How to Calculate a Semi-Monthly Payroll
The schedule of your payroll directly impacts your business accounting and the personal budgets of your employees. Semi-monthly employees are paid twice a month, usually on the 15th and the last day of the month. Unlike a bi-weekly payroll, which has 26 payments in a year, a semi-monthly pay schedule has only 24 pay periods. This affects the size of employees' paychecks. It can also factor into overtime calculation, external billing of employee time and deductions for benefits.
To calculate the gross amount of a salaried employee's semi-monthly paycheck, divide her annual salary by 24. An employee who makes a gross annual income of $48,000 has a semi-monthly pay of $2,000, or 48,000/24 = $2,000.
If you are transitioning to a semi-monthly payroll from a bi-weekly schedule, your employees' gross pay per check will be more, even if their annual salaries are the same. To determine the new semi-monthly gross pay for a salaried employee who is currently paid bi-weekly, either divide his annual income by 24 or undertake the following calculation:
- Multiply gross pay for one bi-weekly pay period by 26 to get the annual salary
- Divide the annual salary by 24 to get the gross pay for one semi-monthly period
For example, an employee whose gross bi-weekly pay is $1,846.15 has an annual salary of $47,999.90. If you divide $47,999.90 by 24, the semi-monthly gross pay amount is just slightly more than $1,999.99, or $2,000 rounded up.
Employees don't always start work on the first of the month. Additionally, your business may bill an employee's time for certain projects to an internal account or an external client. For both reasons you should know your employee's daily rate.
Divide the gross semi-monthly salary for a full pay period by the number of calendar days in that pay period. A semi-monthly gross pay of $2,000 equates to a daily rate of $133.33 in a pay period with 15 days. In a pay period with 16 days, the daily rate would be $125. In February a pay period could have 13 or 14 days, which translates to daily rates of $153.85 or $142.86.
Hourly employees often work varying schedules from pay period to pay period. Employers often delay paydays for hourly employees to allow for time sheet processing. A semi-monthly pay schedule for hourly employees might be on the 7th and the 22nd of the month for hours worked from the 16th to the end of the month and the 1st to the 15th, respectively.
Large organizations might also have internal deadlines for time sheet submission between the end of the pay period and the pay day. For example, for the time period September 1st to 15th, the internal time sheet deadline might be September 17th and the payday September 22nd.
Federal law requires that hourly employees are paid a premium for overtime hours. The Fair Labor Standards Act refers to overtime in terms of "work week," which does not correspond with the semi-monthly pay period when that pay period starts or ends mid-week. For that reason, bi-weekly pay periods are often preferred for hourly paid employees. Businesses must keep close track of overtime hours worked by hourly employees paid semi-monthly to compensate them appropriately.
Voluntary employee deductions, such as for health care coverage, are often calculated on a monthly basis. Transitioning from a bi-weekly to a semi-monthly payroll requires the reassessment of when these deductions are made. An annual premium divided into 26 installments may have to be converted, for example, into 24 payments to align with pay periods.