What Is Semi-Monthly Pay? A Guide For HR

Managing payroll effectively is essential for any business, and choosing the right pay schedule can have significant impacts on both employers and employees. 

One popular option is semi-monthly pay, but how does it work, and is it the best option for your organization? In this article, we'll dive into everything you need to know about semi-monthly pay, from its benefits to potential challenges.

What Is Semi-Monthly Pay?

Semi-monthly pay refers to a pay schedule where employees are paid twice a month, typically on the 1st and 15th, or the 15th and last day of the month. 

Unlike a bi-weekly pay schedule, which occurs every two weeks, semi-monthly pay results in 24 pay periods per year. This makes this pay schedule ideal for salaried employees, as it aligns well with benefits deductions and predictable pay dates.

Why do companies use semi-monthly pay?

Companies choose semi-monthly pay for several reasons:

• Consistency: Employees are paid on the same dates each month, making budgeting easier for both workers and businesses.
• Simplified Benefit Deductions: Since benefits like health insurance and retirement contributions are often calculated monthly, a semi-monthly schedule makes deductions easier to manage.
• Predictability: For companies, having a fixed pay date reduces confusion over payroll administration, especially compared to weekly or bi-weekly schedules that might vary depending on the month.

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How Does Semi-Monthly Pay Work?

Since we know that in this pay schedule, employees are paid twice a month, that means we can break them down fairly evenly across 24 pay periods. For example, an employee making $60,000 per year would receive $2,500 in gross pay each payday by either check or direct deposit.

However, this structure can create complexity for hourly employees, whose pay varies based on the number of hours worked during each pay period. For this reason, semi-monthly pay is more common for salaried white-collar workers, aka knowledge economy jobs, than it is for hourly employees or other blue-collar jobs where overtime is calculated. 

Semi-monthly vs other types of pay

Pros and cons

Pros:

• Predictable Pay Dates: Employees know they will be paid on the same two days each month, making it easier to plan and budget.
• Simplified Benefit Deductions: Because many benefits are calculated on a monthly basis, it’s easier to divide these deductions evenly over two paychecks.
• Good for Salaried Employees: Salaried employees generally benefit from this consistent pay structure, as it aligns with their fixed annual salary.

Cons:

• Complex for Hourly Workers: Pay can be more complicated for hourly employees, as their hours worked may not align perfectly with the pay period.
• Payroll Processing Complexity: Some months have different numbers of days (28, 30, or 31), which can complicate payroll processing and require additional adjustments.
• Less Flexibility: Workers wanting on-demand pay may be difficult to accommodate. 

How To Calculate Semi-Monthly Pay

As we’ve laid out, this type of payroll schedule is best for salaried workers. With that in mind, here’s a basic step-by-step process to calculate someone’s semi-monthly pay. 

1. Determine Annual Salary: Start by identifying the employee’s annual salary.
2. Divide by 24: Since there are 24 pay periods in a semi-monthly schedule, divide the employee’s annual salary by 24.
   • Example: If an employee earns $72,000 annually, their pay is $72,000 ÷ 24 = $3,000 per pay period.
3. Adjust for Deductions: Subtract any benefits, taxes, and payroll deductions (health insurance, 401(k), etc.) to calculate the net pay.
4. Add Overtime, Bonuses, or Commission (if applicable): For employees eligible for overtime, calculate the additional pay based on the hours worked during each semi-monthly period. If you’re dispersing a bonus or commission payment, simply highlight which paycheck the payment will be dispersed with.

Overtime

For employees who earn overtime, the process can differ depending on whether the employee is salaried or hourly. Overtime is typically calculated based on the hours worked over 40 in a week, regardless of the pay schedule. 

However, since a semi-monthly period often includes partial weeks, employers must carefully calculate overtime to comply with labor laws.

Semi-Monthly Pay For Hourly Employees

For hourly employees, semi-monthly pay can be more challenging because their hours worked vary. Employers must track the actual number of hours worked during the pay period, which can differ from one pay cycle to the next. 

The accuracy of the hours worked for overtime workers is so important due to the difference in pay rates on overtime hours. The standard pay rate for overtime is 1.5x the employee's normal pay per hour.

Benefits and drawbacks for hourly employees

• Benefits: Regular pay dates make budgeting easier for employees, and benefit deductions are simplified.
• Drawbacks: Tracking hours and calculating overtime can complicate payroll processing, especially if employees work irregular hours or have fluctuating schedules.

How To Transition To A Semi-Monthly Pay Schedule

If your company currently uses a different pay schedule (e.g., weekly or bi-weekly), transitioning to a semi-monthly schedule requires some thoughtful planning to ensure no pay is interrupted and you don’t create a negative experience for employees as they now have to budget differently. 

For some businesses, it’s not unusual that your payroll software is tied into your HR technology. A lot of small business HR software will have this and need to be adapted to ensure it’s calculating payroll data under the new schedule. 

Here are five steps to follow for transitioning to a semi-monthly schedule:

1. Communicate with Employees: Clearly explain the reasons for the change and how it will impact their pay, when it will happen, and how they should plan for it. 
2. Update Payroll Systems: Ensure your payroll software can handle the new pay structure, including calculating benefits and deductions accurately.
3. Adjust Benefits Deductions: Make sure payroll deductions for benefits like health insurance, retirement plans, and taxes are calculated correctly for 24 pay periods.
4. Review Compliance Requirements: Ensure your new payroll schedule complies with any federal, state, or local laws governing pay frequency and overtime calculations.
5. Provide Training for Payroll Staff: Ensure your payroll staff understands the nuances of the new pay schedule to avoid errors during the transition.