Advantages and Disadvantages of Semi-Monthly 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.

  1. Advantages of Semi-Monthly Payroll
  2. Disadvantages of Semi-Monthly Payroll
  3. Definition of Semi-Monthly Payroll
  4. Pay Period & Pay Days of Semi-Monthly Payroll
  5. Example of Semi-Monthly Payroll Calculation
  6. Other Types of Payroll Schedules (Methods) Available
  7. Semi-Monthly Payroll vs Bi-Weekly Payroll vs Bi-Monthly Payroll
  8. How to Choose the Best Payroll Schedule for My Company?
  9. Which Industries Mostly Uses the Semi-Monthly Payroll Schedule
  10. FAQs

The following are the Advantages and Disadvantages of the Semimonthly Payroll.

Advantages (Pros / Positives / Benefits) of Semi-Monthly 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 Semi-Monthly 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.

Definition of Semi-Monthly Payroll

Semi-monthly payroll is when a business pays the employees twice a month, usually on the 15th and last day of the month. The payment generally happens out on the proceeding Friday if these dates fall on a weekend. Furthermore, employees’ annual salaries are split into 24 pay periods, results 24 equal payments throughout the year.

Pay Period & Pay Days of Semi-Monthly Payroll

The pay period of semimonthly payroll is 24 times per year. It is a simple math to calculate with 12 months per year multiplied by 2 paydays per month = 24 paydays. This also means that semimonthly payroll produces 24 consistent earnings per year.

Pay dates of semimonthly payroll are commonly the 1st and 15th of each month or the 15th and the last day of each month.

Example of Semi-Monthly Payroll Calculation

As an example, let’s assume that an employee joined at an annual salary of $96,000. There are 24 pay periods of semimonthly payroll. Hence for each pay, the employee will get $4,000 ($96,000 / 24). The employee’s paysheet will indicate the salary of $4,000 on each semimonthly payday. The employee will get $8,000 each month (2 Pay Days per month hence $4,000 X 2 = $8,000).

  1. Determine the Annual Salary: Start by determining the employee’s annual salary (example: $96,000). This is usually provided in the job offer or contract.
  2. Convert Annual Salary to Monthly: Divide the annual salary by 12 to get the monthly salary. For example, if the annual salary is $96,000, the monthly salary would be $50,000 / 12 = $8,000.
  3. Divide Monthly Salary by 2: Since the employee is paid twice a month, divide the monthly salary by 2 to get the semi-monthly payment. Using the example above, $8,000 / 2 = $4,000.
  4. Calculate Deductions and Taxes: Deduct taxes, social security contributions, insurance premiums, and any other applicable deductions from the semi-monthly payment depending on the applicable tax laws and company policies. This will give you the net pay.
  5. Adjustments for Overtime or Bonuses: If the employee is entitled to overtime pay or receives bonuses, make appropriate adjustments to the semi-monthly payment.
  6. Verify Dates and Payment Frequency: Confirm the specific pay dates with the company’s payroll schedule to ensure accurate and timely payment.
  7. Document and Report: Keep records of the calculations for each pay period and generate pay stubs or statements for the employee’s reference. Ensure compliance with labor laws and regulations regarding wage payments and reporting.

Other Types of Payroll Schedules (Methods) Available

1. Bi-Monthly Payroll Schedule

Semi-Monthly Payroll vs Bi-Weekly Payroll vs Bi-Monthly Payroll

Semimonthly PayrollBiweekly PayrollBimonthly Payroll
Pay PeriodTwice A MonthEvery Other WeekOnce Every Two Months
Number of Payments Per Year242612
Number of Payments Per Month2 Payments Per MonthFor 10 Months 2,
For 2 Months 3
1 Payment Per 2 Months
Payment Usually Happens on a Specific Day of a WeekNoYesNo
Practical for Non-Exempt Employee PaymentNo / DifficultYesNo / Difficult
Payment Amount Per Pay Period As Example.
Assumption: Annual Salary of $78,000
$78,000 / 24 = $3,250$78,000 / 26 = $3,000$78,000 / 12 = $6,500
Best Advantage As an EmployeePayment Method is Easy to UnderstandEmployees Feel More ConsistentPaycheck Amount will be Comparatively High
Biggest Disadvantage As an EmployeeNot Practical with Non-Exempt EmployeesPaycheck will be Comparatively LessDifficulty in Personal Budgeting
Biweekly vs Semimonthly vs Bimonthly Payroll

How to Choose the Best Payroll Schedule for My Company?

  1. Assess your cash flow: You have to consider your company’s financial situation and determine how frequently you can afford to pay your employees. A more frequent payroll schedule, such as weekly or bi-weekly, may require a more consistent cash flow compared to a monthly or semi-monthly schedule.
  2. Consider employee preferences: You have to consider the preferences of your employees when choosing a payroll schedule. Some may prefer more frequent paychecks to better manage their finances, while others may prefer less frequent paychecks if they are used to monthly budgeting.
  3. Evaluate administrative efficiency: Consider the administrative workload involved in processing payroll. A more frequent payroll schedule may require more time and resources for payroll processing, whereas a less frequent schedule may be more efficient administratively.
  4. Review legal requirements: Make sure to comply with federal, state, and local labor laws regarding payroll frequency. Some jurisdictions may have specific requirements regarding the minimum frequency of paychecks. As example, in the United States, payroll schedules must comply with federal, state, and local labor laws
  5. Test different schedules: You can consider testing different payroll schedules on a trial basis to see which one works best for your company and employees, if possible. This can help you assess the impact on cash flow, administrative efficiency, and employee satisfaction.
  6. Consult with professionals: Consider consulting with payroll experts or financial advisors who can provide insights and recommendations based on your company’s specific needs and circumstances.
  1. Professional Services: Industries such as accounting firms, law firms, consulting companies, and other professional services often use semi-monthly payroll schedules for their employees.
  2. Education: Schools, colleges, and universities frequently adopt semi-monthly payroll schedules for faculty and staff, as these institutions often have regular pay periods that align with academic calendars.
  3. Healthcare: Hospitals, clinics, and other healthcare facilities may utilize semi-monthly pay periods for their employees, including doctors, nurses, and administrative staff.
  4. Manufacturing: Some manufacturing companies implement semi-monthly payroll schedules for their workforce, including both hourly and salaried employees.
  5. Non-Profit Organizations: Non-Profits organizations may find semi-monthly payroll schedules convenient for managing their finances and paying employees regularly.

Q: What are top challenges when processing semi-monthly payroll schedule?
A: The top challenges when processing a semi-monthly payroll schedule typically include managing cash flow effectively to ensure funds are available for more frequent payroll disbursements, handling increased administrative workload due to processing payroll twice a month, and ensuring accurate calculations and timely payments to employees to maintain compliance with labor regulations and employee expectations. Additionally, coordinating with financial institutions and software systems to facilitate seamless payroll processing can present logistical hurdles for businesses transitioning to a semi-monthly pay schedule.

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