How does semi-monthly pay work
Payroll is straightforward for waged, exempt staff on a semi-monthly schedule. Workers with a salary receive 24 identical payments throughout the year, as pay has been divided into twenty-four pay periods. Businesses are required to calculate the additional time and hours worked by all non-exempt employees.
Monthly pay: In this semi-monthly earnings system, one receives two payments. For instance, if a worker's wage is $4,000 every month, then if the worker gets paid semi-monthly, it means they would receive $2,000 twice a month.
Pay periods: the employee will be paid her/his salary on the first and the fifteenth day of every month, as 2 paychecks.
Yearly paychecks: A worker will receive twenty-four paychecks in total if they are paid using a semi-monthly payroll system.
How to calculate semi-monthly pay
To find out how much someone gets paid twice a month, you split their whole year’s pay into 24 parts. For instance, you split forty-eight thousand by 24 if someone makes forty-eight thousand a year. That means each paycheck, before taking out taxes and other costs, would be $2,000.
Why Employers Choose Semi-Monthly Payroll?
Here are some reasons why employers might choose to pay their workers twice a month.
State regulations
Every state has rules about how often workers must be paid, except for Alabama, Florida, and South Carolina. The state establishes rules governing the frequency of employee payments. But an organization can set more or less pay period if there arise such a need but it cannot be less than the minimum set by the state. Some of the States that require paychecks to be a minimum of semi-monthly are Arizona, Arkansas, the District of Columbia, and Georgia.
Payroll budget and resources
Processing checks and calculating payroll requires a significant amount of staff work and resources. Organizations profit from semi-monthly pay because it reduces the time needed to compute taxes, overtime, and benefits, as just a repeat exercise (twice) per month, till there is a paycheck or a regulatory change.
Salary structure
When most of your employees get a set wage, implementing a pay schedule like semi-monthly, bimonthly, or monthly works well since these plans correlate to stable, regular payments.
Employee needs
Employees who receive a monthly paycheck sometimes need to manage their finances carefully in order to pay for all of their expenses until the next payment arrives. It might take up to four weeks for new workers to get their first paycheck, which makes early cost control more challenging. In contrast, workers on a twice-monthly payment schedule receive their paychecks more often. This helps people better manage their daily expenses.
Semi-Monthly vs. Biweekly Payroll
The following are key differences between Semi-Monthly and Biweekly Payroll:
Number of paychecks per year
Organizations that use the biweekly method make 26 total paychecks yearly.
Employees who work in organizations that use semi-monthly pay receive two paychecks monthly and make 24 total paychecks yearly.
Bigger Paychecks
Because semi-monthly pay is paid in smaller installments than weekly payroll, employees get bigger paychecks from their employers. However, the irregular pay date pattern makes managing finances more difficult, especially if payday falls on a weekend or holiday. This can lead to delays or ambiguity over when the profits will be available.
Whichever payment frequency you choose, the employee will get the same amount of money and owe the same amount of taxes over the year.
Payday
Workers get paid on the same day every pay cycle if you use a biweekly payroll.
Employees are paid on specific days, such as the fifteenth and last working day of every month.
Overtime Calculation
Hourly workers benefit greatly from the biweekly method schedule as it makes calculating overtime over two-week periods easier.
Because semi-monthly pay periods don't usually coincide with workweeks, calculating overtime might be more difficult. To ensure that your additional hours are properly tallied and compensated, you must meticulously monitor your hours throughout many pay periods.
Pros and Cons of Semi-Monthly Payroll
If an organization pays workers using semi-monthly payroll, there may be pros and cons to it.
Pros
The following are the pros of semi-monthly payroll:
Cost-Efficiency
In contrast to a biweekly or weekly paychecks schedule, a semi-monthly payroll schedule calls for fewer paychecks to supervise. Semi-monthly payroll also saves time and money for the accounting department.
Predictability
It is simpler for workers to manage their budget when they are certain that they get compensated on exactly two days every month.
Reduced administrative burden
Payroll processing time is reduced, and benefit deduction management is made simpler with fewer pay periods.
Larger Paychecks
For the same annual compensation, there is a negligible difference between semi-monthly and biweekly payments. This difference results from the two extra annual inspections that are performed on a fortnightly basis.
Cons
The following are the Cons of semi-monthly payroll:
Overtime Calculation
Workers who are paid every two weeks or twice a month find it more difficult to calculate overtime compensation, particularly if they are paid by the hour. Some organizations pay employees a predetermined wage twice a month and pay hourly workers every two weeks, which increases payroll staff workload.
Payroll Processing Complexity
Some months have more/fewer days than others, like 28, 30, or 31 days, which can make paying employees more tricky and may require extra changes to get it right.
Time Conflicts
Organizations that use semi-monthly pay may face with inconvenience of tracking when it comes to weekends and holidays. An organization will need to advance or delay pay if the payday is a weekend or holiday.
Other Pay Schedules
There are also other pay schedules other than semi-monthly payroll, they are:
Weekly
Workers are paid weekly, i.e., 52 times a year, if an organization uses this strategy. This frequency is used by 27% of enterprises. In terms of popularity, weekly is more appropriate than biweekly for construction companies. Biweekly is still preferred in the academic along healthcare sectors.
Biweekly
Staff members receive 26 paychecks annually under a biweekly payment arrangement, which pays them every two weeks. The method is popular because it simplifies paycheck calculations and enables hourly workers to earn additional pay right away.
Monthly
With a monthly payroll plan, employees are paid once a month, usually on a set day, for a overall of 12 paychecks each year. High-paid workers in the banking and insurance industries typically use this type of payment schedule.