What Is Biweekly Pay?
Biweekly pay is a payroll system where employees receive their pay once every two weeks. This means an employee will receive 26 paychecks per year under a Biweekly Pay schedule. Its serves the purpose of regular and predictable income so employees can budget their expenses easily. Biweekly pay is commonly used for salaried employees in countries like the United States.
You are free to use this image on your website, templates, etc., Please provide us with an attribution linkHow to Provide Attribution?Article Link to be Hyperlinked
For eg:
Source: Biweekly Pay (wallstreetmojo.com)
One of the advantages of biweekly pay is that it is predictable, and employees receive their paychecks on a regular schedule. However, it can be challenging for some employees since the Pay Period is longer than a week. Also, because there are 26 pay periods per year, an employer’s payroll expenses can be higher under a biweekly payment system than a weekly or semi-monthly pay system.
Table of contents
- What Is Biweekly Pay?
- How Does Biweekly Pay Work?
- How To Calculate?
- Examples
- Pros And Cons
- Biweekly Pay vs Weekly Pay vs Monthly Pay
- Frequently Asked Questions (FAQs)
- Recommended Articles
Key Takeaways
- Biweekly pay is a payroll system where employees are paid every two weeks. There are 26 biweekly pay periods in a year.
- Monthly income can be calculated by multiplying the gross pay for a biweekly period by 26 and then dividing by 12.
- Biweekly mortgage payments can effectively pay off a mortgage faster and save on interest charges.
- Advantages of biweekly pay include regular and predictable paychecks, less administrative work for employers, and consistent pay. Disadvantages of biweekly pay include budgeting challenges due to the longer pay period, higher payroll expenses, and limited flexibility.
How Does Biweekly Pay Work?
Biweekly pay is a type of payroll system in which employees are paid once every two weeks. This means employees receive 26 paychecks per year under a biweekly pay schedule. Biweekly pay is a common payroll method for salaried employees in many countries, including the United States.
Under a biweekly payment system, an employee’s gross pay for the two weeks is divided by two to determine their net pay for each pay period. Then, deductions, such as taxes and retirement contributions, are taken from the net pay to arrive at the employee’s take-home pay.
One of the benefits of biweekly pay is that it is predictable, as employees receive their paychecks on a regular schedule. However, because the pay period is longer than a week, some employees may struggle to budget their finances until their next paycheck. Additionally, because there are 26 pay periods per year, an employer’s payroll expenses can be higher under such a payment system than in a weekly or semi-monthly pay system.
How To Calculate?
To calculate an employee’s biweekly pay, follow these steps:
First, determine the employee’s gross pay for the two-week pay period. This is the total amount of pay the employee is owed before any deductions are made.
Divide the gross pay by 2 to get the net pay for each pay period.
Subtract any deductions, such as taxes, retirement contributions, or health insurance premiums, from the net pay to arrive at the employee’s take-home pay for each pay period.
For example, suppose an employee’s gross pay for two weeks is $2,500. Dividing this amount by two results in a net pay of $1,250 for each pay period. If the employee has deductions of $200, their take-home pay for the pay period would be $1,050.
Examples
Let us look at the following examples to understand the concept better.
Example #1
Let us first consider a case of a salaried employee.
John works for ABC Inc. as a salaried employee and earns $50,000 annually. To calculate his biweekly pay, we would divide his annual salary ($50,000) by the number of biweekly pay periods in a year (26). John’s gross pay for each pay period is $1,923.08 ($50,000/26). Assuming John has no deductions, his net pay for each pay period would also be $1,923.08.
Example #2
Now, let us consider the case of an hourly paid employee.
Jane is an hourly employee who works for ABC Inc. She earns $20 per hour and worked 80 hours in the biweekly pay period. To calculate Jane’s gross pay, we would multiply her hourly rate by the number of hours worked ($20 x 80), which results in a gross pay of $1,600. Dividing this amount by 2 gives us Jane’s net pay for each pay period, which is $800. If she has deductions of $150, her take-home pay for the pay period would be $650 ($800 – $150).
Pros And Cons
Pros
- Predictable: Employees receive paychecks regularly, which can help with financial planning.
- Less administrative work: Biweekly pay requires fewer payroll cycles than weekly or semi-monthly pay, which can reduce administrative work for employers.
- Consistent pay: Since employees are paid based on a fixed payment period, there may be less variation in their paychecks than with other payroll methods.
Cons
- Budgeting challenges: The longer pay period between paychecks can make it difficult for some employees to budget their finances until their next paycheck arrives.
- Higher payroll expenses: Because there are 26 pay periods per year under a biweekly payment system, an employer’s payroll expenses can be higher than under a weekly or semi-monthly pay system.
- Limited flexibility: Since biweekly pay follows a fixed schedule, it may be less flexible for employees who need more frequent pay or employers who need to adjust their payroll schedule for business reasons.
Whether biweekly pay is a good fit for a company depends on the unique needs of the business and its employees.
Biweekly Pay vs Weekly Pay vs Monthly Pay
Let us understand the differences between the three prominent paying frequency methods.
| Aspect | Biweekly Pay | Weekly Pay | Monthly Pay |
|---|---|---|---|
| Pay Period | Every two weeks | Every week | Once a month |
| Number of Pay Periods per Year | 26 | 52 | 12 |
| Predictability | Paychecks are received on a predictable schedule | Paychecks are received on a predictable schedule | Paychecks are received on a predictable schedule |
| Budgeting | Longer pay periods can make budgeting more difficult | A shorter pay period can make budgeting easier | Depending on individual circumstances, a single, larger monthly paycheck can make budgeting easier or more difficult. |
| Payroll Expenses | Higher payroll expenses due to more pay periods | Lower payroll expenses due to fewer pay periods | Moderate payroll expenses |
| Flexibility | Less flexibility in adjusting the payroll schedule | More flexibility in adjusting payroll schedule | Limited flexibility in adjusting payroll schedule |
Frequently Asked Questions (FAQs)
First, determine the gross pay for a single pay period to calculate monthly income from such pay. Once you have that amount, multiply it by the number of pay periods in a year (26), then divide by 12 to get the monthly income.
Some companies use this because it can be a more cost-effective and efficient payroll system than other pay frequencies. It also provides employees with a regular and predictable paycheck schedule.
Yes, biweekly mortgage payments can work by allowing borrowers to make payments every two weeks instead of once a month, which can help to pay down the mortgage faster and save money on interest over the life of the loan.
Recommended Articles
This has been a guide to what is Biweekly Pay. We explain how to calculate it, compare it with weekly and monthly pay, examples, pros and cons. You can learn more about from the following articles –
- Payroll Accounting
- Semimonthly Payroll
- Layaway
This post first appeared on Free Investment Banking Tutorials |WallStreetMojo, please read the originial post: here
