Semimonthly Payroll

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What is Semimonthly Payroll?

Semimonthly payroll is a payment schedule where employees are paid twice a month. The firm distributes wages either on the 1^st and the 15^thday of every month or on the 1^st and last day of each month.

These firms record, evaluate and transfer employee paycheck 24 times a year. The number of days in a month is not always the same, and therefore, paydays vary. For instance, February has 28 days; therefore, the first paycheck will be handed over in 15 days, i.e., on 15 February. But the second paycheck will be due in 13 days, i.e., on 28^th February.

What is Semimonthly Payroll?

Semimonthly payroll is the payment of employee wages 24 times a year or twice every month. Remuneration is disbursed on the 15^th and the last date of each month or on the 1^st and 15^th day of every month.
Such a payment schedule is undertaken by the firms that pay a handsome salary to their employees—to have a fixed annual pay. However, this schedule is unsuitable for firms that disburse hourly wages.
The semimonthly payday is different each time. It may fall on public holidays, bank holidays, or weekends.
A semimonthly paycheck is computed by dividing the net annual pay by 24.

Semimonthly Payroll Period Explained

Semimonthly payroll is a compensation system where employees receive their remuneration twice a month. Salary is distributed either on the 1^st and the 15^thday of every month or the 1^st and the last day of each month. Altogether, employees receive 24 paychecks in a year. This payment schedule is effective for firms that offer high salaries and fixed incomes.

Also, dispatching paychecks twice a month is convenient for the clerks—calculation of paycheck amount is easy for fixed salary employees. The paycheck amount is the same for all the months—evaluated by dividing the annual pay by 24. Also, compared to the weekly and biweekly payrolls, clerks need to process a smaller number of paychecks.

This system does pose some challenges—sometimes the payday falls on a bank holiday or weekend—salary disbursement is delayed. In such scenarios, paychecks need to be processed before or after the due payday. Also, the number of days in each payroll may differ due to the varying number of days in a month, but the paycheck amount remains the same for all the payrolls. This schedule is especially ill-suited to firms that pay hourly wages—accounting for overtime becomes tedious.

Examples

Let us look at some examples to understand the practical application of semimonthly payroll.

Example #1

Joyce is a financial analyst at LMN Finance Ltd. and her net pay is $72,000. The company follows a semimonthly payroll where the employees are paid on the 15^th and the last day of each month. Now, determine the paycheck amount received by her.

Solution:

Given:

Net Annual Pay = $72,000.
The number of semimonthly payments on the 15^th and last day of every month per year = 24 paychecks.

Paycheck Amount = Net Annual Pay / 24 = $72,000 / 24 = $3,000

Thus, twice a month, Joyce receives a paycheck of $3,000.

Example #2

Zachariah works as a factory supervisor at PQR Pvt. Ltd. and is paid $15 per hour. The company has a semimonthly payroll system and the expected working hours for an individual is 2080 hours every year. If Zachariah works for 100 hours in the first half of May, find out the paycheck amount received by him on 15^th May 2022.

Solution:

Given:

Hourly Wages = $15/hour.
Normal Annual Working Hours = 2080 Hours.
The number of Semimonthly payments on the 15^th and last date of every month per year = 24 Paychecks.

Working Hours / Payday = Normal Annual Working Hours / 24

= 2080 / 24 = 86.666 Hours

Paycheck Amount = 86.666 Hours × $15 = $1,300

Overtime Hours in First Half of May = 100 Hours – 86.666 Hours = 13.333 Hours

Paycheck Amount on 15^th May, 2022 = 100 Hours × $15 = $1,500

Overtime Pay = $1,500 - $1,300 = $200

Thus, Zachariah will receive a paycheck of $1500 on 15^th May 2022.

Semimonthly Vs. Biweekly Payroll

Semimonthly and biweekly payment schedules are often mistaken since a month is roughly said to have four weeks.

Although the annual pay remains the same in both cases, there are considerable differences between these two forms of payroll:

Basis	Semimonthly Payroll	Biweekly Payroll
Meaning	Employees are compensated two times every month, either on the 1^st and 15^th day of the month or on the 15^th and the last day of the month.	Salaries or wages are disbursed every two weeks. Pay cheques are always sent on the same day of the week.
Number of Paychecks	24	26
Payday	Inconsistent and varies each time	Fixed day of the week
Paycheck Amount	High	Comparatively low
Challenge	Clerks need to be careful with the varying paydays and pay before time if the payday falls on a weekend or bank holidays.	Clerks need to maintain enough funds that can last up to three paychecks a month.
Suitable for	Suits companies that pay high incomes that are fixed. They don’t want to invest time in payroll computations.	Suits companies that pay hourly wages—timely payment is a priority.

Frequently Asked Questions (FAQs)

What does semimonthly payroll mean?

Semimonthly payroll is a payment schedule—the firm distributes employee wages 24 times a year, i.e., twice a month. Therefore, firms allocate paychecks to the 1^st and 15^thdays of every month. Alternatively, this could be the 15^th and last day of the month as well.

How does semimonthly payroll work?

It is a payroll system—the company compensates the employees twice a month. The fixed annual salary of an employee is divided by 24 to determine the amount of each paycheck. However, for employees who receive hourly wages, the paycheck amount depends on hours worked till payday—working hours multiplied by the hourly wages.

What is the difference between biweekly and semimonthly payroll?

The biweekly payroll refers to the disbursement of employees’ paycheck every two weeks—resulting in 26 payments a year. Payments are made on the same day of the week throughout the year. On the contrary, a semimonthly payroll follows the two paychecks per month format—resulting in 24 paychecks annually. These schedules are often mistaken since a month is roughly said to have four weeks.