Table of Contents
Table of Contents
What Is Semi-Monthly Payroll?
A semi-monthly payroll may be the easiest to understand by breaking it down to your employees. Paychecks are distributed two times a month, capitalizing on the term “semi-monthly,” and checks are processed on dates selected by your organization. Some companies choose the 1st and 15th, the 7th and 21st or the 15th and 30th. The key to semi-monthly payroll is that there are 24 pay periods a year, exactly two a month with no exceptions.
What Are the Advantages of Semi-Monthly Payroll?
Every payroll schedule has its advantages, and semi-monthly is no exception. Let’s review how this could be an advantage to your organization.
- Larger paychecks. Because there are fewer checks distributed per year to employees, to maintain the same salary as if you were paying biweekly, employees receive larger sums on a semi-monthly payroll and view this as a benefit overall.
- Fewer payroll processes. As the employer, a semi-monthly payroll structure lets you only process payroll 24 times per year. Payroll is a massive job to any member of HR, so fewer payroll processing days is quite the treat.
- Easier benefit calculations. When calculating benefits, most calculations are on a monthly basis. With a semi-monthly payroll structure, you simply divide those amounts by two and deduct semi-monthly benefits. It’s that easy.
What Are the Differences Between Semi-Monthly and Biweekly Payroll?
As you evaluate which payroll schedule is best for your organization, it’s important to know some of the key differences that could help sway your decision.
Different Days of the Week
On a semi-monthly payroll schedule, employees are paid on the same two days every month and can appreciate the consistency. However, these days won’t always fall on the same weekday as they would in a biweekly payroll. For biweekly, employees are generally paid every other Friday. With semi-monthly, employee paychecks can fall on a Monday and a Wednesday in the same month. Your selected payday could even fall on a Saturday. Remember, best practice suggests that if your payday does fall on a Saturday, you pay your employees the preceding Friday.
Cost to the Business
Semi-monthly is a cheaper payroll schedule for a number of reasons. As it stands, most payroll providers charge your organization per payroll run. If you’re processing biweekly, which is 26 pay periods per year vs. 24 with semi-monthly, you’ll pay a higher premium to your payroll provider at the end of the year. Also with a biweekly schedule, the funds available for payroll need to be substantially higher in the months where employees are paid three times. Instead of the $3,000 a month for your salaried employee, you’ll be looking at $4,500 twice a year. Budgeting is key when considering semi-monthly or biweekly pay schedules to evaluate which is best for your company.
Paychecks Per Year
The easiest difference to spot is the number of paychecks per year for your employees. Biweekly provides the 26 paycheck standard, while semi-monthly sets you at 24. With a biweekly payroll, there are two months of the year where employees receive three paychecks whereas with semi-monthly, it’s consistently two per month. This is an important factor in your payroll processing schedule as it’s a major difference between the two payroll options.
Examples of Industries That Use Semi-Monthly Payroll
Semi-monthly payroll is the second least popular pay schedule according to the U.S. Bureau Of Labor Statistics followed only by a monthly pay schedule. With that in mind, let’s evaluate what industries prefer the semi-monthly payroll schedule.
The clear winner in utilizing the semi-monthly is the information sector. Those in publishing, movies and tv, broadcasting, telecommunications industries and data processing industries are more inclined to go with a semi-monthly payroll. Perhaps it’s the fast pace of these industries that gives them the benefit of the semi-monthly pay schedule.
Financial Activities Industry
Second to information industries is the financial activities supersector. If your organization is in finance and insurance, real estate, or rental and leasing, you fall in the financial activities supersector and could benefit from following the industry standard of semi-monthly pay. Similar to the information sector, this industry never stops moving, and this may be the main reason they select a semi-monthly pay schedule for the consistency and ease of organizational administration.
How to Get Started Offering Semi-Monthly Payroll
When it comes to offering semi-monthly payroll, there are a few things you should do before you start selecting pay dates and begin your journey. Let’s review them below.
Step 1: Know the Laws
Before you set your organization up on a semi-monthly payroll, check if you’re legally allowed to do this. Specific states have pay frequency laws that may pertain to your organization. Some states, such as Massachusetts, are specific enough to verify that hourly employees must be paid either weekly or biweekly, while other states such as Connecticut say that payday should be “two or more days in a month, not more than 16 days apart.” Know the laws before you jump into offering a semi-monthly payroll cycle for your company.
Step 2: Follow Industry Standards
Depending on your industry, as you have seen, some gravitate towards a semi-monthly schedule while other industries are hard set on a biweekly or monthly payroll. Try to stick within the industry you are in to avoid making it difficult for your employees when they transition to your organization. For example, if you’re in the hospitality industry, which falls most commonly under a biweekly schedule, stay consistent with those standards.
Step 3: Put Employees’ Needs First
It may feel better for your organization to process biweekly and have payroll the same day every other week, or perhaps the idea of lowering your accounting and payroll processing costs has you leaning towards semi-monthly payroll. Either way, be sure to evaluate it on the side of the employee first and foremost. Decide if the larger paychecks would benefit your employees or if waiting longer to get paid will hurt them in the long run. If you’re looking to switch, poll some employees and see how this would affect their bottom line and take this into consideration as you evaluate a change.
Questions You’ve Asked Us About Semi-Monthly Payroll
How many paychecks are there in a year if a company is paying semi-monthly?
If your company is paying semi-monthly, you’ll pay employees 24 times a year.
Why is semi-monthly 86.67 hours?
When you have 24 pay dates and 52 weeks in a year with 40 hours each, the formula equates to: (40 x 52)/24 = 86.67.
Shalie has over 4 years of experience working in a variety of HR positions and organizations including: working as an HR department “of one”, working with a start-up based in Europe, to working in a fully established robust USA based HR department. Shalie has experience in multiple states and countries with all aspects of the HR spectrum. She has a passion to share her knowledge and experience to benefit the HR profession!