Every business pays its employees for its services. The function of paying employees is known as a payroll function. The payroll function falls under the Human Resources department. Depending on their size and nature, businesses may have different employees.
For example, for smaller businesses such as sole proprietorships, employees will be low or close to none. These businesses may have no other employees except for the business owner. For multi-national companies, the number of employees can be in thousands.
Businesses pay their employees for the different tasks they perform. This payment can be in many forms, such as basic salaries, bonuses, overtime premiums, commissions, holiday pays, sick pays, etc. Similarly, businesses must also comply with the relevant employee payment laws and regulations.
Sometimes, these regulations may require businesses to make specified mandatory deductions from the employees’ payments. For example, these deductions may come in tax or pension deductions.
All the tasks related to employees, such as keeping their records, ensuring their safety, paying their salaries, etc., are handled by the Human Resources department in a business. The function related to paying employees for their services is known as the payroll function.
The business’s payroll function must ensure that employees get paid for the services they provide to the business in a timely and organized manner.
Similarly, the payroll function must comply with all relevant employee-related rules and regulations and ensure any mandatory deductions get subtracted from the employees’ payments.
The HR department of a business, in line with the policies of the business, decides on certain features of the payroll function. For instance, they must make decisions regarding the medium through which employees will get paid and the frequency of the payments.
Frequency of payments
When it comes to the frequency of payments to employees, the HR department of a business has many options. The frequency of payments dictates certain features of the payroll function, such as its costs.
For example, the HR department may decide to pay the employees every day. However, that requires the department to prepare a payroll every day. Due to this, the administration and review costs of the function may skyrocket. However, very few businesses, if any, pay their employees daily.
Most businesses pay their employees every month. It is the standard payment procedure for a majority of the business.
However, some businesses may choose to pay their employees after shorter intervals of time, for instance, biweekly. While biweekly payments are not as popular among businesses as monthly payments, they do have their perks.
Businesses that operate a biweekly payroll pay their employees every two weeks. Employees get paid on a set day of the week on alternate weeks in a biweekly payroll. For example, businesses paying biweekly payrolls will pay their employees every Friday on alternate weeks.
This means that the business will prepare its payrolls and will pay its employees 26 times a year. In comparison, businesses operating a monthly payroll will prepare their payrolls 12 times a year.
Biweekly payrolls are also slightly different than semimonthly payrolls. Businesses operating a semimonthly payroll pay their employees twice a month. For example, employees may get paid on the 1st and 16th date of every month.
This results in a total of 24 payments during the year. While biweekly payrolls are almost similar, they include two extra payments. This is because, in a biweekly payroll, for two months during the year, a business will pay its employees three times.
Businesses, to calculate the biweekly salary of an employee, must divide the total annual salary of the employee on 26. For example, if the total yearly salary of an employee is $104,000, then their biweekly salary will be $4,000 ($104,000 / 26).
For hourly rate employees, the business must calculate their wages up till the date of payment and pay these wages to them.
Advantages of Biweekly payroll
There are many advantages of using a biweekly payroll for businesses. The first advantage of using a biweekly payroll is that it can help increase employee motivation. Employees are more likely to appreciate payments made to them two or three times a month rather than one monthly payment.
Similarly, a biweekly payroll can also help the HR department of business reduce the chances of payroll errors. This can help the HR department reduce costs related to errors and reprocessing of these errors. It also helps the employees who are affected by the error. The employees get compensated for it without having to wait for a full month.
A well-designed biweekly payroll can also provide more consistency for the employees of the business. Employees can expect to receive their payments on a fixed day of the week which will not fall on weekends.
With other payroll system frequencies such as monthly or semimonthly payrolls, the payment days may fall on weekends and may, therefore, be inconsistent.
Disadvantages of Biweekly payroll
The biweekly payroll system may have some disadvantages as well. As discussed above, biweekly payrolls can increase the administration and processing costs of a business. This is because the business has to process 26 payments every year rather than 12 payments in monthly payrolls or 24 payments in bimonthly payrolls.
Similarly, due to the greater number of payments per year, businesses must also budget accordingly. For two months in a year, businesses must pay their employees three times rather than two times. This may create an extra burden on the cash flows of these businesses.
While biweekly payrolls can be motivating and a consistent way to pay employees, there are still better ways to achieve motivation and consistency. For example, employees paid weekly, rather than biweekly, are going to be even more motivated. Similarly, weekly payrolls are more consistent as compared to biweekly payrolls.
Businesses must choose the frequency of their payrolls based on certain factors. Businesses that operate a biweekly payroll must pay their employees every other week on a specified day of the week. This means that the employees of the business will receive a total of 26 paychecks annually.
Biweekly payrolls are different from bimonthly payrolls because they take weeks as a base rather than months. There are many advantages of operating a biweekly payroll such as better employee motivation and reduction in chances of errors. Similarly, it may have some disadvantages such as increasing the costs of payroll preparation and may create a burden on the cashflows of the business.