Semi-monthly payroll system refers to paying twice in a month. It would mean that salary to the employees occur twice in a month. Pay dates should be 15 days while doing systematically. However, it is not necessary to make it so. The payments may occur on first of the month or 15th or 16th of the month.
This can also occur on the middle of the month or on last day of the month. This can be simply made random payment to employees or daily laborers. Business may make payments twice every month.
It means that the employees receive money for their expenses twice in a month which definitely reduces their burden a lot by enabling them to clear debts in short time. For the calculation of semimonthly salary, business must divide the monthly salary by 2 to reach semimonthly salary.
It can alternatively be done by dividing the annual salary by 24. Semimonthly payment is generally made on the 15th and the last day of the month. If any of these dates fall on a holiday then, payments are made on a preceding day.
Features of the semi-monthly payment system:
- Payments are made twice a month either at the beginning of each fortnight period or at the end of such fortnight period. For instance, Payments can be made on 1st or 16th of every month.
- Payments are cost effective for service-based industry requiring daily labor like construction industry, maintenance industry and other human resources-based industry.
- Chances of errors are reduced by maintaining consistency and regular preparation.
Advantages of Semimonthly Payroll system for SMEs
Small and medium enterprises are small in size. Although it would depend on the number of staffs, they have for various labor laws to be applicable, the art of selecting effective payroll system is important. The various advantages of semimonthly payroll system for SMEs are given below:
The semimonthly payment system is to be lauded for its simplicity that it is easy to understand and implement when the amount of consideration is low. The pay dates are fixed and on each such date, payment need to be made to the employees like a clockwork.
The semimonthly pay is suitable to every small and medium businesses irrespective of their nature of business. SMEs are smaller in size and the number of employees would be low. The pay of each employees may vary but on overall basis, it is manageable for semimonthly payroll mechanism.
- Compliance with external laws:
Once businesses are registered as SMEs, they need to comply with taxation laws and labor practices. The labor practices usually require month end compliances where the dates of deadline go till 10th after end of each month.
When the 15 days’ work are already done in advance, the other 15 days work for the latter part of the month can be done without much hassles.
The accountant can therefore fully engage in compliances later on. Hence, a semi-monthly payment system can be the best mechanism for any SMEs irrespective of their nature as the size is consistent for all SMEs.