Being an employee, the number of times you get paid during a month and a year can considerably impact you and your living conditions, including your planning your budget and lifestyle.
It is important to note that each company’s payroll structure might be different from the other, making it necessary for you to know about your company’s payroll structure, cycle, and how it calculates your payments when you begin working.
There are four main types of payrolls systems, and employers might choose to pay employees based on any one of the bases, including weekly, bi-weekly, semi-monthly, and monthly payroll systems. However, once a particular payroll system is chosen, the employer must keep using it in the foreseeable future.
A semi-monthly pay is characterized by employees being paid twice a month. This usually means that the employer is most likely to pay the employee on the 15th of the said month and then on the last day of that month.
The semi-monthly payment schedule has 24 payments in any given year, whereas a bi-weekly payment system has 26 payments a year. If any of the payment dates of a semi-monthly payday falls on a weekend, the salary payments are then made on the Friday right before the weekend begins.
Difference between semi-monthly and bi-weekly payments
The major difference between the two payment systems is that semi-monthly payrolls are made 24 times each year while biweekly ones are made 26 times a year. While the semi-monthly payment is made on the 15th and the last day of each month, a bi-weekly payment system requires paying employees every other week. Employees under this system are paid for the current week on a set day next week.
While considering which one of the payroll systems is preferable, the answer may vary based on various preferences. Organizations which prefer efficiency are most likely to choose semi-monthly payment systems because it allows the organization to prepare lesser payrolls during a financial year.
Further, since semi-monthly payments require a lesser need to the month ending adjusting entries to be made, it becomes easier to allocate the relevant salaries and wages expense correctly to each month.
However, when considering employee relations, companies usually prefer a bi-weekly payment method. This payment method allows employees knowing for sure that they will be paid almost twice a month, making it easier for them to plan their cash receipts and budget.
This is not possible with semi-monthly payments because any of the payment dates might fall on a weekend, which disrupts payment receipts either by accelerating payments or delaying them, creating uncertainty for employees.
From the point of view of convenience for an organization, a bi-weekly payment system seems to work best because it allows organizations to prepare payrolls on a certain day of the week without disruption.
In contrast, with a semi-monthly payment system, the organization may have to shift preparation of payroll systems to varying days because of the occurrence of weekends on the 15th of the month or the last day, making it a hassle because of the inability to organize and schedule tasks with certainty. The main differences, therefore, between the two payment systems are:
- Number of paychecks paid out each year
While a bi-weekly payroll system pays out a total of 26 paychecks each year, the semi-monthly system always pays out two paychecks per month, making it 24 paychecks per year.
- Paycheck amounts
Since a semi-monthly payment requires lesser paychecks to be paid out and processed during a year, paychecks based on semi-monthly payment systems tend to be greater than bi-weekly ones.
In the bi-weekly payment system, employees receive two extra checks at the end of the year to make up for the difference of the lesser amounts received in the first 24 paychecks.
For example, if an employee has a salary of $40,000 a year, if being paid on a semi-monthly basis, each paycheck received by the employee would be $1666.67, whereas if paid on a biweekly basis, each paycheck would be $1538.46.
However, regardless of which payment system is used to calculate salaries and the frequency of these payments, this does not impact taxes or any other deductions.
The biweekly payment system is perhaps a more popular choice among employers. As the Bureau of Labor Statistics shared, 36.5% of the employers pay on a bi-weekly basis, while 19.8% of the employees are paid on a semi-monthly basis. This is mainly because the Bi-weekly payroll system allows greater consistency in managing the payroll system and paying employees, in general.
Cons of Semi-monthly payments
One of the major drawbacks of semi-monthly payments is the irregularity and inconsistency associated with semi-monthly payments. A payday may fall on a holiday, making it a constant hassle for the employer and employee to track the payments and be certain when the next paycheck will be received.
A semi-monthly payroll system can require payments to be accelerated or delayed based on the day on which the payment day falls.
Secondly, while a semi-monthly payroll system may work best for salaried employees, it is more difficult to use it for hourly employees, especially when they are working overtime. In this case, the business might have to use a semi-monthly system for salaried employees and a bi-weekly system for hourly employees.
It is important, especially for small businesses, to decide which payment system will work better for them and their employees in the long run. Further businesses must take into account any costs associated with payroll systems and payments, as some businesses also use the services of payroll providers to manage payrolls.
It is essential to decide and stick with one particular payroll system because businesses must consistently use the same payment systems throughout and can not shift to another one.