Payroll: Bi-Monthly vs. Bi-Weekly
Recently, I got into a debate about whether Bi-Monthly or Bi-Weekly payroll was better. Part of the debate was on the very definition of the terms and the remainder of the debate was which one was better for purposes of filing bankruptcy. On both issues, I believe bi-monthly is the better payroll schedule. If you disagree, I would appreciate to know why.
Bi-Monthly means twice per month or every other month. In terms of payroll, it means twice per month. Bi-Weekly similarly means twice or week or every other week. Although in terms of payroll bi-weekly and bi-monthly are opposites; bi-weekly means every other week and bi-monthly means twice per month.
Remember, there are 52 weeks in a year, so if you’re paid bi-weekly, then you get 26 pay checks per year. In other words, if you get paid every other week then there are going to be two months of the year, regardless of the day of the week that you’re paid, when you will get three pay checks! If you’re paid bi-monthly, then you get paid twice per month, and will end up with twenty-four pay checks.
From the employer perspective (and I can tell you this from experience) I think bi-monthly or twice per month (24 pay periods) is better because each pay roll is equal. Budgeting for pay roll is easy because the amount of pay roll doesn’t vary month to month (with the exceptions of bonuses or employees paid on commission). If you pay bi-weekly, then two months out of the year, expect payroll expenses to spike by one extra payroll. While it’s true that the 26-pay period payroll produces less of a payroll expense than 24-pay periods (a $40,000 salary is $1,666 each pay period over 24 cycles and $1,538 each pay period over 26 cycles), twice per year the employer has to come up with a third pay roll expense.
From the employee perspective, I also think bi-monthly is better because it gives the employees certainty in their budget. With a bi-weekly payroll, sometimes the employees will be paid near the beginning and middle of the month and other times they’ll be paid the second week of the month and the last week of the month. Typically these switch each time a 3-payroll month passes.
Finally, from the bankruptcy perspective, I also think a 24-period pay roll is better. First, it’s better for budgeting purposes (see the two paragraphs above). However, it’s better for another reason too: the Means Test. Remember, the Means Test takes the last six months of pay roll into account into projecting annual income. If the debtor has had one or two of the three payroll months in the six months prior to filing bankruptcy, his income will artificially spike – because the six months prior to filing include 13 or 14 pay checks. Imagine a married couple who file jointly, who are both paid bi-weekly, and who have both received three pay checks in one of the six months prior to filing bankruptcy. Their income may spike to the point that bankruptcy is unaffordable unless they wait a few months – this is clearly an unintended result of the amendments put in place by the Bankruptcy Abuse Prevention and Consumer Protect Act of 2005 (BAPCPA).
What do you think? Which is better? A bi-weekly or bi-monthly pay roll system, and why?
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Shawn M. Yesner, Esq., is the host of the Crushing Debt Podcast and founder of Yesner Law, P.L., a Clearwater-based boutique real estate and consumer law firm that helps clients eliminate the financial bullies in their lives. We assist clients with asset protection, the sale and purchase of real property, Chapter 7 liquidation, Chapter 13 reorganization, Chapter 11 reorganization, bankruptcy, foreclosure defense, debt settlement, landlord/tenant issues, short sales, and loan modifications in Countryside, Tampa, Westchase, Odessa, Oldsmar, Palm Harbor, Clearwater, Pinellas Park, Largo, St. Petersburg, and other areas throughout the greater Tampa Bay area.