Deciding on a pay frequency for your small business is an important decision. Your pay frequency determines how often you process payroll and when employees receive their paychecks. Two popular, yet easily confused, pay periods are biweekly and semimonthly.
Knowing the difference between biweekly vs. semimonthly payroll can prevent financial setbacks, keep your business legally compliant, and more.
What is the difference between biweekly and semimonthly pay?
There are four common pay period options, including weekly, biweekly, semimonthly, and monthly.
Biweekly and semimonthly can be confusing because employees generally receive two payments per month. However, there’s more to these pay periods than meets the eye.
Number of paychecks per year
With a biweekly pay schedule, there are two months in the year where employees receive three paychecks. Employees who are paid semimonthly always receive two paychecks per month.
Companies that run payroll with a biweekly frequency dole out a total of 26 paychecks per year. Companies that use semimonthly pay give employees 24 paychecks per year.
Because you run payroll less for semimonthly frequencies than biweekly, your employees’ paychecks will be greater. Biweekly paychecks will be less money, but you will provide the two additional paychecks to make up the difference.
Let’s say an employee makes $42,000.00 per year. If they are paid biweekly, their gross wages would be approximately $1,615.38 every other week ($42,000.00 / 26). If they are paid semimonthly, their gross wages would be $1,750.00 ($42,000.00 / 24).
Over the course of a year, the employee will receive the same amount of money and owe the same amount of taxes, regardless of which payment frequency you use.
Another difference between semimonthly vs. biweekly pay is what day of the week you run payroll and which day employees receive their paychecks.
If you run a biweekly payroll, employees receive their wages the same day each pay period. For example, your employees are consistently paid every other Friday, so you run payroll on the same day each pay period.
With semimonthly payroll, you pay employees on specific dates, such as the 15th and last weekday of each month. However, the days differ. An employee might get paid on a Friday and Tuesday.
Biweekly payroll is the most popular payment option. According to the Bureau of Labor Statistics, 36.5% of employees are paid biweekly. On the other hand, only 19.8% of employees are paid using the semimonthly payroll frequency.
Choosing between semimonthly vs. biweekly payroll
Deciding between biweekly vs. semimonthly payroll can be a difficult decision, especially because federal pay laws state that you must keep the same frequency throughout the year.
Before choosing, keep in mind that states regulate how often you must pay employees. You might not be able to use biweekly or semimonthly pay frequencies in certain states. Check with your state before choosing how often you run payroll.
Cons of running a semimonthly payroll
You need to consider how many employees you have and whether those employees are hourly or salaried. Running a semimonthly payroll for hourly employees is more difficult and confusing than doing so for salaried employees, especially when workers earn overtime pay. To combat this, you could run semimonthly payroll for salaried employees and biweekly for hourly workers.
The lack of consistency with semimonthly payroll can also be a turnoff for some businesses and employees. Because you must run payroll on a different day of the week, you could lose track of your responsibility. And, employees might not be sure which day they get paid.
Running semimonthly payroll can be particularly difficult to track when weekends and holidays come into play. If payday falls on a holiday or weekend, you will either need to advance or delay payroll, adding another responsibility to your plate.
Cons of running a biweekly payroll
There are setbacks to running biweekly payroll, too. When you pay employees semimonthly, you can count on paying the same amount to employees each month. The extra two paychecks for biweekly pay frequencies can set your business back if you don’t properly prepare for months with three paychecks. You will need to make sure you have enough money in your payroll account to cover the additional expenses.
Let’s say you have 10 employees who each earn $1,500 in gross wages per paycheck. You will need to have an additional $15,000 on hand both months that have three paychecks in them.
Also, keep in mind that some payroll providers charge you each time you run payroll. If you use one of these providers, you will pay more per year to run biweekly as opposed to semimonthly payroll. Or, you could choose a provider, like Patriot Software, that charges you the same amount, regardless of how many times you run payroll.
Are you looking for a way to streamline payroll? With Patriot’s online payroll software, you can run payroll in three easy steps. We don’t charge you each time you run payroll, so you can choose a pay frequency that suits your small business. Get a free trial today!
This is not intended as legal advice; for more information, please click here.