If you are a small business owner, then you are probably all too familiar with the importance of having an effective payroll schedule in place to support financial stability and employee satisfaction. One popular choice for many businesses is biweekly pay as it strikes a good balance between frequent pay periods and administrative efficiency.
This short guide will walk you through everything you need to know about biweekly pay, including the benefits of implementing this type of payroll schedule, how to set up biweekly pay in your business, and what you need to keep in mind in terms of legal compliance. We will also share a series of best practices to help you manage biweekly pay and ensure a smooth transition that benefits both your business operations and your employees.
What is Biweekly Pay?
Biweekly pay is an employment compensation structure where you pay your employees their wages every two weeks. For example, you might choose to pay your employees every second Friday, resulting in a total of 26 paychecks per year.
Compared to other pay schedules like weekly, semi-monthly and monthly, biweekly pay offers a balanced approach by providing more frequent payments, which can help with employee financial planning, whilst also reducing the administrative burden of processing payroll as often as weekly schedules require.
Biweekly pay is more common in certain industries and types of businesses.
Specifically, this includes:
- Retail. Many large chain stores and small shops offer biweekly pay as more frequent payroll cycles make it easier to align business needs with fluctuating sales periods and seasonal employment.
- Healthcare. It’s common to see biweekly pay in hospitals and clinics. This is because biweekly pay schedules align well with the administrative needs of managing a large, diverse workforce that includes both hourly and salaried employees.
- Hospitality. As with healthcare and retail, hospitality businesses commonly use biweekly pay to manage payroll for their staff, which often includes a mix of full-time, part-time and seasonal workers.
- Construction. Construction firms often use biweekly pay schedules to manage payroll for project-based and seasonal workers.
- Financial services. Banks, insurance companies and other financial service providers often choose to offer biweekly pay to maintain regular payroll cycles for their employees.
Why Choose Biweekly Pay?
Whether or not biweekly pay is a good option for your business will depend on a number of factors.
This includes:
- Business cash flow. Firstly, you’ll need to determine if your business has the cash flow to support biweekly payroll. This is important because making more regular payments (compared to paying employees monthly) is likely to have an impact on cash reserves, so you need to make sure that your business can continue to meet its financial obligations.
- The cost of processing payroll. Secondly, make sure you understand the cost implications of processing payroll more frequently. Whilst biweekly pay can reduce some administrative burdens, it may also result in higher processing costs compared to less frequent pay schedules if you don’t have the right software in place.
- The preferences of your employees. Thirdly, find out what your employees would prefer and try to accommodate the wishes of the majority. You’ll probably find that many would prefer biweekly pay as it can help with personal budgeting and financial stability.
- Industry standards. In addition, try to find out what the standard practice is within your industry. If most businesses in your sector use biweekly pay, it’s probably a good idea to align with the norm as this will help you remain competitive in terms of attracting and retaining talent.
- If there are any legal restrictions. Read up on federal, state and local labor laws in your area to determine if there are any specific requirements in terms of pay frequency and payroll taxes.
- Administrative capabilities. Review your current administrative capacity and payroll systems. If you don’t already have a reliable payroll system in place, then you’ll need to invest in payroll software to manage the increased frequency of payments smoothly.
Benefits for Employers
Let’s take a look now at some of the specific benefits of introducing biweekly pay for employers:
- Improved cash flow management. Firstly, by spreading payroll costs over more pay periods, it’s easier for your business to manage its cash flow and budget.
- Administrative streamlining. Secondly, biweekly pay reduces the number of payroll processes compared to weekly pay, saving time and resources on payroll administration.
- Employee satisfaction. Thirdly, more frequent paychecks can increase employee morale and financial stability, leading to higher job satisfaction and retention rates.
- Legal compliance. Moreover, aligning with federal and state labor laws is usually easier with biweekly pay, especially in certain states like California, New York and Massachusetts where there are specific requirements for pay frequency and wage calculations.
- Simplified record-keeping. Finally, biweekly pay schedules can streamline record-keeping and reporting, making it easier to manage payroll documents and audits.
Benefits for Employees
And here are some of the specific benefits of introducing biweekly pay for employees:
- More frequent paychecks. Firstly, employees receive their wages every two weeks, which can help with budgeting and financial planning, providing more consistent cash flow.
- Easier to manage bills. Secondly, because employees receive their paychecks more often, it’s easier to align their income with recurring bills and expenses, reducing financial stress.
- The opportunity to save. Thirdly, more frequent pay periods can encourage better saving habits, as employees have more regular opportunities to set aside money.
- Gain financial stability. In addition, regular biweekly pay can help employees avoid relying on credit for short-term financial needs, improving their overall financial health.
- Increased morale and satisfaction. Finally, a more predictable pay schedule can boost employee morale and job satisfaction, leading to a more positive work environment.
How to Set Up Biweekly Pay in Your Business
So far, so good. We’ve seen what biweekly pay is and how this type of schedule can benefit your business and your employees, but how do you implement it in your organization? What should you keep in mind?
Here’s what you need to do if you decide to set up biweekly pay in your business.
Implement a Payroll Software Solution
The first thing you need to do, if you don’t already have a solution in place, is invest in payroll software. This is an essential step as it streamlines the payroll process, ensures accuracy, and helps maintain compliance with federal and state laws.
When you start your software hunt, keep an eye out for features that support biweekly payroll schedules. For instance, Factorial’s payroll solution offers robust support for different pay schedules, automated tax calculations, and integration with time-tracking systems. And don’t forget to check that the software you pick is compatible with your company’s existing systems (accounting software, for example). Finally, compare pricing and value across different payroll software providers, but don’t be swayed if an offer seems too good to be true. Sometimes it’s worth paying a little extra to ensure that you have access to the features that you need to support biweekly payments.
Make Sure You Understand Legal Requirements
Another important thing to think about is whether there are any legal restrictions that might affect biweekly pay. For instance, the Fair Labor Standards Act (FLSA) states that non-exempt employees must be paid at least once every two weeks, including payment for hours worked and overtime.
And don’t forget to check if there are any payroll laws in your state or local area as you might find, as is the case in California, where state law mandates that employees must be paid at least twice a month, which can affect how biweekly pay is implemented.
Communicate with Your Employees
Above all, don’t forget to consult with your employees to see how they would feel about a biweekly pay structure. After all, there’s no point in making major changes to your internal processes if the majority of your workforce is happy with the way things are already running.
The best way to collect this feedback is by sharing an employee pulse survey. Ask your employees specific questions about their current satisfaction with the payroll schedule, their understanding of biweekly pay, and any concerns or preferences they might have in terms of the frequency of their paychecks. This will give you a clear picture of how a biweekly pay structure would be received and whether it would be beneficial for your team.
If you decide to go ahead with this model, then the next step is educating your employees on how it works and offering training to help them understand the change.
Transition From Your Existing Pay Schedule
Once you’ve done all the groundwork, all that’s left to do is roll out biweekly pay and transition from your existing pay schedule (weekly, semi-monthly, or monthly pay).
A few things to keep in mind when you get to this stage:
- Create a timeline for the transition. This timeline should include key milestones and deadlines. That way, all necessary steps are completed on schedule and there are no disruptions to payroll.
- Clear communication. Make sure you communicate the upcoming changes to all employees well in advance. This includes explaining how the transition will take place, the timeline, and any potential impacts on their paychecks.
- Pilot testing. Consider running a pilot test with a small group of employees before fully implementing the biweekly pay schedule. This can help you identify any potential issues and make necessary adjustments before a full rollout.
And that’s pretty much it!
How To Calculate Biweekly Pay
Ok, so you’ve implemented a biweekly pay structure and now it’s time to calculate those all-important first paychecks. This is an important stage of the process as you, ideally, want things to run as smoothly as possible so that your employees adapt faster to the changes.
So, how do you calculate biweekly pay, then?
This will largely depend on the types of employees that you hire. For instance, if you hire hourly, non-exempt employees, then you simply need to add up the hours that each employee has worked over the preceding 2 week pay period. Then just multiply these hours by the employee’s established hourly rate to get their base pay, and add on any overtime hours (at the corresponding time and a half rate). Once you’ve done that, apply any payroll tax and deductions and you’re good to go!
In the case of salaried, exempt employees, you will need to divide their annual salary by the number of pay periods in a given year (26 if you are paying every two weeks). And don’t forget to include any holiday pay, bonuses and benefits and apply the usual tax and deductions.
And there you have it!
Biweekly Pay: Legal and Compliance Issues
We’ve already briefly touched on the importance of checking if there are any legal restrictions that might impact this payment structure. As it’s such an important aspect of payroll in the U.S., let’s expand on this topic a little more to help you comply with any relevant regulations.
Federal Fair Labor Standards Act
The Federal Fair Labor Standards Act (FLSA) sets rules for minimum wage, overtime pay, and recordkeeping in the U.S. For biweekly pay, this means employers must pay non-exempt employees overtime for any hours worked over 40 in a week at one and a half times their regular rate. Employers need to track hours accurately to make sure employees get the right pay. Even with a biweekly schedule, weekly overtime must be calculated separately to comply with the law. This ensures workers are paid fairly and helps prevent wage theft.
Wage and Hour Laws
U.S. wage and hour laws, governed by both federal and state regulations, stipulate how, when, and how much workers must be paid, as well as establishing thresholds for benefits including hours worked, annual and sick leave, and overtime. For instance, most states enforce payment of wages either twice a month or every other week. However, states including Connecticut, Massachusetts and Michigan require weekly payment.
There are also Federal break laws and state break laws that mandate specific rest and meal periods for employees during their work shifts. Employers must adhere to these regulations to avoid penalties and ensure the fair treatment of their workforce.
Record-Keeping Requirements
So, how long do employers have to keep employee records?
As an employer, you have a duty to maintain accurate and up-to-date records of all your employee data. This includes hours worked and wages paid. According to the FSLA, you must keep an accurate record of all this information for a period of at least three years. You also need to keep a record of all employee time cards for a period of at least two years.
The best way to collect all this data and comply with time-tracking legal requirements is by using time-tracking software with an electronic time clock to record employee hours worked in real time. It’s also a good idea to invest in employee record management software to help you stay compliant with recordkeeping requirements established by a number of employment laws, including the Americans with Disabilities Act (ADA), the Fair Labor Standards Act (FLSA) ), and the Family Medical Leave Act (FLMA).
Factorial’s all-in-one document management software solution includes features for seamlessly managing all your recordkeeping processes. That way, you can store all your employee documents in a secure and confidential platform and access data from any device.
Best Practices for Managing Biweekly Pay
Perhaps one of the most critical things to keep in mind when you implement biweekly pay is the importance of careful planning. With this in mind, here are some best practices for managing biweekly pay:
- Use reliable payroll software. Invest in robust payroll software that supports biweekly pay schedules. Make sure that the software can integrate with other systems like time tracking and accounting for seamless data flow and accurate payroll processing.
- Maintain accurate records. Keep detailed records of hours worked, wages paid, and any adjustments or corrections. This is crucial for compliance with the Fair Labor Standards Act (FLSA) and for resolving any payroll discrepancies quickly.
- Communicate clearly with employees. Warn your employees about the change to a biweekly pay schedule in advance. Make sure they understand how it works and what changes they should expect. Provide resources to help them understand their paychecks and answer any questions that they might have.
- Automate tax calculations and deductions. Use payroll software to automate tax calculations and deductions to minimize errors. Make sure you withhold and report all federal, state and local taxes.
- Conduct regular payroll audits. Regularly audit your payroll processes to identify and correct errors. This helps prevent issues like overpayments, underpayments and compliance violations.
- Provide employee support. Offer a dedicated support channel for employees to address any payroll-related concerns that they might have. This could be a member of your HR team or you could offer resources and support through an employee self-service portal.
- Plan for cash flow. Finally, make sure that your business has enough cash flow to consistently meet payroll obligations. This might involve setting aside funds specifically for payroll to avoid any disruptions.
How Factorial Can Help
Transitioning to a biweekly pay structure can be a complex process, but Factorial’s all-in-one HR solution can make it seamless.
Here’s how Factorial can help your business manage this transition effectively:
- Payroll software. Most notably, Factorial’s payroll software is designed to handle biweekly pay schedules with ease. It automates calculations for wages, taxes and deductions, ensuring accuracy and compliance with both federal and state regulations. The software integrates seamlessly with your existing systems, making payroll processing more efficient and less prone to errors.
- Time-tracking. Accurate time-tracking is essential for managing biweekly payroll. Factorial offers robust time-tracking tools that allow employees to log their hours easily. This data integrates directly with the payroll system, simplifying the calculation of wages and overtime.
- Employee pulse surveys. Understanding how your employees feel during the transition is crucial. Factorial’s employee pulse surveys let you gather feedback quickly and effectively, helping you address any concerns and improve overall satisfaction with the new biweekly pay schedule.
- Recordkeeping and document management. Finally, Factorial’s solution includes features for maintaining accurate payroll records and managing important documents. This ensures that you comply with legal requirements and can easily access information whenever you need it.
