Background

There are different pay frequencies by which you can pay employees: Weekly (52 times a year), Every Two Weeks (normally 26 times a year - some years 27 times), Twice a Month (24 times a year), and Monthly (12 times a year). This article covers the pros and cons of paying every two weeks and considerations that need to be made. There are different considerations to make depending on whether the employees are non-exempt from FLSA requirements (ie: the employee is entitled to the federal minimum wage and overtime pay).

Pros for Paying Every Two Weeks

• Typically, with bi-weekly payrolls, the pay period ends the Sunday prior to the check date. This provides regularity in summation of hours critical for overtime payout, and eliminates split week scenarios. Split weeks do not occur in bi-weekly frequency because of fixed pay period start and end DAYS (e.g., Monday through Sunday), and fixed time sheet cut off days. This impacts non exempts only, because they are required to enter time. This makes it easier for employees to reconcile their pay check with the number of hours logged.
• No Variations in annual salary/wage costs (for exempts only):
  • Salary disbursed per pay period would be reduced in years having 27 pay periods, when compared to years having 26 pay periods (annual salary remains unchanged). This would result in NO variations in annual salary expenses.

Cons for Paying Every Two Weeks

• Increased operating cost because of additional payroll runs in a year. 26 payrolls in a year. Sometimes 27 payrolls. Impacts both non exempts and exempts.
• Variations in annual salary/wage costs due to fluctuations in number of pay periods (for non exempts only):
  • Year having 27 pay periods will have higher wage costs, as compared to years having 26 pay periods. This would result in variations in annual wage expenses. The effect would be pronounced if the number of employees under consideration is large.

How do you deal with an extra pay period?

Every so often, the calendar causes us to have to watch what we are doing. This year for example, 2010, if your payroll is bi-weekly and paid on Friday, there are 3 payrolls in January, July and December for 2010. If your first payroll of the year was Friday, January 1st., 2010 and the last payroll is December 31, 2010 you will have 27 pay periods for the year.

So if you started counting and figured out that you will be paying salaried employees over 27 pay periods in 2010, you probably realized that if you do nothing different, you will be paying them more in 2010 than you might have intended. So what do you do?

Procedure

The American Institute of Professional Bookkeepers (AIPB) has some suggestions:

• Option 1: Divide the total salary among the 27 pay periods rather than 26. This will result in smaller amounts in each paycheck. If you want to do this, be sure to inform your employees, so they don't complain.
• Option 2: Pay the same amount in each pay period as you did in 2009. This will result in an effective increase in pay for these employees. If you do this, inform employees, so you can take credit for the increase.
• Option 3: Adjust the last paycheck of the year so that the total pay for the year is the same as the prior year.

Note: In any of these circumstances, you will need to inform employees what you are doing.

Other Considerations

Payroll Taxes

The amount of pay will affect the total Social Security and Medicare you and your employees pay. Some employees may reach the maximum Social Security contribution earlier.

Employee Benefits

Paying additional salary may also result in paying additional benefits. For example, you might be over-funding someone's 401(k) with the extra pay period, beyond the maximum allowable amount. If that happens, you would have to give back the money to the employee.