 26 paychecks per year. Bi-weekly doesn’t mean twice a week (that would be semi-weekly) but instead means every two weeks. This also means that employers can conveniently choose payday to be the same day every week, every second Friday, for example.

Bi-weekly payroll is a legal option in 13 of the 50 US states. These include California, Indiana, Iowa, Louisiana, Maryland, Massachusetts, Michigan, Mississippi, New Hampshire, Rhode Island, Texas, Vermont, and Virginia. Furthermore, it’s a legal option across all provinces in Canada. This frequency is also used in several countries around the world. Employers can choose this schedule to help their employees access their wages faster than for monthly payroll processing, while reducing their administrative burden by half compared to weekly payroll.

Employers certainly don’t have to pay their employees on a bi-weekly schedule. Other common payroll frequencies are possible, and different states mandate which frequencies are allowed in their jurisdictions.

Most states allow more than one payroll frequency so that employers can choose when to pay their staff. Some even have multiple options for different types of employees or even let individuals choose their frequencies.

Here are the options different states provide as well as their advantages and disadvantages relative to bi-weekly payroll:

Bi-weekly payroll is processed and paid every two weeks which means that administrators need to collect time and attendance data every two weeks. They use an employee’s worked hours for that period to calculate their hourly base pay, or simply divide their annual salary by 26 to get the base pay for the period.

Bi-weekly base pay calculations

If hourly Worker X, paid $10/hour, performs 80 hours of work in the two-week period, their base pay for their bi-weekly payroll would be multiplied by their hourly rate following this equation:

Base pay = 80 hours x $10/hour = $800

Salaried Worker Y paid $60,000/year would have a base pay for their pay period of:

Base pay = $39,000 / 26 pay periods per year = $1,500

Gross pay

Gross income is usually made up largely of base pay but can also include: allocated tips, bonuses, commissions, allowances, and other types of earnings. When calculating gross pay for a bi-weekly payroll period, all of these earnings for the two-week period are added together.

For example, if Worker X receives a home office allowance of $50/week and no other additional earnings, their gross income for a 2-week period would be:

Gross income = base pay + other earnings = $800 + $100 = $900

Pre-tax deductions

Some payroll deductions can be subtracted from an employee’s gross income before taxes are assessed. An employer may make contributions to the employee’s HSA (health savings account) or retirement savings plan that are, for tax reasons, not counted as taxable income. For this reason, employer contributions don’t need to be added to the employee’s gross income but do need to be accounted for as expenses for the employer.

Pre-tax employee deductions are subtracted from gross income before taxes are assessed with the formula:

Taxable income = gross income – pre-tax deductions

For example, Worker X makes pre-tax deductions of $80 every two weeks to their 401(k) plan. Their taxable income for a two-week period would then be:

Taxable income = $900 – $80 = $820

Tax withholdings

Employers in most countries are required to withhold pay-as-you-earn (PAYE) income taxes from their employees’ pay. In the US, this can include federal, state, and even local income taxes. Employers also calculate and deduct Social Security taxes and Medicare taxes, and, in some states, employees contribute small amounts to state unemployment insurance (SUI) as well. These deductions are calculated as a percentage of each employee’s salary, with Social Security paid at 6.2% each by of the employee and the employer and Medicare at 1.45% each. Federal income taxes in the US can range from 10-37% of gross income. It’s easy to calculate and withhold these from employee paychecks by simply taking a percentage of their gross income for each item. The calculation to find net pay is:

Net pay = pre-tax income – deductions

In the case of Worker X, who would fall into the 12% federal tax bracket, the employer should withhold 12% income tax, 6.2% for Social Security, and 1.45% for Medicare. Worker X’s net pay calculation would be:

Net pay = $820 – [($820 X 12%) + ($820 X 6.2%) +($820 X 1.45%)]
Net pay = $820 – [$98.40 + $50.84 + $11.89]
Net pay = $658.87

If all things stay the same, Worker X will take home $658.87 on their paycheck every two weeks.

Bi-weekly cost to company or CTC is how much an employee costs their employer every two weeks. The CTC that an employee generates includes their base pay and other income paid by the company, plus the cost of additional benefits granted and employer tax contributions. The formula for bi-weekly CTC would look like this:

Bi-weekly CTC = base pay + other earnings + employer tax contributions + benefits

To illustrate how this calculation actually works, let’s return to Worker X and the following figures:

• Base pay in the 2-week pay period: $800
• Allowance for home office: $100/2 weeks
• Social Security tax employer contribution: 6.2% of taxable income
• Medicare tax employer contribution: 1.45% of taxable income
• State unemployment insurance contribution: 3.8% of taxable income
  • (tax total = 11.45%)
• Employer 401(k) contribution: $80/2 weeks

The calculation of Worker X’s cost to their employer would be:

Bi-weekly CTC = base pay + other earnings + employer tax contributions + benefits

Bi-weekly CTC = $800 + $100 + ($900 X 11.45%) + $80

Bi-weekly CTC = $800 + $100 + $103.05 + $80

Bi-weekly CTC = $1,083.05

We can see from these calculations that although Worker X takes home $658.87 every two weeks, they cost their employer $1,083.05 bi-weekly.

There are several advantages to bi-weekly payroll for both employers and employees. Some of these advantages are:

• Payday always falls on the same day of the week, so weekend adjustments can be avoided.
• Workers get access to their wages relatively quickly which can help them avoid short-term borrowing.
• Saves half the time and administration compared to running weekly payroll in-house.
• Lessens the burden on an employer’s cash flow compared with large monthly payouts.

There are clear advantages to running payroll every two weeks. However, there are also limitations and downsides to bi-weekly payroll, including:

• Since months are irregular, bi-weekly payroll doesn’t follow monthly separations, while many employer and employee costs do.
• Not as fast to access wages as weekly pay periods.
• Creates more than double the administrative burden of monthly payroll.
• Employees can find it more challenging to manage their personal finances with smaller paychecks compared to larger monthly sums.

Bi-weekly payroll means that employees are paid 26 times a year, on the same day of the week every two weeks. This schedule creates more time and work for processing payroll than a monthly frequency, but also lets workers access their wages more quickly. This helps them avoid financial stress and is generally preferred over longer periods.