Payroll calculations can be particularly complex calculations because an organization may hire workers on different payment criteria. A business can have employees being paid on the following basis:
- Monthly
- Semi-monthly
- Bi-weekly
- Hourly
Each payment method has a different way for the calculation of wages, thus for a payroll keeper, it is important to know how to calculate wages due through each method.
How to calculate semi-monthly pay?
Calculating the semi-monthly pay is not as simple as it sounds, it requires a bit of technical knowledge. Let us first try to understand the difference between the payment basis mentioned above.
The monthly payment basis is the most common one, the wages of the employees are calculated on a monthly basis. The hourly method is also quite simple because the workers are paid based on the number of hours worked.
The bi-weekly and semi-monthly payment methods sound similar but are essentially different from each other. The bi-weekly payment method requires payment of wages after every two weeks. This means that in a year, a bi-weekly payment method would have 26 pay periods (52/2).
The semi-monthly payment method requires payment of wages twice every month. Now since there are 12 months in a year, a semi-monthly payment system would therefore have 24 pay periods (12×2).
So it can be seen that at first glance one may not think that the bi-weekly and semi-monthly payment methods are similar but it turns out that both payment methods are very different from each other. The difference of two weeks can affect the size of paychecks, overtime calculations, and other deductions.
Calculating the Semi monthly pay of a salaried employee
The semi-monthly salary of a salaried employee can be calculated in a very simple manner. Firstly, you need to know the annual salary of the employee. Let us assume that an employee earns a gross of $100,000 annually.
Now we already know that a semi-monthly payment regime has 24 pay periods. So now we simply need to divide the annual gross income by the number of pay periods.
100,000/24 = $4,166.6 we shall round this off to $4,167.
Therefore the gross income of an employee working $100,000 annually would be $4,167 if paid semi-monthly.
It is of course, not so simple in reality. Employees do not usually start working on the first day of each month. Furthermore, organizations may have different payment methods for a single employee.
For instance, an employee who is paid semi-monthly may also undertake a separate project that requires payment and therefore the organization will then need to find the “pay rate” for that employee.
We have already established that a semi-monthly payment system has 24 pay periods. In order to find the pay rate, we need to find the number of days in each pay period.
Months having 30 days have two pay periods of 15 days each, whereas months having 31 days have two paydays with one payday having 15 days and the other payday having 16 days. February can have pay periods with 13 or 14 days depending on whether it is a leap year or not.
Once the number of days in a pay period is known, the daily rate or pay rate can be easily calculated.
For instance, an employee having $1000 gross semi-monthly pay would have the following pay rates
| Pay Period | Daily Pay Rate |
| 16 days | $62.5 |
| 15 days | $66.6 |
| 14 days | $71.4 |
| 13 days | $76.9 |
Knowing the daily pay rate helps if the employee engages in any project-based work that needs to be paid separately.
Finding out the Hourly Rate
Finding out the hourly rate under a semi-monthly system is very easy. The annual gross salary should be divided by the average number of work hours in a calendar year.
According to the US General Accounting Office, the average number of work hours in a calendar year is 2087.
Thus, if a person earns $100,000 annually then their hourly rate would be 100,000/2087 = $47.91
Deductions and Benefits
The payroll keeper also needs to be mindful of the monthly deductions. Some deductions are carried out on a monthly basis, which needs to be converted into the 24 pay periods for a semi-monthly payment system so that they can be matched with monthly deductions.
