Choosing a payroll schedule may be confusing. Every system has benefits and flaws, which doesn’t make it easier to make up one’s mind. Keep reading the article to learn about two payroll schedules: biweekly and semimonthly payrolls. Hopefully, the article will help you make a decision.
What is a Biweekly Payroll?
Bi-weekly (or biweekly) payroll schedule is when the company hands paychecks to its employees every two weeks. According to this system, it’s 26 paychecks each year. It’s typical for a company to choose a specific day of the week to have paychecks, and usually, it’s Friday.
This system also requires having a couple of months when the company hands three paychecks instead of two. According to this payroll schedule, paycheck represents a certain amount of work equal to working 80 hours.
What is a Semimonthly Payroll?
If a company prefers a semimonthly payroll schedule, then it hands paychecks to its employees twice per month. The semimonthly payroll schedule does not require an employer to choose a few months to pay three times, like in the example of a bi-weekly schedule.
Typically, employees get paid on the 5th and 20th of every month. These dates can vary depending on business days (i.e., when 20th is on Saturday or Sunday). According to this schedule, employees receive higher paychecks compared to the biweekly pay period.
But it doesn’t mean they actually get more than employees working under the biweekly system. As mentioned, a biweekly system requires having a few months when an employee gets paychecks three times. Employees “make up” that money during this period, so the salary is the same.
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Key Differences Between Biweekly and Semimonthly Payroll Systems
The main difference between these two systems is obvious — the frequency of paydays. A semimonthly system requires having two fixed days, and a bi-weekly schedule has paydays every other Friday. But this is not the only difference.
Let’s check the characteristics of each schedule separately to understand all the differences.
Biweekly system characteristics:
- Has 26 pay periods every year.
- Fixed payday, for example, every other Monday.
- Payday occurs every two weeks.
- Easy to compute overtime.
It’s worth mentioning that payroll costs might be higher. Moreover, it could be potentially difficult to keep books when using the biweekly schedule since it has additional paydays during some months.
Semimonthly system characteristics:
- Has only 24 pay periods every year.
- Has specific paydays, for example, on the 5th and the 20th.
- Payday occurs twice every month.
- Difficult to compute overtime is employees work extra hours and these periods occur between different semi-monthly paydays.
The semimonthly schedule is easier from a bookkeeping perspective.
Pros and Cons of a Biweekly Payroll
One of the benefits of using the bi-weekly payroll setup is having 26 paydays. Employees feel more comfortable knowing that they get paid every second Friday (or other days). But there are other benefits of the setup.
- Money and time-saving properties.
- Reduced payroll preparation time.
- Grants human resources more time to focus on other important tasks.
Reduced risk of errors since preparation time is cut almost in half.
Employers notice that they save money on cheques and direct deposit fees when using the bi-weekly payroll setup. But the system also has some significant disadvantages.
- May increase monthly expenses on pay periods.
- Bookkeeping difficulties during three paydays per month.
The setup may also negatively affect deductions.
Pros and Cons of a Semimonthly Payroll
The semimonthly payroll setup has several advantages and disadvantages for both employees and their employers.
- Larger paychecks.
- Reduced processing time.
- Easier to manage deductions.
- Increased difficulty when calculating hourly employees, especially when they work overtime.
- Lack of consistency leads to difficulties tracking what day to pay.
- Hard to calculate for holidays and weekends.
The main difficulty will occur when the payday is during a weekend or a holiday. Human resources have to pay beforehand.
If you are stuck with the decision, consider checking your state’s regulations. In some cases, states regulate how often employees should get paid. Keep in mind that according to the law you must keep a chosen frequency during a tax year.
Author: Charles Lutwidge