When it comes to payroll, there are generally four methods available for business owners: weekly, biweekly, semimonthly, and monthly. And while choosing a pay period can be an important decision for a small business, often influenced by state laws and financial flexibility, it’s important for employers to understand the difference between the types.
Two common favorites that are often confused with one another are biweekly and semimonthly payments. As the typical month has four weeks, many incorrectly assume the two are the same thing, but as it turns out, this error can cost them.
The Differences Between The Two
For one, as biweekly payroll is issued on a set day, such as Friday, every two weeks, while semimonthly paychecks are made on a certain date, typically mid-month and the end of the month, not only can payday differ with the day of the week, but the amounts can change too – as there are 2 months in the year where employees can receive 3 paychecks with a biweekly payroll, versus the typical 2.
While either way both pay periods still end up with the same paycheck total at the end of the year, things can get a little unpredictable; employers having to either plan on spending extra in payroll during those 2 months of the year with a biweekly plan, or prep their employees for varying paydays throughout the week under semimonthly payroll.
Because of this same reason, an employee’s gross wages may also be affected mid-year depending on which pay period you choose, as over the course of a year, 26 paychecks are issued biweekly, while only 24 are issued under semimonthly – though again, the final amount and taxes due remain the same.
The Cons of Semimonthly Payroll
The confusion of payday falling on different days of the week throughout the year aside, perhaps the biggest con for semimonthly payroll is the logistics of working out advance or delayed pay if those paydays fall on a holiday or weekend.
Similarly, for those who pay their employees hourly, versus a salary, semimonthly payroll is a little harder to keep track of and figure than biweekly, so be sure to keep the type of payment in mind when choosing between them.
The Cons of Biweekly Payroll
However, semimonthly isn’t the only one with problems.
As biweekly payroll has 2 months in the year where 3 paychecks are to be issued instead of 2, employers must plan their finances accordingly on those months to fork out extra in payroll expenses.
Additionally, running biweekly may also be more expensive to maintain if your payroll software charges you per pay period – as biweekly issues a total of 26 paychecks in a year, versus a semimonthly’s 24.
Lastly, under biweekly, premium withholding is a little tricky.
While normally through semimonthly each paycheck is 50% of the amount due, through biweekly, the withholding premium is either the annual cost divided by 26 – which is less most months than what the employer pays – or, on the months where 3 paychecks are due, 50% of the premium is withheld on the first 2 paychecks processed.
While either option still ends up with the entire premium covered by year-end, under the bi-weekly schedule, 2 paychecks a year will have no withholding.
Choosing a pay period for your small business may be hard, but no matter which payroll method you decide on, make sure you choose wisely as federal law demands you only stick with one throughout the year!
If you need assistance with your payroll, reach out for our assistance. We are happy to serve you and our rates are generally less expensive than most payroll companies. Call us at 310-534-5577 or send an e-mail to [email protected].
