Pay periods: Biweekly or semimonthly?
Employees don’t know pay periods; they know they get paid every two weeks. But there is a difference between paying biweekly, or 26 times a year, and semimonthly, or 24 times a year. And that difference comes into play when employees come onto or leave the payroll in the middle of a pay period.
It’s still twice a month, but … Biweekly pay periods mean employees are paid every 10 days. Every other Friday, for example, is a common biweekly pay schedule. Depending on your pay date, you could have three biweekly pay periods in a month. Employees are customarily paid on the basis of 80 hours per biweekly pay period, not including overtime, of course.
On the other hand, pay dates for semimonthly pay periods are fixed—there are two per month, every month. Semimonthly pay periods usually begin in the first day of a month and run through the 15th and then the 16th through the last day of the month.
While the pay dates are fixed, paydays will vary every month. Because the number of days in a semimonthly pay period also varies, the key to semimonthly pay periods is hours worked, not days worked. One common measure is to pay employees for 86.67 work hours per semimonthly period (not including overtime), regardless of the number of days in the semimonthly period.
Prorating for new hires (and terminating employees, too). Employers usually prorate the pay of new hires and employees who terminate in the middle of a pay period. If you pay biweekly, you pay by the day. It’s more complicated if you pay semimonthly. These employees should be paid by the hour. Result: Their prorated pay may be different from their regular semimonthly pay, depending on the number of hours they’ve worked.
Example. MTK, Inc., pays semimonthly on the 20th day of the month for work performed between the first and the 15th of a month and on the fifth day of the next month for work performed between the 16th and the last day of the month.
Jimmy was hired on the 21st day of a 31-day month, so this semimonthly period is 12 days long, of which he worked nine. Wrong way to pay: Jimmy receives pay for working 65 hours:
86.67 (work hours in the period) ÷ 12 days (total number of workdays in the period)
= 7.22 hours per day
7.22 hours per day × 9 working days
= 65 hours.
Right way to pay: Jimmy should be paid for 72 hours of work: 9 days × 8 hours a day.
PAYROLL PRACTICE TIP: Employees have to be paid for every hour they work. You can prorate the pay of newly hired exempts or the pay of exempts who terminate, but they must still receive all their pay for all their hours worked. MTK, therefore, should make Jimmy whole and pay for those seven hours at the next pay period.