Deciding on a pay frequency for a small business is an important decision. Pay frequency determines how often the business must process payroll and when employees receive their paychecks. There are four common pay period options, including weekly, biweekly, semimonthly, and monthly. Two popular, yet easily confused, pay periods are biweekly and semimonthly. Knowing the difference between biweekly vs. semimonthly payroll can prevent financial setbacks, keep the business legally compliant, and more.
Companies that run payroll with a biweekly frequency dole out a total of 26 paychecks per year. Companies that use semimonthly pay give employees 24 paychecks per year. With a semimonthly payment schedule, employees always receive two paychecks each month. However, there are two months in the year where employees who are paid bi-weekly receive three paychecks in a month. In a biweekly pay period or schedule, the employee is set to receive a paycheck every other week. Usually, the employers distribute pay checks on Fridays sticking to the same day every pay week. Thus, in this pay period, the employee receives 26 pay checks annually.
The Advantages of a Bimonthly Payroll
That way, employers don’t have to wait for current timesheets before they can run payroll. Typically, biweekly paydays happen on the same day of the week but not the same date. Months with “extra” paydays can impact cash flow, so it’s important to account for them during cash flow planning. The greater consistency that Biweekly vs Semimonthly Payroll comes with biweekly paychecks can result in an easier time managing finances. Businesses and institutions typically decide on the frequency in which their employees are paid, which often comes down between a biweekly or semimonthly pay schedule. Employees typically ask the question “When will be the next pay schedule?
Why is the first paycheck always low?
While it's possible that you began working for a company on the first day of a pay period, this scenario is also uncommon. This means that your paycheck is likely less than what you can expect for future paychecks, since you may not have been working for the employer during the first few days of the pay period.
Accordingly, the information provided should not be relied upon as a substitute for independent research. Intuit Inc. does not warrant that the material contained herein will continue to be accurate nor that it is completely free of errors when published. Payroll service for your small business, you may not have to pay extra for every payroll run.
Semimonthly Vs. Biweekly Payroll
Semimonthly payroll is a compensation system where employees receive their remuneration twice a month. Salary is distributed either on the 1st and the 15th day of every month or the 1st and the last day of each month. This payment schedule is effective for firms that offer high salaries and fixed incomes. When it’s time tohire your first employee, you’ll also be forced to choose a pay schedule. Whether you’re a newbie or you’re an old hand, we have all the information you need to make the right choice for your team.
Despite the slight difference in the frequency of paychecks received per year, this distinction can have some considerable ramifications in paychecks every month. Employees who are paid semi-monthly have specific dates for their payment schedule, such as the 15th and last business day of each month. Therefore, the days are different; an employee may https://www.bookstime.com/ get its paycheck on a Monday and Thursday. The schedule when employees receive their paychecks and when you run payroll is also one of the differences between the two pay frequencies. Employees who are paid semi-monthly have higher paychecks than those who are paid every other week since companies who use semi-monthly frequency run payroll less.
The Pros and Cons: Biweekly vs. Semimonthly Payroll
Let us ponder over what is the difference between semi-monthly and biweekly pay periods with the help of an example. It is prudent to understand here that whether a salaried employee is paid biweekly and semi-monthly, it will leave no impact on the annual pay drawn by you.
Semimonthly pay schedules for salaried employees are straightforward. Typically, employers will divide an employee’s salary by 24, or the number of yearly paydays. In fact, the best way to approach payroll may be to use a combination of these methods. Bimonthly pay could work best for salaried employees, while biweekly may be optimal for hourly employees, who then receive a more consistent paycheck. Biweekly and semimonthly payroll options can be confusing because, for the most part, the number of paychecks received per month is exactly the same.
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Despite biweekly payroll being the most popular option among U.S. employers, there are a few potential setbacks. Here are some of the benefits of bi-weekly and semi-monthly pay schedules so you can make an informed decision on which is right for you. While it might seem that paying employees every other week works out to the same thing, there are some key differences that will affect your choice of payroll timing.
A semi-monthly payroll is confusing for hourly employees and time sheet submission dates are hard to predict. To help employees understand their semi-monthly pay schedule, some employers create and distribute semi-monthly payroll calendars.
Differences in the number of paychecks per year
A biweekly payroll schedule will typically be seen in the eyes of your employees as “dependable” and “consistent”. Also, your payroll clerk will be able to keep a consistent schedule and pace with how they distribute them. The one downside to biweekly payments is the inconsistency in how much money you are paying out each month.
- Getting paid every other week has become an American tradition, with the U.S.
- An employee who gets $51,000 per year will receive the same annual salary regardless of whether they are being paid semi-monthly vs. bi-weekly.
- Twice each year, employees who are paid bi-weekly receive a third monthly paycheck, increasing their take home pay for the month.
- Businesses and institutions typically decide on the frequency in which their employees are paid, which often comes down between a biweekly or semimonthly pay schedule.
- Employees prefer a bi-weekly approach as the days of the week are easy to determine.
Biweekly pay and semimonthly pay can be confusing because employees generally receive two payments per month. The payroll processing differs in that the full-time bi-weekly paid employees are compensated for 80 hours on each pay date. On the other hand, the semi-monthly approach compensates the employees for 86.67 hours on every pay date. The employer arrives at the hours for the bi-weekly approach by dividing 2,080 hours by 26 days.
Differences in Payroll Processing: Hourly Workers
There are definite pros and cons of using each of the payroll systems, and the decision is up to each small business owner. If you want help to sort out which is best for your business, call Teresa Ray at The Payroll Department. For more than 25 years, she has been helping small businesses with payroll services and making decisions about payroll issues. While it’s important to spend time thinking about the best pay period for your business, just remember that it’s not a binding contract.
- As per the semi-monthly schedule, the employees get 24 checks in a year.
- Also known as a semimonthly pay period, a bimonthly pay period results in 24 pay periods per year.
- However, if you want to reduce time processing payroll and lower the chance for errors, then perhaps a semimonthly payroll is the better choice.
- This process is risky, especially if an employee suddenly quits and does not have enough hours to offset the payment.
- The terms “bi-weekly” and “semi-monthly” can be a little confusing when it comes to payroll.
- It’s also worth noting that the use of the most common pay period, in this case, biweekly pay, tends to rise with the size of an establishment.
There are two commonly used pay schedules – semi-monthly and bi-monthly. Though you only get paid twice per month, a bimonthly pay schedule yields larger paychecks. Keep in mind that even though your paychecks may be larger, you paid the same amount at the end of the year no matter your pay frequency. There are pros and cons to each pay schedule, both for an employer and their employees. Take a look at the benefits payroll biweekly vs. semimonthly can offer to decide which is right for your business.
Payroll From year-end reporting to employee paystubs, check out these payroll tips and tricks. This content is for information purposes only and should not be considered legal, accounting, or tax advice, or a substitute for obtaining such advice specific to your business. No assurance is given that the information is comprehensive in its coverage or that it is suitable in dealing with a customer’s particular situation. Intuit Inc. does not have any responsibility for updating or revising any information presented herein.
Businesses should check with their state before choosing how often to run payroll. 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 on the 15th and the last day of each month. Employers should understand that the government requires that nonexempt hourly employees, who are eligible for overtime receive a salary of 1.5 times their hourly rate. Because a workweek is based on a week long period, it is easier for the employer to calculate overtime payments using the weekly method when calculating overtime. Bimonthly payroll processing can introduce more challenges compared to the biweekly approach. With biweekly, payroll staff take the same steps on the same days every two weeks.