The Business Owner’s Guide to Bi-Weekly and Semi-Monthly Payroll

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7
min read
July 7, 2020

You value your employees, and you’re more than happy to compensate them for the effort and elbow grease they sink into your business. But, you’ll just say it: running payroll still isn’t your favorite activity.

You got into business ownership to pursue your passion, and not to crunch numbers and pore over legal requirements. In fact, a reported 40% of small business owners say that bookkeeping is the worst part of running a small business.

Much of that is owed to the fact that there’s a lot to figure out when it comes to managing the financial aspects of paying your employees. You need to navigate payroll taxes. You need to make sure you’re complying with overtime requirements. And, you need to figure out the best payroll schedule for your business.

Let’s focus on that last piece. You’ve probably heard terms like bi-weekly pay or semi-monthly pay tossed around. But, what do these actually mean? And, how should you go about deciding on your own payroll frequency without tearing your hair out?

You’re in luck. This article answers some common questions that you (and your employees) might have about payroll schedules.

What is bi-weekly pay?

Bi-weekly pay is the most common option for pay periods, with 36.5% of private U.S. businesses paying their employees on this schedule.

When your employees are getting paid bi-weekly, that means that payday occurs once every two weeks, and typically on the same day of the week (Friday is the most common payday). So, if you paid your employees bi-weekly, they’d receive their paychecks every other Friday.

Because of this, it’s important to note that there will be some months where you’ll actually be required to issue three paychecks—depending on how the calendar shakes out.

How does bi-weekly pay work?

Fortunately, a bi-weekly pay schedule is pretty simple. As the business owner, you would pick a designated payday, and then ensure that your employees get their paychecks on that specific day every two weeks.

How many bi-weekly paychecks in a year?

Your employees have expenses and need to plan out their own budgets, so you can’t blame them for wondering how many bi-weekly pay periods there are in a year.

Fortunately, this is helpful information for you to have too. With payroll likely being one of your largest expenses, you want to know how many times each year you’ll need to cut those checks so that you can plan out your cash flow accordingly.

With a bi-weekly pay schedule, employees will receive 26 paychecks each year, regardless of what year it is. The math is pretty simple: there are 52 weeks in a year, and your employees get paid every two weeks. 52 divided by two equals out to 26.

How do you calculate bi-weekly pay per hour?

Perhaps your hourly employees want to double-check that their paychecks are in the right amount. Or, maybe your salaried workers want to get more granular and see what their hourly earnings are.

It’s pretty simple to calculate an employee’s bi-weekly pay per hour. They’ll need to start by looking at their pay stub to get their total pay amount.

Looking at their gross pay (meaning the lump sum before any taxes or other deductions) will help them calculate their advertised hourly rate, but looking at their net pay (the amount they actually received in their bank account) will help them understand what they’re taking home on an hourly basis.

Your employees will also need to know how many hours they work in a typical week. They should multiply that number by two, since their paycheck captures two full weeks. Once they have that information, they can use this simple formula:

Payment amount ÷ total hours worked = hourly rate

So, for example, this is what that would look like for an employee who earned $2,000 in gross pay on their paycheck and worked 80 hours in two weeks: 2,000 ÷ 80 = $25 per hour.

What is semi-monthly pay?

Semi-monthly pay is another option for employers. Although, it’s admittedly less common, with just 19.8% of businesses opting for this payment frequency.

With a semi-monthly pay schedule, you’ll pay your employees twice per month on specific dates—most commonly on the 15th and the last day of each month.

It’s important to note that semi-monthly pay is often confused with bi-monthly pay, but these two terms mean very different things. Bi-monthly pay means you’re only paying your employees once every two months.

How many semi-monthly paychecks in a year?

Employers who pay employees semi-monthly will give them 24 paychecks each year. Again, even if you’re no accounting whiz, the numbers here are pretty straightforward.

Let’s break down this semi-monthly pay calculation: you pay your employees two paychecks each month, and there are 12 months in a year. If you multiply two by 12, that comes out to 24 paychecks.

Is it better to get paid bi-weekly, weekly, or semi-monthly?

Now that you’ve familiarized yourself with the basics, you (and your employees) might be wondering which system is best? Should you pay them bi-weekly? Semi-monthly? Or even weekly (which is the second most popular option among employers, with 32.4% of businesses opting to go this route)?

There isn’t one right option here, and there are pros and cons of each to consider. For example, weekly or bi-weekly paychecks will be in smaller amounts than semi-monthly paychecks. But, that’s because they happen at a greater frequency.

Provided you comply with any mandated payment frequencies in your state (more on that in the next section), what schedule you opt for is really a personal choice. Here’s a quick chart that breaks down the nuts and bolts elements you’ll want to keep in mind about each of these payment schedules:

A table showing the number of paychecks for weekly, bi-weekly and semi-monthly pay periods

How should you decide which payroll schedule is right for your business?

We’ve covered a lot about the different payment frequencies already. But, if you’re still feeling stumped about which choice is right for you, below are a few tips to keep in mind.

1. Check the rules of your state

Business ownership is full of rules and regulations, so you knew that something like this was bound to crop up sooner or later.

States all have different laws that apply to payment frequencies. So, before you make a choice, make sure you use this resource from the Department of Labor to check if a payroll schedule is mandated by your state.

If it is, of course, you need to make sure to comply with that.

2. Consider your different types of employees

If you have the flexibility, you might want to use a couple of different payment schedules depending on the types of employees you have on staff.

For example, running semi-monthly payroll for your hourly employees can be challenging, especially if they racked up any overtime pay. However, it’s more straightforward for your salaried employees who are earning consistent amounts.

Unless your state laws tell you otherwise, don’t feel like you’re locked into the same system for everyone. You might have some wiggle room to tailor your approach based on employee type.

3. Ask your employees for input

Still stuck on the best route for you? Your employees are the ones who are actually cashing the checks, so you might want to ask them for their opinion. Would they rather receive a smaller amount each week? Or a larger lump sum just twice a month?

Make it clear that they won’t be the ones making the final decision. However, gathering their feedback and opinions shows them that you value their ideas and want to engage with them—and it gives you some valuable insights to boot.

Payroll can be a hassle, but it doesn’t have to be

Most business owners will be quick to tell you that they don’t look forward to running payroll (even if they’re passionate about compensating their employees for a job well done). It’s another administrative task that they need to get through.

But, before you can cut any checks, you first need to decide on a payroll schedule for your business.

From bi-weekly to semi-monthly pay, there are plenty of options out there. Use this as your guide to land on the payment frequency that’s best for you and all of your hard-working employees.

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