How To Calculate Semi-Monthly Payroll: Full Breakdown

By Jaden Miller , June 8 2023

https://www.paystubs.net/cms-uploads/files/cms/standalone-content/thumbnail/648621a3e69f2106247050.jpg

Your payroll schedule directly affects both the personal budget of your employees and your business's accounting.

One solution businesses look at is semi-monthly pay where employees are paid twice a month – typically on the 15th as well as the last day of the month.

Instead of bi-weekly payroll – which consists of 26 payments in a year –, semi-monthly payment schedules only consist of 24 pay days in a year.

Overall, this impacts the size of your employee's paychecks. Plus, it can also take into account deductions for benefits, external billing of employee time, and overtime calculations easier.

With this in mind, we are here to help you calculate your semi-monthly payroll – providing you with a full breakdown and everything you need to know about the process.

Let’s get straight into it!

Also read: All You Need To Know About Mortgage Interest Tax Deduction

What Is Semi-Monthly Payroll?

Semi-monthly pay can be described as a schedule for regular payments. In specific, this would consist of payments twice a month – as opposed to one – on particular days.

This usually takes place on the first or last day of the month and the 15th. This means you’re paid two times a month for the services or work you’ve performed.

Since a year is composed of 12 months, this means you’ll be provided with 24 semi-monthly paychecks as a result.

According to the U.S. Bureau of Labor Statistics, the semi-monthly pay schedule makes up a third of the most common pay periods in the United States.

This is behind weekly and bi-weekly schedules, respectively.

Also read: 6 Ideas For Employee Appreciation Gifts

sheets of data

Taking Into Account Overtime Factors

Under federal law, hourly employees have to be paid a premium for undertaking overtime hours – based on the ones on their contract.

According to the Fair Labor Standard Act, it defines ‘workweek’ overtime as not replicating the semi-monthly pay schedule.

Therefore, hourly employees prefer to undertake bi-weekly pay periods rather than semi-monthly.

In order to successfully reward employees who undertake overtime hours on a semi-monthly basis, businesses are required to maintain a good track record of overtime hours.

Also read: How Do You Negotiate Your Salary?

Calculating Semi-Monthly Pay Using Annual Salary

When calculating the gross amount of the salaried semi-monthly paychecks of your employees, simply divide their annual salary by 24.

For instance, an employee who makes an annual salary of $48,000 will have a semi-monthly paycheck of $2,000.

This can be calculated using this formula: 48,000/24 = $2,0000.

Also read: The Ultimate 10 Money Saving Apps For Your Personal Finance

mobiles

Calculating Semi-Monthly Pay Using Bi-weekly Salary

If your business used to have a bi-weekly schedule and you’re looking to transition it into a semi-monthly schedule, the gross paycheck of your employees will be more – even if their annual pay remains the same.

When establishing a new semi-monthly pay for those salaried employees who used to be on a bi-weekly payroll, then you can either divide their annual salary by 24 or use the following formula:

Firstly, multiply the gross pay of your employee's bi-weekly paycheck by 26 – this will provide you with the annual salary.
Then, divide this by 24 – this will provide you with the gross pay for your employee’s semi-monthly pay period.

Also read: The 10 Best Budget Apps You Need To Know

Calculating the Daily Rate For Your Employee’s Semi-Monthly Pay

Sometimes, your employees won’t start work on the first or last days of the month. Likewise, your business may only rely on employees during specific projects for either external clients or internal accounts. Therefore, whatever the reason, understanding your employee’s day rate is important.

Here, all you have to do is divide your employee’s gross semi-month salary to ascertain the full paycheck using the number of calendar days in that specific month.

For instance, a gross pay of $2,000 would reveal a daily rate of $133.33 within a period of 15 days. Likewise, for a period of 16 days, this number would be $125.

During the month of February, the pay period could be 13 or 14 days – this would translate to $153.85 or $142.86 daily rates.

Ensure You Are Recalculating Any Benefit Deductions

There are some voluntary employee deductions – for instance, health care coverage – that are usually calculated using a monthly basis.

Therefore, those businesses transitioning from a bi-weekly to a semi-monthly payroll schedule will be required to reassess and implement when those specific deductions are taking place.

For instance, an annual premium when divided into 26 different installments may require conversion. For example, this could be transformed into 24 payments to better align with the specific pay periods of the business.

Processing Semi-Monthly Payroll For Employees on Hourly Rates

From pay period to pay period, hourly employees will often have very varied schedules. Therefore, employers will sometimes delay these paychecks to ensure there is enough time for sheet processing.

In addition, large businesses may have internal deadlines for processing sheet submissions – this is typically between the end of the specific pay period and the first day.

For instance, a pay period of September 1st and 15th may see an internal sheet submission deadline on the 17th of September as well as the payday period on the 22nd of September.

Disadvantages of Semi-Monthly Payroll

The major drawback of this type of payment schedule is the frequency of preparation – which usually makes this process more costly.

Under monthly payments, businesses only need to prepare payrolls 12 times a year. On the other hand, here, they have to be prepared 24 times – this would, essentially, double the cost of this preparation, depending on the approach.

Also read: When Should I Finally Retire?