HR and Payroll professionals were recently surveyed as to their opinions about bi-weekly vs semi-monthly payday frequencies for their organizations. The following observations were made about the pros and the cons of BW or SM pay frequencies:
HR/payroll pros indicated that most employees prefer bi-weekly payday frequency over semi-monthly since they know precisely when they will be paid and thus can prepare for payday and budget for it. A payday occurring every other Friday is quite common and is easy for every employee to plan for. Employees paid semi-monthly, such as on the 1st and 15th, is more confusing to employees, in particular when payday falls on a weekend or a holiday. Employees also like the “2x per year” extra paycheck generated by a bi-weekly payroll—–3 paychecks in one month which occurs twice per year “feels” like an added bonus since the employees are used to living off of 2 paychecks per month
Employers who have non-exempt hourly employees are required by the Fair Labor Standards Act to pay 1 1/2X the regular rate of pay for hours worked in excess of 40 in a “workweek”. A “workweek” is any consecutive 7 day period of time, per the FLSA. The FLSA does not require overtime premium pay for extra hours in a day or work on a weekend—-the 1 1/2 X overtime premium pay revolves solely around a “workweek”. Semi-monthly pay frequencies do not correlate precisely to “workweeks”, and thus can be confusing to both employers and employees as to overtime calculations. OT premiums are much easier to calculate and understand with bi-weekly or weekly paydays
The “accounting department” loves semi-monthly payrolls since they automatically include one complete month of payroll expense in each monthly “P&L”. Weekly or Bi-weekly pay frequencies generally require that “accruals” of payroll expense/unpaid payroll liability be calculated for accurate monthly financial statements. These “accruals”, however, are not overly complex to calculate and report by experienced accountants.
Many benefits, such as an employee’s share of health insurance premiums, are calculated on a monthly basis, which makes the annual deduction evenly divided on each semi-monthly paycheck. With a bi-weekly payday frequency, the annual benefit deduction can be divided evenly into 26 bi-weekly paychecks, OR can be deducted on the first 2 paydays of each month—-with the “bonus extra” third paycheck in 2 months of the year not having a deduction for the benefit expense.
STATE LABOR LAWS
Each state has it’s own state laws pertaining to pay frequency and the number of days an employer can take to pay an employee after each pay period ends. In Indiana, employers generally must pay employees no longer than bi-weekly or semi-monthly, IF an employee requests that. Otherwise, it is permissible to pay on a monthly pay frequency. Indiana law requires that an employee be paid no later than 10 business days after their “pay period” closes. Other states have similar laws and thus every employer must be aware of different state “payday requirements” in all states they employee people in.
AccuPay’s experience is that employers with all exempt, salaried staff may be fine with a semi-monthly pay frequency, but as a general rule, a weekly or bi-weekly pay frequency is consistent, predictable and less confusing than a semi-monthly pay frequency. If overtime premium pay calculations are required for non-exempt employees, a semi-monthly pay frequency is more complex for OT calculations than a weekly/bi-weekly frequency
If you have questions about which pay frequency best fits your work profile and objectives, do not hesitate to reach out to your payroll specialist at Accupay—-317-885-7600—who can put you in touch with one of our certified/experienced HR consultants with our AccuPay HR consulting niche. Our AccuPay HR members collectively have decades of real world HR experience in helping employers with HR compliance and strategy.
PayDay is an email communication of payroll news, legal updates and tax considerations intended to inform clients and colleagues of AccuPay about current payroll issues and planning techniques. You should consult with your CPA or tax advisor before implementing any ideas, comments or planning techniques.