Semi-Monthly vs. Bi-Weekly Payroll- Key Differences

One of the first questions that many new hires ask is how and when the company plans to pay them. Business owners can choose between weekly, bi-weekly, monthly, or semi-monthly payroll processing schedules. Businesses must pick the option that is best suited for the needs of their employees, as well as aligns with their HR payroll staff's schedules.

Of these options, semi-monthly and bi-weekly schedules are typically the most popular. Both semi-monthly and bi-weekly payroll present different advantages and disadvantages for employers, as well as for employees. Here are the differences and advantages of semi-monthly and bi-weekly payroll schedules.

What is a Semi-Monthly Pay Period Schedule?

Employees who are paid twice a month are on a semi-monthly pay schedule. One check is sent out at the beginning of the month, while the second is sent towards the middle of the month. Semi-monthly pay schedules are typically on the 1st and the 15th, or the 15th and the last day of the month. Employees will receive 24 paychecks per year. Because some months are longer than others, paychecks will vary in their amounts from previous months' checks.

What is a Bi-Weekly Pay Period Schedule?

Employees on a bi-weekly schedule receive a paycheck every other week, typically on a Friday. Those on a bi-weekly schedule will receive 26 paychecks per year. Salaried employees receive the same pay for each check, while hourly employees are paid according to the number of hours worked.

What is the Difference Between a Semi-monthly Pay and Bi-Weekly Pay?

Salaried employees are paid a standard amount each year. These employees will be paid this standard amount regardless of whether they are on a semi-monthly or bi-weekly payroll. However, the amount they receive from each check may vary depending on which payment schedule they are on. Those on bi-weekly schedules will be paid more frequently, but at a lesser amount for each check.

Let's look at an employee who earns an annual salary of $40,000 per year and see how they would be paid according to each pay schedule.

Semi-Monthly Schedule- The employee would receive a total of 24 checks. Each paycheck would be $1,666.66 before taxes are taken out.

Bi-Weekly Schedule- The employee would receive a total of 26 checks. Each paycheck would be $1,538.46 before taxes are taken out.

Different Industries & Pay Schedules

According to the Department of Labor Statistics, 42.2% of businesses pay on a bi-weekly basis in the United States. Only 18% of businesses pay on a semi-monthly pay schedule. Other businesses either pay weekly or once per month.

Industries where employees tend to work irregular hours pay on a weekly basis. This typically includes construction, manufacturing, natural resources, and the mining industry. Weekly pay schedules more accurately reflect these workers' cash flow needs.

Only 5.4 percent of businesses send monthly checks. High-wage companies or financial service companies tend to prefer monthly pay cycles, as high-income workers can usually manage only being paid once per month.

Semi-Monthly Pay Advantages

1. Higher Paycheck Amount
Some employees may prefer receiving a larger amount of money in less frequent intervals. This is particularly true if the employee has rent due at a particular time of the month, or other planned expenses.

2. Same Pay Dates
Knowing that a check will be delivered on the same day, regardless of the month can be helpful for budgeting purposes.

3. Cost-Effective for the Company
Semi-monthly pay schedules are less expensive because the company only has to run payroll twice a month. It also creates less work for the HR payroll staff.

4. Easier to Calculate Deductions
It is simpler to calculate take-home pay when deductions are equally divided between two monthly checks. Because pay is always on the same two days every month, the deduction amount will always be the same.

Bi-Weekly Payroll Advantages

1. More Consistency for Employees
Employees know that they have a paycheck coming every other Friday and the exact amount they will be paid. Some semi-monthly paydays fall on a Saturday. Because Saturday is not a regular workday, employees may be confused as to when they will receive their check.

2. Bonus Pay Checks
Twice a year, employees on a bi-weekly schedule receive a third monthly check because there are 52 weeks in a year. Even though this check is expected, it can be nice for managing cash flow and personal budgets.

3. Easier to Calculate Overtime Pay
Overtime pay is determined by the number of overtime hours worked in one week. Bi-weekly pay cycles always include two entire weeks, and overtime is not split between two pay cycles as it can be for semi-monthly checks. Therefore, it's easier for the HR staff to calculate overtime pay for bi-weekly paychecks.