What is Semimonthly Payroll? Explanation with Examples
What is Semimonthly Payroll?
Semi-monthly payroll is when a business pays the employees twice a month. Usually, the semimonthly payroll payment happens 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.
In a Semimonthly payroll, employees’ annual salaries are split into 24 pay periods. There are 24 equal payments throughout the year, with the payment happening two times per month.
To cater to the semimonthly payroll, the company should trace the hours worked by each non-exempt employee who is allowed minimum wage and overtime pay if they work more than 40 hours per week. In some months, the weeks can get split into two pay periods and the overtime calculation payment will be somewhat complex. As an example, if the 15th of the month falls on Wednesday, there will be two pay periods before Wednesday and after Wednesday. Time tracking of non-exempt employee hours is important and complex in a semimonthly payroll schedule.
Pay Period & Pay Days of Semimonthly Payroll
The pay period of semimonthly payroll is 24 times per year (12 months per year X 2 paydays per month = 24 paydays). 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 Semimonthly Payroll
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).
Does Semimonthly Payroll Most Popular in the US?
According to the U.S. Bureau of Labor Statistics, The Semimonthly payroll is the 3rd most popular payroll in the USA with an estimated 19% of U.S. private establishments paying their employees.
Most companies in the USA choose a combination of payrolls, using the semimonthly approach for fixed salaried employees and a biweekly payroll for hourly employees.
Pay Frequency Requirements in the US?
According to CPA Practice Advisor, there are no pay frequency requirements at the American federal level. But some U.S. states have specific pay frequency requirements as following examples,
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).
In California and Michigan, the frequency of pay depends on the occupation. In California, wages must be paid at least twice during each calendar month on the days designated as paydays (with some exceptions).
Benefits of Semimonthly Payroll as an Employee
An employee can benefit from semimonthly payroll as follows,
Employees can manage their monthly expenses more easily because there are two payments received per month on the designated paydays.
New employees may have to wait a month or more to get their first paycheck on the monthly payroll. But in semimonthly, new employees can get their first payment more quickly.
Benefits of Semimonthly Payroll as an Employer
Accounting cost is low in a semimonthly payroll schedule.
The semimonthly payroll schedule is efficient since there are two payrolls per month to prepare. Also, there is less need for month-end adjusting entries.
The company usually prefers to set the semimonthly schedule if they pay their employees a set salary. The company can pay the same amount of money on each payday twice a month.
- Semi-Monthly Payroll
- Bi-Weekly Payroll
- Bi-Monthly Payroll
- Differences of Payroll Methods