How Semi-Monthly Pay Works

All businesses need to manage payroll effectively. Some pay schedules can make this easier, while others may make it harder. A pay period is a set timeframe where workers earn wages, and their overtime and leave are tracked. Payday is the date or day that employees receive their pay. Your pay schedule determines when each payday will be and how many pay periods you will have in one year.

How Common Is Each Pay Cycle?

Pay cycle means how frequently employees are paid. While federal laws do not address pay frequency, some state labor laws specify how frequently hourly employees must be paid. Payroll software, administrative resources, industry and the type of employees will help determine the best pay schedule. The type of pay cycle you choose impacts your cash flow, workload and employee satisfaction.

The U.S. Bureau of Labor Statistics (BLS) collected data about overall pay frequency in the Current Employment Statistics survey. They found that biweekly pay is the most frequent with 43% of establishments using it. Weekly pay is used by 27% while 19.8% use semi-monthly pay. Monthly pay is the least common with 10.3%.

The frequency of pay varies depending on the company size and industry. The highest percentages for semi-monthly pay are in the following industries: information (37.5%), financial activities (30.2%), and professional and business services (29.4%).

“The construction industry displays the most uniformity in its pay period, with 65.4% of establishments in the industry using a weekly pay period. Within private education and health services, 63.6% of establishments utilize the biweekly pay period,” according to BLS.

Main Types of Pay Cycles

Most employees prefer frequent pay cycles, such as weekly or biweekly. Employers may prefer less frequent cycles that require less administration time. When choosing a pay cycle, aim to balance the needs of employers with the preferences of employees.

• Semi-Weekly: When an employee gets paid twice per week, it is called semi-weekly pay. This means 104 pay periods in a year. It is the most expensive for processing payroll.
• Weekly: Getting a paycheck every week is called weekly pay. Payday is usually on a Friday or Monday. This means 52 pay periods in a year.
• Biweekly: There are 26 pay periods in a biweekly pay cycle, which means employees get paid every two weeks on the same day, often Friday.
• Semi-Monthly: Employees receive pay on two designated dates per month, totaling 26 pay periods per year. The day of the week that the pay date falls on will vary.
• Monthly: With only 12 paychecks per year, being paid once per month is the most cost-effective for processing payroll. However, it is the least desirable for employees.

How Semi-Monthly Pay Works

Semi-monthly pay means paychecks are received twice per month on set dates, which results in 24 pay periods per year. It is calculated by dividing the gross annual salary by 24. Typically, the chosen dates are the 15th of the month and either the first day of the month or the last day of the month. Some companies may use different dates, like the seventh and 22nd or the fifth and 20th.

This means that paydays will fall on different days of the week since payday is tied to a set date, not day. If the scheduled payday falls on a holiday or weekend, the payroll must be processed earlier to ensure employees have their paychecks before banks close.

Semi-Monthly Pay vs. Biweekly Pay

For those looking for more consistency and ease in processing payroll, biweekly pay stands out as the better choice when compared to semi-monthly. For reducing payroll costs and predictability for salaried employees, semi-monthly pay is a better option. For companies with mostly hourly employees who are eligible for overtime, biweekly pay is a better option.

Who is Semi-Monthly Pay Best for?

Semi-monthly pay works best for companies with mostly permanent, salaried employees. These white-collar workers who are exempt from overtime pay receive the same amount in each paycheck, unlike hourly workers whose pay varies.

Pros of Semi-Monthly Pay

Semi-monthly pay has several advantages, especially for companies with mostly salaried employees. From better cash flow management to easier calculations for benefit deductions, here are the benefits of semi-monthly pay.

• Works well for salaried employees: Semi-monthly pay works well for exempt employees who receive salaries and are not eligible for overtime. The standard and predictable amounts for each paycheck are easy to calculate.
• Better for business cash flow and budget: When payday happens on two set dates each month, budgeting and maintaining steady cash flow become easier.
• Predictable pay dates: Having two set pay dates each month makes monthly planning smoother and more predictable.
• Aligns with other monthly metrics: Both employers and employees have better alignment with monthly expenses and other metrics.
• Benefit deductions are easier to calculate: Since most benefits are calculated monthly, semi-monthly pay makes them easier to manage.

Cons of Semi-Monthly Pay

Semi-monthly pay has several disadvantages, especially for companies with mostly hourly employees. The irregular schedule that splits weeks makes it difficult to calculate overtime pay for hourly workers whose hours vary from week to week.

• Confusing and complex: Calculating semi-monthly pay becomes confusing and complex for paying hourly employees since weeks are split between pay periods, making it harder to track and calculate overtime. Pay periods can have an inconsistent number of days in them, especially since the last date of the month varies from month to month.
• Longer intervals between paychecks: Compared to biweekly pay, there may be longer intervals between paychecks for all employees, but especially for new hires, depending on their start date. The varying length of months impacts the interval.
• Hourly workers: Semi-monthly pay is difficult to administer and calculate for hourly workers. When traditional work weeks are broken between pay periods, accurately tracking and calculating overtime is difficult.
• Breaking weeks: Both employees and employers can more easily track hours and overtime when the pay cycle includes the entire work week, but semi-monthly pay frequently splits work weeks.
• Overtime: It is much harder to calculate overtime for hourly employees when weeks are split between pay periods. As a result, employers may need to hold overtime pay until the following paycheck.
• Variable hours: The number of workdays in each pay period varies. As a result, the exact paycheck amount becomes difficult to predict for hourly employees.
• Higher deductions: Since there are only 24 pay periods in a year, this means that each paycheck will have higher deductions compared to biweekly pay.
• Irregular schedules: Pay dates may fall on weekends or holidays, which means you must adjust when you do your payroll to ensure workers have their pay before that date.

The pros and cons of semi-monthly pay clearly show that semi-monthly pay works best when your workforce consists primarily of salaried employees. For an hourly workforce, semi-monthly pay presents many challenges, and biweekly or weekly pay would be better options.