Payroll frequency has different advantages and disadvantages, depending on who’s doing the figuring. Semi-monthly and biweekly payroll are generally the most popular payment plans, but which one is right for you, and why?
Semi-monthly means twice per month. While there’s no hard and fast rule about what days must be payday, the accepted standard of semi-monthly payroll is paydays fall on the first and sixteenth days of the month. If the payday falls on a weekend or holiday, companies usually have a fixed format for whether they pay in advance of the weekend or holiday, or the first day following it.
When payroll is semi-monthly, it means there are 24 paychecks per year. When employees are hourly, not on salary, then semi-monthly paychecks vary in the amount considerably, as pay periods can have between nine-and-12 workdays. February’s second paycheck, for instance, is the shortest of the year, usually just nine days, and this can make things a struggle for some employees during the first half of March.
Oddly, biweekly can mean both something that occurs once every two weeks but also something that occurs weekly. This dual meaning is the bane of editors everywhere. However, in the payroll instance, biweekly always means getting paid every second week. Typically, a biweekly payroll is paid out on Fridays.
Biweekly payment schedules mean there are 26 paydays in a year. Except sometimes, that is, when a biweekly payroll can be thrown into a tizzy by a leap year. In 2016, there were 27 biweekly paydays. If a business fails to realize the extra payday and account for it, there can be issues if an employee’s contract states they receive “X amount” on a biweekly basis. Luckily, this headache isn’t guaranteed just because it’s a leap year, and it's generally only an issue once a decade or so.
With that aside, employees tend to love biweekly payroll because money comes every two weeks without fail. If their hours are a fixed amount, even non-salaried employees can anticipate the same amount of money coming in every 14 days, which makes it easier to stay on top of their budget and expenditures.
Thanks to 26 checks annually, there are always two months a year where three paychecks are needed, which can be a delight for employees since they'll have a little extra money after rent and monthly bills are met.
According to the U.S. Bureau of Labor Statistics, biweekly payrolls are the most popular payment schedule for American businesses. Approximately 36 percent of employees receive biweekly paychecks, and surprisingly, weekly comes second, at just over 32 percent of the workforce enjoying a payday every seven days. Semi-monthly, however, accounts for about 20 percent of the payroll in America and monthly paychecks are doled out to just under 12 percent of the working public.
People love to end a week on a high note, and that’s often easily done, thanks to over 60 percent of biweekly pay periods transpiring on Fridays.
What industry you’re in may significantly influence your payment schedule. For instance, construction overwhelmingly favors a weekly payroll, with 70 percent of construction-related businesses opting for that. Manufacturing firms largely agree, with just over half going for weekly paychecks.
In education and health, approximately 53 percent of jobs get a biweekly payday, but most other employment sectors range between 28-and-43 percent of employees taking pay home every two weeks.
The number of employees in a company also tends to affect the frequency of payroll. Interestingly, in businesses with under 10 employees, it’s almost an even split at just over 30 percent each between weekly and biweekly payrolls, with semi-monthly in third place and monthly in a distant last. But as the number of employees increases across the board, the popularly of biweekly paydays gets higher. By the time it hits companies with 1,000 or more employees, payroll trends show more than 70 percent of the companies favor biweekly paydays. Semi-monthly, on the other hand, barely breaks 8 percent of the payroll schemes for those same large companies.
There are pros and cons to each pay schedule.
Biweekly makes paydays predictable, both in when they happen and in the estimated amount received by full-time, fixed-schedule part-time and salaried employees. Their fixed calendar makes it easy for payroll staff and accounting teams to build paydays into their work schedule with a day set aside for the tasks. Three-paycheck months, though, can be a budgetary concern for some companies.
Semi-monthly, on the other hand, is only predictable for salaried employees. It does allow companies a bit more leeway through accounting costs and budgeting predictability, as there are only ever two paydays in a month. Plus, leap years never yield an extra pay period, which is helpful. But paydays falling on different days; sometimes on holidays and sometimes weekends, can make it chaotic to accommodate a biweekly payday. Plus, the payroll will always vary for hourly staff, even if they work fixed hours on a weekly basis, thanks to the varying days included in pay periods, depending on the month. When 59 percent of the workforce is hourly, and most have fluctuating schedules, this range of nine-to-12 days per paycheck can be a big deal for employees, and a headache for accountants.
In jobs where overtime for hourly employees is regular, semi-monthly pay periods can be frustrating for employees due to where the pay period ends. Overtime is paid according to the “workweek,” which is a fixed period, and the end of the workweek may fall in a new pay period, which can complicate matters and leave employees at a loss. Conversely, biweekly pay periods make overtime simple to count and compensate for, which employees appreciate.
For companies, the most attractive payday is monthly. Financially, it’s easier to account for, it costs less to administer, and it’s the most predictable. This is probably why the finance industry favors it more than any other industry does. It’s also related, though, to the amount of compensation employees receive. The BLS studies reveal that companies with the lowest-earning employees tend to be paid on a weekly basis to help them keep their cash flow consistent.
But, for employees, the best payment schedule is biweekly, allowing for more stability in their lives. A fixed payday means a kind of security and regularity many hourly employees deeply crave. And Uncle Sam likes a biweekly payday, too, because employees being paid biweekly means a couple of “bonus” paychecks a year, thanks to those two three-check months, plus higher odds of financial stability. And financially stable citizens are citizens who can buy more goods and keep the economy running smoothly.
There is no “right” or “wrong” payroll type; it’s just what’s more right for any given company. For small companies trying to keep budgets predictable and easily managed, there are incentives to the semi-monthly pay schedule, particularly if they favor salaried compensation versus hourly. For companies often facing overtime needs, or who have mostly hourly employees, there’s a lot to like about biweekly pay schedules.
Either way, it’s important to understand what your benefits plans are, how those break down differently on the payroll schedule and what each method means for tax accruals. If the logistics seem challenging or you’d like to employ more than one kind of payroll schedule for a diverse workforce, hiring a payroll service could solve all your challenges.