Bi-weekly vs Semi-monthly pay periods: Differences and benefits

Choosing the right pay schedule is a crucial decision for any organization, be it a large enterprise or SMB. It can determine the type of talent you attract and the long-term expenses you incur as a business. The right pay schedule will benefit both you and your employees.

Before zeroing in on your pay schedule, here are some factors that you must consider while evaluating your options.

1. State-based laws might restrict you to only certain types of pay schedules for your employees.

2. The payroll software you choose must be equipped to handle the complexities of the pay schedule you are opting for. If it's too rigid, you can run into problems while processing your employees' pay.

3. Payroll processing incurs costs for the organization, so choosing the most cost-effective method for your budget is preferable.

4. Calculating overtime rates can become tricky on certain pay schedules. Try viewing each type of pay period from an employee's perspective and choose the one that gives them the greatest benefits.

Bi-weekly vs. semi-monthly pay schedules: What's the difference? 

The terms "bi-weekly" and "semi-monthly" are often mistaken for one another, so let's break down of each schedule type.

Bi-weekly pay schedules are the most common, especially in the United States due to state laws. If you choose this pay schedule, you will be paying your employee once every two weeks on a designated day of the week. This means that in a year, you would pay your employees 26 times.

A semi-monthly pay schedule means pay checks are distributed two times a month, usually on fixed dates such as the 1st and 15th, or the 15th and 30th. However, they may not necessarily fall on the same day of the week, and you would end up paying your employees 24 times in a year instead of 26.

To be precise, employees under the bi-weekly payschedule are paid 26 times in a year, whereas, employees under the semi-monthly payschedule are paid 24 times in a year.

Here are some of the benefits and downsides of using bi-weekly and semi-monthly pay schedules for calculating payroll so you can make an informed decision on which is right for you.

Bi-weekly pay

Benefits:   

• You pay your employees slightly smaller sums spread across the year.

• Employees will be paid more often, receiving two extra paychecks each year when compared to a semi-monthly schedule.

• Because employees know the exact day that they will be getting paid, they can plan for expenses better.

Downsides:

• Bi-weekly pay schedule may cause an administrative burden on HR and payroll teams, since they have to process payroll more frequently.

• Overtime calculations can become complicated, as paychecks should be processed three times during certain months.

• Employees may receive smaller paychecks during three-paycheck months.

Semi-monthly pay  

Benefits:

• Employees will receive larger sums when compared to bi-weekly payments.

• Employers need to process payroll fewer times in a year than with a bi-weekly schedule.

• It's easier for employers to calculate salaries as they are spread across evenly through the year on fixed dates.

• It's also easier to calculate benefit deductions as they usually occur on a monthly basis.

Downsides:

• The day on which payroll is processed will keep changing, making it more difficult for payroll teams.

• If the pay date falls on the weekend, payroll teams have to keep track of it and complete payroll processing in advance.

• New hires may need to wait for a longer period of time to receive their first paycheck.

Bi-weekly vs Semi-monthly pay schedule: Which one is better?

Since semi-monthly pay schedule involves processing lesser number of pay checks compared to bi-weekly pay schedule, and since payroll processing happens on a fixed date, many organizations may prefer to adopt semi-monthly pay schedule. However, select what works for your organization based on its payroll policies, cash flow, and the labor laws governing the region which your organization operates from.

Other pay schedules

Before finalizing the payroll schedule that best suits you, you may also consider some other types of payroll schedules.

In a monthly pay schedule, payroll is processed 12 times a year on a fixed recurring date. Though it is the most cost-effective option for employers, employees are forced to wait a whole month to receive each pay check.

Weekly pay schedules require 52 paychecks to be processed over a year, making it the most expensive and time-consuming pay schedule for employers. This, however, works best while employing contract or freelance workers who work irregularly or are paid hourly.

In a semi-weekly pay schedule, employees are typically paid twice a week, which is every two or three days depending on the organization's payroll policies. This may not be the first choice for many organizations, since frequent payroll processing may place an administrative burden on HR and payroll teams.

An overview of the main pay schedules

Bi-weekly, semi-monthly, semi-weekly, monthly, and weekly pay

Final thoughts

Carefully evaluate the impact each pay schedule will have on your finances, time, and effort. Identify the type of employees that you will likely employ and balance it with the maximum benefit you can give your employees based on your industry and other governmental regulations. Finally, select the pay schedule that makes the most sense to you.