Semi-Monthly vs. Bi-Weekly Pay Explained
Semi-Monthly vs. Bi-Weekly Pay
Regardless of the industry, most jobs follow one of two different pay frequencies: semi-monthly or bi-weekly. Although these sound very similar, there are a few key differences that distinguish one from the other. Each has its list of pros and cons. In this blog, we will review the key differences between semi-monthly and bi-weekly pay and explain why businesses may choose one compensation schedule over the other.
How Many Paydays in a Month?
Let’s start with the easy math. Semi-monthly employees receive a paycheck 24 times a year (twice a month for 12 months, equalling 24), whereas bi-weekly employees are paid 26 times in a calendar year (every other week for 52 weeks in one year). In the most practical terms, that means employees who are paid bi-weekly receive more paychecks than employees who are paid semi-monthly. This is an important consideration for workers who would rather get paid more often.
How Much Money in Each Paycheck?
Because semi-monthly paychecks are less frequent, these paychecks will have slightly more money than bi-weekly paychecks. Let’s look at a quick example to see why
Let’s say that you have a salary of $42,000 per year. If you are paid semi-monthly, you will be paid $1,750 per paycheck before taxes (your salary divided by 24 checks per year). If you’re paid bi-weekly, you will receive $1,615.38 per paycheck before taxes (same salary divided by 26 checks). Although your total annual earnings will be $42,000 with either option, this is definitely a factor that is worth noting — especially when you’re creating your monthly budget.
Whether a business’s employees are salaried or hourly, it will likely make sense for them to choose one pay frequency over the other. For example, it can be more difficult to process the paychecks of hourly employees on a semi-monthly basis than on a bi-weekly basis. Why? Because hourly wages are easier to calculate on a bi-weekly basis, as each paycheck accounts for the same number of days. Conversely, semi-monthly paychecks will vary in the number of days they include, making it more challenging for whoever handles the company’s payroll.
For businesses, it can be less expensive to pay employees semi-monthly instead of bi-weekly. Every time a company processes payroll, a cost is incurred, and especially for small businesses, minimizing these costs can be a strategic way to increase profitability — which usually benefits both the business owner and the employees. In addition to the cost savings, semi-monthly pay makes it easier for businesses to calculate tax and benefits deductions.
While a business may prefer one pay schedule over another, it’s important to note that some state laws dictate the types of payment schedules companies are allowed to implement. For example, in Alabama and South Carolina, there are no specified regulations, so companies can choose whichever schedule they prefer. In other states, however, companies are required to pay their employees at least on a bi-weekly basis.
Semi-monthly and bi-weekly pay schedules each have their benefits and drawbacks. Ultimately, the right choice comes down to the individual business, its financial situation, and the payroll schedule’s ability to provide the most benefit for the company and the employees.