If you own a small business, you face an important decision when deciding on a pay frequency. Your pay frequency means how often you process payroll and when your employees receive their paychecks. Two common pay frequencies are biweekly pay and semi monthly pay. They sound similar, but there are differences to consider.
Understanding 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?
The four most common pay period options are weekly, biweekly, semimonthly, and monthly. Weekly and monthly payroll are easy concepts to digest. You either pay your employees once a week or once a month. But, biweekly and semi monthly can be confusing, as employees receive roughly two paychecks per month.
The number of paychecks per year differs
With a biweekly pay schedule, there are two months in the year where employees receive three paychecks. Employees who are paid semi monthly always receive two paychecks per month.
If you run your payroll biweekly, you will give employees 26 paychecks per year. A schedule with semi monthly pay gives employees 24 paychecks per year.
Paycheck amounts differ in biweekly vs. semimonthly pay
Running payroll semimonthly means you run it less frequently, so each employee paycheck will have a larger amount than biweekly pay. Biweekly paychecks will have less money in each, but the two additional paychecks per year make up the difference.
Let’s say your employee makes $48,000.00 per year. On a biweekly pay schedule with 26 pay periods, their gross wages are about $1,846.15 per paycheck. If they are paid semimonthly, their gross wages would be $2,000 per paycheck.
Over the course of the year, your employee receives the same amount of money and owes the same amount of taxes, regardless of which payment frequency you use.
How your payroll schedule determines what day is payday
Another difference between semimonthly pay vs. biweekly pay is what day of the week you run payroll and which day employees receive their paychecks.
If you run 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. So, an employee may get paid on a Friday and Tuesday that month.
Which pay frequency is most popular?
Biweekly payroll is the most popular pay frequency 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 one, especially because federal pay laws state that you must keep the same frequency throughout the year.
Before choosing, it's important to know that states regulate how often you must pay employees. You might not be able to use biweekly pay or semimonthly pay frequencies in certain states. Check with your state before deciding how often you run payroll.
Cons of running a semimonthly payroll
One point of consideration is how many employees you have and if those employees are paid 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.
However, this lack of consistency with semimonthly payroll can also be a turnoff for businesses and employees. If you must run payroll for different employee classifications on a different days of the week, it can be confusing and difficult to manage. Plus, employees may not be sure which day they get paid.
Running semimonthly payroll can also be difficult to track when weekends and holidays come into play. If a pay day falls on a weekend or holiday, you have to decide to either advance or delay payroll for that pay period, which adds another responsibility to your plate.
Cons of running a biweekly payroll
Running payroll on a biweekly schedule also has a few downsides. For example, when you pay employees semimonthly, you can count on paying the same amount to employees each month. When you pay biweekly, there are some months with three pay periods, so you have to prepare for those months in advance. You will need to make sure you have enough money in your payroll account to cover the additional expenses of the 2 paychecks, since it's not a cut and dry monthly equation.
If you have 10 employees who each earn $1,500 in gross wages per paycheck, you'll 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.
Choosing your payroll provider
Payroll providers offer various options which can consist of base fees, per-paycheck fees, additional fees for paper checks, and more. Band of Hands keeps it simple, but offering a full suite of payroll services that accommodate any pay frequency at $10/week. This $10/week also includes full HR Support, compliance, onboarding, hiring services, and handling of unemployment and workers comp claims.