What is Semimonthly Payroll? And How Does It Work?

Joyce is a financial analyst at LMN Finance Ltd. and her net pay is $72,000. The company follows a semimonthly payroll where the employees are paid semi monthly vs bi weekly on the 15th and the last day of each month. The distinction between the two is important because not all months have the same number of days.

Complexity in payroll processing

Typically, employees receive it on the 15th and last day of each month. There are some important differences when it comes to semi-monthly vs. biweekly payroll. Let’s first look at the unique attributes and benefits of the biweekly pay schedule.

Troubleshooting common issues

Employers must track and pay for all hours actually worked — including overtime — each workweek, not an average. Each month varies in the number of workweeks it contains, impacting semi-monthly pay periods with fluctuating days. Of the most common pay periods listed above, semi-monthly payroll tends to cause the most confusion. Semi-monthly pay is payroll distributed to employees 24 times per year.

Semi-Monthly vs BI-Weekly Payroll: What’s the Difference?

It integrates smoothly with monthly accounting, budgeting and forecasting, cash flow management, and performance evaluation. Calculating semi-monthly pay isn’t as straightforward as other payroll schedules. A common mistake with semi-monthly pay is assuming a fixed number of hours, like 86.67 hours, for each pay period.

• The main difference between the two is that businesses prepare semimonthly payrolls 24 times a year while preparing biweekly payrolls 26 times a year.
• Employers must track and pay for all hours actually worked — including overtime — each workweek, not an average.
• Provide access to a payroll calendar that outlines all the pay dates for the year.
• Others may choose to pay for the hours worked currently until the 15th.
• Semimonthly payroll is a compensation system where employees receive their remuneration twice a month.
• In other words, you’ll pay them a gross salary of $3,000 each pay period.

The top concern is that teams are only paid twice a month, meaning they’ll wait longer for their paycheck than some options like biweekly pay. This delay can be especially difficult for people living paycheck to paycheck. Compared to a bi-weekly payroll, semi-monthly has significantly fewer pay periods. Biweekly payroll is ideal if you have a combination of salaried workers and hourly employees because it works well for both. It’s the sweet spot between the constant administrative stress of weekly payroll and the employee frustration that comes with monthly payments. There are a few advantages of operating a semimonthly payroll for businesses.

However, this method can be a bit more challenging for budgeting since two months out of the year, employees will receive three paychecks instead of two. Some key differences include how often and when employees get paid, how many paychecks they receive in a year, and whether or not pay https://www.bookstime.com/ dates stay the same. For example, say you pay a salaried employee $72,000 annually using a semimonthly payroll calendar. In other words, you’ll pay them a gross salary of $3,000 each pay period. According to the Bureau of Labor Statistics, 36.5 percent of employees are paid biweekly.

Let’s say you have 10 employees who each earn $1,500 in gross wages per paycheck. You will need to have an additional $15,000 on hand both months that have three paychecks in them. This article provides HR managers and employers with an in-depth understanding of semi monthly payroll, including its benefits, challenges, and best practices.

This schedule is especially ill-suited to firms that pay hourly wages—accounting for overtime becomes tedious. For example, in a semimonthly payroll, businesses will pay their employees first on the 3rd date of the month and then on the 18th date of the month. In comparison, in a biweekly payroll, businesses will pay their employees every Friday of alternate weeks.

• Tools like Hubstaff simplify this and automate much of the tracking, deductions, verification, and even payroll disbursement process for you.
• It is important to note that the paycheck amount is not the same for bi-weekly and semi-monthly schedules.
• With a desktop system, bill payment and bookkeeping for a substantial number of clients is a daunting task.
• Communicate these adjusted pay dates to employees well in advance to avoid any confusion or inconvenience.
• Some employees prefer the predictability of semi-monthly pay, while others find bi-weekly pay easier for budgeting due to more frequent paychecks.

Bi-weekly vs Semi-monthly pay schedule: Which one is better?

Doing payroll can be tricky and demanding for a small business owner. It requires you to be familiar with many laws and regulations and think of your employees’ well-being too. If this is a constant problem for you, check out our article on this topic. Companies that choose to run payroll semi-monthly pay their workers on a fixed date every month (1st and 15th or 15th and 30th). Get up and running with free payroll setup, and enjoy free expert support. Over the course of a year, the employee will receive the same amount of money and owe the same amount of taxes, regardless of which payment frequency you use.