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 biweekly 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 Biweekly Pay?
Biweekly 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 biweekly, 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 biweekly, 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 Biweekly Pay Work?
Fortunately, a biweekly 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 Biweekly 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 biweekly 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 biweekly 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 Biweekly 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 biweekly 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 Biweekly 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 your team biweekly or semi-monthly?
There isn’t one right option here, and there are pros and cons of each to consider. Let's break them down.
Pros And Cons Of Biweekly Pay
- Boosts Morale. Paying employees more frequently can keep up morale, by keeping money in employees’ pockets.
- Minimizes Errors. Decreases the likelihood of payroll errors compared to systems that run payroll more often, like weekly pay.
- Saves Money. Better for the pocketbook, if you use a payroll provider that charges per payroll run—compared to weekly pay. Some providers, allow you unlimited payroll runs, giving you the freedom to decide how often you pay your team.
- Extra Planning. Not every month has an even number of days. You will be running payroll 26 times per year, which means there will be two months with three pay periods. You’ll have to make sure you anticipate this, and pay your staff accordingly.
- Careful Budgeting. Since there are two months with an extra pay period, your balance sheet might take some more work to even out.
- Smaller Paychecks. While employees will be paid more often, their paychecks will be smaller than on a semi-monthly schedule.
Pros And Cons Of Semi-Monthly Pay
- Larger Paychecks. Paychecks will be larger, which can help employees feel valued for their work, however they’ll be less frequent than on a biweekly pay schedule, so check with your staff on which option they prefer.
- Simplifies Deductions. Since you’ll always be running payroll twice a month, the semi-monthly payroll schedule makes it easy for your team to track payroll expenses and calculate deductions.
- Consistency. Your employees will know when to expect their paycheck, every month, of every year. That can make it easier for them to plan their own personal budgets.
- Calculating Overtime. When you run payroll on one specific date, some pay periods might have fewer or extra days. It can be an extra challenge to keep track of how much overtime is owed to your hourly staff when the number of working days included in a pay period varies.
- Scheduling Snafus. Since your payroll will be tied to an actual date on the calendar, your pay period may end on a Saturday or even Sunday. You’ll have to remember to either pay your staff the Friday before or the Monday after the weekend…or run payroll over the weekend.
Or...Consider A Weekly Pay Schedule
Did you know a weekly pay schedule is the second most popular option among employers, with 32.4% of businesses opting to go this route? In fact, it may just be the easiest option, since you'll be running payroll on the same day every week and know exactly when you'll need to devote time to the process.
What's more, when you hire new employees, you often have to prorate their first paycheck to make sure they're only paid for the hours and days they actually work during that pay period. With a weekly pay schedule, you can essentially avoid this problem, since most new hires start on a Monday—the beginning of a new pay period. Also, a weekly pay schedule may be able to help with employee engagement and retention. Happy employees are invested employees, and getting paid more often can keep up a team's spirits. Like a biweekly schedule, your staff's paychecks will be smaller compared to a semi-monthly schedule, so it's important to gauge your team's preferences before making any decisions.
Provided you comply with any mandated payment frequencies in your state (more on that in the next section), what schedule you opt for should be carefully thought out. Here’s a quick chart that breaks down the nuts and bolts you’ll want to keep in mind about each of these payment schedules:
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 biweekly 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.