Employees may be paid on a variety of schedules. A bi-weekly, or every two weeks, payroll has both pros and cons.
The primary factor for most businesses in scheduling payroll is cash flow. A bi-weekly payroll moves that demand for cash a bit farther out on the horizon, allowing the business to collect more revenues and to plan its cash flow more effectively. In most businesses, day to day cash income varies so moving the largest single cash requirement into the future has the benefit of also allowing cash receipts to accumulate.
A bi-weekly payroll creates a calendar, and thus a fiscal oddity. There are 52 weeks in a year, so there ought to be 26 bi-weekly payrolls. That is not true in reality. Some calendar years will have 27 paydays under the bi-weekly system. Some years, employees will receive an extra two weeks pay. Those fiscal years will have that much more expense without a corresponding increase in revenues provided by the calendar.
Bi-weekly payrolls require a great deal of math on the part of the payroll department when it comes to those 27 paycheck years. Salaries are spread over 27 weeks, so an employee's paycheck can actually decrease even when he is receiving the same salary for the year. Deductions for benefits such as monthly health insurance have to be calculated taking the extra bi-weekly period into account.
A bi-weekly payroll doubles the amount of paperwork needed to process payroll for many employers. Two time cards for each employee instead of one. There will be twice as many chances for managers and supervisors to forget about overtime, holiday pay, sick days and all the other minutia of payroll.
A bi-weekly payroll works well for salaried employees. The employees do not have a long wait between paychecks as they would with a monthly payroll. Bi-weekly payrolls avoid the appearance, for salaried employees, that they are like the hourly employees who traditionally are paid weekly.
The choice to have a bi-weekly payroll comes with a number of pros and cons. The cash flow of the business and the business's ability to fund payroll are a big consideration. The additional paperwork, the extra pay period in some years, and the abilities of supervisors to complete the payroll source documentation correctly also come in to play. Selecting a payroll schedule is not just a matter of picking an option. It is a very serious part of planning for a business, at start up and into the future.