Deciding when to run payroll is a major decision for any small business owner. You have several options to consider, including weekly, bi-weekly, semi-monthly, or monthly. While most employees prefer to receive a paycheck as often as possible, you also need to reduce the costs associated with paying them. Semi-monthly payroll could be the ideal compromise between these competing needs. A common payment structure when paying employees on a semi-monthly basis is to cut them a check or initiate a direct deposit on the 15th and the last day of the month.
Benefits of Switching to a Semi-Monthly Payroll
Knowing that they get paid on the same two days every month can be easier for employees to remember than other payroll structure types. One thing you will need to decide is when to pay people if the 15th, 30th, or 31st falls on a weekend. Most companies choose to run payroll on the Friday or Monday closest to these dates. To avoid upsetting employees, choose a day of the week that would fall before the regularly scheduled payday rather than after it.
Running semi-monthly payroll is easy to fit in if you have various payment structures for different categories of employees. For example, temporary or part-time workers may receive their check every Friday while hourly employees get paid every other Friday. This payroll option is often a good choice for salaried employees because the payout is normally the same 24 times a year. If you decide to put everyone on this payment schedule, it would reduce running payroll from 52 and 26 times per year from weekly and bi-weekly schedules.
Another benefit of this structure is that it makes it easier to equally divide the cost of employee benefits between paychecks. Weekly payments sometimes result in five paychecks per month, while a bi-weekly schedule can occasionally create three paychecks per month. That means you either don’t take out the cost of health insurance and other benefits for those odd payments or you need to figure out how to divide the employee share equally over 52 or 26 paychecks. With semi-monthly payouts, the deduction amounts always remain the same.
Potential Drawbacks to Consider
This system tends to work the best for companies that have mostly salaried employees. Then there is no concern about overtime or a variation in scheduled hours affecting the company budget. It can also feel confusing to employees who aren’t accustomed to receiving payment in this manner. For example, an hourly employee may not understand which paycheck he or she should expect to see the overtime pay for extra time worked on a weekend. To counter this confusion, place posters that plainly state the cut-off dates for payroll. A human resources representative should remain available to clarify payroll questions as well.
If you decide to implement this system, you may want to make an exception for new employees. This structure makes it so that someone just starting with the company might not receive his or her first paycheck for up to six weeks. It’s also critical for your company to make sure that it stays in full compliance with federal, state, and local regulations regarding reporting of pay and benefits.