Advantages and Disadvantages of Semimonthly Payroll
The semi-monthly method refers to the payroll payments that work as paying employees twice a month. The payment usually happens on the middle day of the month (15th) and the last day of the month. Employees’ annual salaries are split into 24 pay periods and it pays in 24 equal payments throughout the year in a semi-monthly payroll method.
The following are the Advantages and Disadvantages of the Semimonthly Payroll.
Advantages (Pros / Positives / Benefits) of Semimonthly Payroll
1. Company can manage the payroll cash flow well
The company is paying the employees 2 times a month. It is quite easy for the company to manage the receivables accordingly and link those with the employee payments. As an example, if an employee receives $4,000 as a monthly payment, in semi-monthly payment he/she will receive two paychecks per month for each $2.000.
2. Removes the odd day and leap year days
The bi-weekly payroll method has issues with odd days and leaps year days. But the semi-monthly payroll does not have odd days since the payment happens on the middle business day of a month and the last business day of a month, despite whether it is an odd or even day. Also, it eliminates the leap year days issue since both payments happen within the calendar month.
3. Easier to calculate accruals
Semi-monthly payroll accruals are uncomplicated to proceed with. The company payroll department has to divide the agreed annual net payment by 24 and the amount is the net payment of each payroll.
4. Semi-monthly payroll method can be combined with other payroll methods
Most larger companies in the United States and other countries use different payroll methods with employee categories. Most companies use a bi-weekly method for employees with hourly-based pay and a semi-monthly/monthly-based method for employees with a fixed salary. The semi-monthly payroll method is flexible to cater to a certain type of employee as such and has a relevant method for others.
5. The payment plan and method are easy to understand
The semi-monthly method is very easy to understand. There are only two payments applicable in a given calendar month. Simply, the payment happens on the 15th of the month and the last business day of the month. It is simple to comprehend even for an average employee.
6. Company can save money on payroll administration
When compared with bi-weekly pay, there is very less hassle than semi-monthly pay in terms of payroll administration. There are fewer pay periods and it is simple as well. Hence the company can save the payroll processing cost.
Disadvantages (Cons / Negatives / Drawbacks) of Semimonthly Payroll
1. Employees could be confused with the method due to a lack of consistency
In the weekly or bi-weekly payroll processing method, the employee will get the payment on a given day within the week (e.g. Friday). But in the semi-monthly method, it could be any day within the week. Hence, the employee could be confused with the processing.
2. Not practical to implement with non-exempt employees.
Non-exempt employees are entitled to a minimum amount of compensation and on top, they will be entitled to overtime pay when they work more than agreed hours per week. It is not practical to implement semi-monthly payroll with non-exempt employees since the payroll period could start/end within the middle of the week (e.g. 15th and last day of the month could be any date within the week). Hence it is difficult to pay non-except employees using the semi-monthly payroll method.
3. Some local states do not allow semi-monthly payroll method
Some states in the US and other countries do not allow semi-monthly payroll methods. As an example, in New Hampshire, employers must pay employees wages on a weekly or bi-weekly schedule. Semi-monthly and monthly pay frequencies must be approved by the New Hampshire Department of Labor (NHDOL).
4. New employees have to wait around 2 weeks to receive the first paycheck
Unlike the weekly payroll method which pays employees every week, the semi-monthly payment happens around 2 weeks. The newly joined employee has to wait for around 2 weeks if he/she joins at the beginning of the month.
- Semi-Monthly Payroll
- Bi-Weekly Payroll
- Bi-Monthly Payroll
- Differences of Payroll Methods