Being an employer, there’s often more than one way to go about fulfilling your duties and obligations. A perfect example is how you manage paying your employees. Some things are given (you have to pay them in money, for example), but one thing you can determine is how you schedule your staff’s pay. You have several options for how frequently you issue paychecks, and each one has its benefits and challenges.
What is Bi-Monthly Pay?
Bi-monthly payroll is when you pay your employees twice each month on the same day of the month (while allowing for weekends/holidays). This is also sometimes referred to as semi-monthly payroll. While employers like you may choose whatever days of the month to issue pay, the most popular days are the 15th and the last day of each month. This form of payroll is especially popular for businesses that have salaried employees. Because salaried employees receive a fixed amount of pay, recording hours isn’t required to determine how much they’re getting paid, making it easier to calculate each employee’s pay, as well as potentially reducing the number of records you need to keep. It’s also popular among employees who may have previously been paid weekly since each paycheck is bigger when issued bi-monthly.
Bi-monthly pay is popular in several industries, including the IT, financial, professional, and business services industries, where most employees are paid by salary rather than hourly wages. However, it has its challenges. For example, it’s more complicated for businesses that pay hourly wages; since the amount of hours worked can vary greatly between pay periods. Running your payroll on a set date instead of a set day of the week can also complicate things when payday falls on a weekend or recognized holiday, requiring you to issue pay earlier or later than usual, and having to factor in the difference.
Bi-Monthly Pay vs. Bi-Weekly Pay
While bi-monthly and bi-weekly sound like two names for the same style of payroll, there’s a distinct difference. While bi-monthly refers to paying on the same days of the month, each month, bi-weekly means paying your employees every two weeks on the same weekday, regardless of the month. The most common schedule for bi-weekly payroll is every second Friday, but you can choose whatever day of the week is most suitable for your business. Bi-weekly payroll is popular among businesses in education, leisure, and health services.
Like bi-monthly, bi-weekly payroll is easier to schedule and requires less record-keeping. It has reduced processing costs compared to weekly payroll since you’re doing it half as often. It also encourages good budgeting habits among your employees. However, like bi-monthly pay, it has its drawbacks. It can cause budgeting difficulties for employees accustomed to monthly or weekly pay and aren’t sure how to adjust their spending or how to reschedule recurring bills. Also, due to occurring every second week, this will result in 26 checks instead of 24, so two months out of the year will have three paychecks. This can complicate cash flow projections for your business, which makes planning your budget harder.
Other Payroll Options?
While bi-weekly and bi-monthly payroll are both popular among businesses with salaried employees, they’re not the only payroll models. If your employees are paid hourly wages, then a weekly model would be more effective at accurately accounting for the differing hours each one may work in a given pay period. It helps retain hourly wage workers by improving job satisfaction through frequent paychecks. However, weekly payroll can be time-consuming and expensive due to having more paychecks to process. You’ll need to have somebody who can keep track of the necessary records, including regular reports on each employee’s hours.
Monthly payroll requires the smallest number of checks per year, which makes it much less expensive to process and much quicker. However, it’s a rare pay schedule for hourly employees due to the date and day variations during the month, so it’s often used only for contractors with monthly invoices or similarly contracted staff members. Government employees are also typically paid monthly.
The first thing to do when implementing your payroll is to decide which model to use. Using the above guidelines, determine which model best suits your business. Ask yourself what your business’s payroll needs are, including the following:
- How many employees do you have?
- Are most of your employees salaried, or are they paid an hourly wage?
- What are the payroll regulations in your state and your industry, and what payroll models do they permit?
- Are there any revenue variations (such as busy weekends for restaurants) that should be considered?
- Do you have the knowledge yourself or among your employees to administer the payroll?
Next, determine who is going to administer your payroll. If you don’t think you should adopt the duties yourself, you’ll need to hire a payroll administrator or contract a third-party payroll provider. Both options have their merits. An in-house administrator will give you the most direct control over your payroll, but it will also mean hiring another full-time employee, which is an expense. It will also fall to you to find a qualified administrator. Contracting a payroll service is usually cheaper, and many service providers offer additional services besides just payroll administration. However, while you will retain the final say in your payroll administration, your payroll service will have a lot of direct control over your payroll.
Finally, create a strategy for making deductions and processing your payroll. Some forms of compensation, outside the paycheck itself, can be deducted pre-tax for your employees’ benefit. For example, if your business offers its employees benefits like health insurance or the use of a company vehicle, you can deduct the insurance premiums pre-tax. If you’ve hired an administrator or payroll service, they can provide valuable input and expertise.
The right payroll model for your business is determined by multiple factors, including your size, industry, number of employees, and if your staff is salaried or paid by the hour. Some models, like bi-monthly and bi-weekly, are better for salaried staff who are paid a regular amount, while others, like weekly, are better for hourly employees that may earn overtime. Hiring a payroll administrator or contracting a payroll service provider can provide you with the expertise you need. An in-house administrator gives you direct control over your payroll but can be expensive. You can save a lot on cost and still get expert payroll management with a reputable third-party payroll provider.
Manage Your Payroll with Payroll Vault!
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