I was on a board call for a company today that pays their employees bi-weekly (every two weeks). At some point in time there was a rationale for this since this company has a lot of hourly employees and there was a perception that folks would want to be paid every two weeks. So – presumably this was a logical decision at the time.
However, it creates havoc with our monthly reporting and forecasting as we have at least two months per year with three pay periods. This adds an extra pay period to our expense structure for those two months (and lowers it correspondingly for the other months where we only have two pay periods). As a result of this, we are constantly backing out expenses (or adding it back in) to get “apples to apples” monthly comparisons.
The vast majority of the companies I’ve been involved with pay employees semi-monthly (twice a month – usually on the 15th and last day or the month). While you obviously can do the work to “normalize” month to month expenses if you pay your employees bi-weekly, do yourself and your investors a favor and pay semi-monthly. It’s so much easier to deal with.
Accounting for payrolls as they happen is CASH BASIS accounting, not GAAP. GAAP requires that the backout/addback happen as a matter of course — the payroll costs are counted in the month they are incurred, not when they are paid.
So at a higher level, the real problem that company has is that they are not paying attention to basic accrual accounting.
I worked with a small company a couple of years ago, a vendor of mine actually, that almost went BANKRUPT because they forgot to plan for a three-payroll month. Running that tightly you REALLY need to be on accrual accounting.
Comment by Dave Jilk — August 27, 2004 @ 6:49 am
Is there a big difference or advantage for a company switching to bi-weekly payroll from a weekly payroll?
Comment by Debbie — April 7, 2005 @ 8:07 am
No, Debbie! There is no advantage OR difference for a company switching from a weekly payroll. The only possible advantage is only for your accountant: he’ll have less to work.
Comment by Arizona Payroll Processing — April 24, 2007 @ 4:05 pm
What about the first pay period after converting from a Semi monthly to a bi-weekly for a salaried employee? Is this amount prorated, or is the annual base salary just divided by the 26 pay periods?
Comment by Lee — September 24, 2007 @ 12:15 pm
Is there a big advange for a company going from a bi-weekly payroll to a monthly payroll?
Comment by Cindy — January 16, 2009 @ 10:20 pm
I don’t believe there is a huge advantage. Some companies find it to be easier administratively, although depending on the types of employees it’s often harder on them as it’s better to have smaller regular payments. Financially (taxes / administration) it’s probably about the same for a small company.
Comment by Brad Feld — January 16, 2009 @ 11:49 pm
When paying an employee on a bi-monthly basis what is considered over time, anything over 88 hours or is there no over time please let me know thank you.
Comment by Betty — May 5, 2009 @ 5:09 pm
You’ll have to check with your lawyer on this as the answer will depend on your state’s labor laws.
Comment by Brad Feld — May 5, 2009 @ 5:14 pm
I work for a small company and get paid salary, every other friday. Now they want to change to semi-monthly. How will this be calculated?
Comment by Monique — August 25, 2009 @ 5:31 pm
You’ll have to ask them – it should work out to the same amount for you either way over time.
Comment by Brad Feld — August 25, 2009 @ 6:02 pm
our company is about to change from semi-monthly to bi-weekly. it will really mess up my budget (smaller checks same monthly bills) any ideas on how to convince them otherwise?
Comment by randall givens — December 18, 2009 @ 4:51 am
No clue – sorry.
Comment by Brad Feld — December 18, 2009 @ 4:01 pm