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Bi-weekly pay difficulties

Historically, Friday has been payday — at the end of the week, employers would pay their employees for the week’s work.  More recently with the advent of direct deposit and payroll services, many employers have switched to bi-weekly pay for hours worked through the previous Sunday.  Does this work for the church?  Yes and no.

For hourly employees, bi-weekly pay does work best.  In some states, it is important to make sure that the pay period goes through Sunday, so that the delay between hours worked and the date paid is within the legal requirements.  Bi-weekly pay for two weeks, ending on Sunday, and paid the following Friday works well because:

  • Hours can be exact.
  • If you pay by direct deposit, the deadline is often 2-3 days before the pay date.  This makes Friday the best payday to allow for an occasional bank holiday.  If you were to set Thursday as payday, then some weeks, you would need to submit direct deposit by the deadline on Friday, before you know exactly how many hours an employee will work on Friday, Saturday and Sunday.
  • Note that at the end of the year, you may want to “accrue” the payroll for the last days of the year, so that hours worked in December are shown in the December financial reports.

However, for salaried employees, bi-weekly pay is extremely problematic.

  • Bi-weekly pay means that either two or three paychecks will be paid in a month, which is either 2/26th or 3/26th of the annual budgeted amount.  This makes it quite cumbersome to determine if the correct amounts are being paid.  When salaried employees are paid monthly or semi-monthly, then salaries and benefits line up with the monthly reports, with precisely 1/12th of the salaries and benefits showing each month, allowing the Treasurer and Trustees to easily monitor actual vs. budgeted amounts.  It’s very obvious that something is off if you get to March 31 and your pay and benefits are not at 25% exactly.
  • If you divide an annual salary by 26, then with the extra day every year, you’ll end up giving your salaried employees a 1/3% raise.  Although 0.033% doesn’t sound like much, it would likely cost the congregation a few hundred dollars in non-leap years and double that in leap years. The alternative is to divide their pay by 26.2, and by 26.4 if it’s a leap year but that can cause misunderstandings, and a reduction in paychecks every leap year.
  • January 1 is always a holiday, so if it is a payday, that will move payday to the previous banking day, and therefore the previous fiscal year.
  • When musicians are paid based on an annual contract, then extra services like Holy Week and Christmas are a part of the overall contract. When musicians are paid by the week or bi-weekly, and when their primary duties are on Sundays, then usually they are compensated extra amounts when there are extra services.
  • Denominational clergy compensation guidelines and contracts are usually based on annual salary and housing amounts.  Temporary part-time clergy are sometimes paid weekly, which would make bi-weekly payroll work for them.
  • When W-2s don’t match the budget, and the budget doesn’t match the annual contracted amounts, there is confusion. In a congregation, confusion is not a good thing, especially if it plays out during a congregational meeting.
  • Benefits such as tax sheltered annuities or Medical Flex Spending are often billed monthly as required by the IRS.  The workaround is to take 50% of the monthly amount out of each bi-weekly check, and skip the third if there are three checks.
  • My own denominations’s billing system is not able to handle pension or disability for bi-weekly payroll.  There is no option for anything other than monthly or semi-monthly salary.  It is billed in advance by the quarter.  Bi-weekly pay means that some quarters have six paychecks and some have seven.

For all of these reasons, we strongly recommend paying hourly employees on a bi-weekly schedule and salaried employees on a semi-monthly schedule.  Payroll can still be prepared every other Monday, preparing the bi-weekly (hourly) payroll dated Friday, along with the next salaried payroll, dated either the 15th or last day of the month.