As a business owner, payroll can be your highest expense. And determining your pay frequency can impact your business’s financial health. A semimonthly payroll schedule occurs twice a month. A biweekly payroll schedule occurs every two weeks. With that in mind, here’s what you need to know to choose a payroll schedule that’s right for your business.
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Biweekly schedules are the most common payroll schedule, according to a 2018 QuickBooks Payroll report. Friday is the most common payday.
Semimonthly payroll schedules have 24 paydays. On this schedule, employers pay employees less frequently, and paydays are inconsistent. But employees receive larger paychecks.
Biweekly schedules have 26 paydays. Employers pay employees more frequently, and payday is on the same day of the week. But employees receive smaller paychecks.
Because of the number of paydays, semimonthly paychecks are larger than biweekly paychecks. However, biweekly schedules result in two more paychecks for employees each year to make up the difference. For example, let’s assume an employee makes $55,000 a year.
On a semimonthly schedule, the employee’s gross pay per paycheck would be around $2,291.67. On a biweekly schedule, the employee’s gross pay per paycheck would be about $2,115.38. To calculate their semimonthly or biweekly pay, divide the employee’s gross annual pay by the number of pay periods in the year.
Typically, semimonthly paydays occur on the 15th and last day of the month. Because of the set dates, payday can happen on any day of the week. When paydays fall on holidays or weekends, employers may pay employees on the preceding Friday or workday.
Typically, biweekly paydays happen on the same day of the week but not the same date. Commonly, payday is every other Friday. Sometimes, employees can be paid three times in a month. Months with “extra” paydays can impact cash flow, so it’s important to account for them during cash flow planning.
Semimonthly pay schedules for hourly employees are more complex than biweekly schedules. Because semimonthly schedules can consist of 15 to 16 days, hourly employees may report different hours each cycle. Overtime pay causes further complications. Employers who pay semimonthly may provide a payroll calendar to notify employees of when their time cards are due and when they’ll be paid.
Employers may find paying hourly employees on a biweekly schedule simpler. Employers pay employees on the number of hours they worked in the previous two-week period. In many cases, the employer may track hours a week behind the current payday. For example, the employer may track hours for the first and second week of the month but pay in the third week. That way, employers don’t have to wait for current timesheets before they can run payroll.
Semimonthly pay schedules for salaried employees are straightforward. Typically, employers will divide an employee’s salary by 24, or the number of yearly paydays.
Biweekly pay schedules are similar for salaried employees. Employers can divide an employee’s salary by 26, or the number of yearly paydays.
For full-time salaried employees, biweekly schedules typically account for 80 hours of work. However, semimonthly paychecks for full-time salaried employees account for 86.7 hours of work.
Typically, semimonthly payroll schedules work best for salaried workers. But there are other key benefits for you and your employees.
However, semimonthly payroll schedules also have their disadvantages.
Biweekly payroll schedules work best for hourly workers. But there are other benefits as well.
However, a biweekly schedule isn’t without faults.
Semimonthly and biweekly aren’t the only payroll schedules available. You may prefer to run payroll weekly.
Weekly payroll works best for hourly workers and employees with irregular schedules. You can calculate overtime easily. And employees don’t have to wait long between paydays. A year will have 52 payroll cycles.
However, the time and cost associated with weekly payroll may be higher. Processing payroll so frequently may cost more, depending on how you run payroll at your business. And you or your payroll manager will have to do so four or more times a month.
Monthly payroll offers easier-to-manage benefit deductions since you only have to factor out the monthly cost. And processing payroll only has to happen once a month, making it less time-consuming than other options. A year will have 12 payroll cycles.
However, your employees may not prefer monthly payroll. Infrequent paychecks mean they have to wait longer and strictly budget their money between pay periods. And it may take longer for new hires to receive their first paychecks.
Finding the right payroll cadence for your business is important. Hopefully, by understanding each option, you can choose the right payment schedule for your small business.
Some states may not allow certain pay schedules or require a minimum pay period. Some states may also require employee consent and additional paperwork for certain pay schedules. Before deciding on a payroll schedule, research your state laws for any potential limitations.
The number of hourly, salaried, full-time, or part-time employees you have may influence your decision. Consider which employees make up the majority of your payroll before you choose your process. You may even choose to pay hourly employees biweekly but pay salaried employees semimonthly.
Payroll is a major expense that you must budget properly. For example, biweekly pay schedules may not work on tight budgets during three-paycheck months. And if you outsource your payroll, you may experience more service fees.
If you’re running payroll yourself, you’ll want to consider if you can run payroll weekly, biweekly, semimonthly, or monthly. If you’re outsourcing to a payroll provider or accountant, they may charge a service fee for every payroll run. But if you’re using a payroll service for your small business, you may not have to pay extra for every payroll run. Some online solutions may even let you automate payroll.
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