What are the benefits of switching from bi-weekly to semi-monthly payroll?

Question

To align our accounting efforts, I would like to move our payroll frequency to semi-monthly, whereby payments will be made on the 5th and 20th (or 15th and 30th) of each month.

I have read mixed reviews about people preferring payments every 2 weeks (bi-weekly) to having 2 set paydays (semi-monthly). Some say bi-weekly is best because it's more frequent. Other say semi-monthly is best because you know when you get paid always and it's easier to budget for bills. I have seen that these are the two most common pay frequencies used by companies.

What are the advantages of switching from bi-weekly to semi-monthly?

Answer 1

The primary difference between the two approaches (and other approaches, like weekly or monthly) is in how they align with both your workers' and your company's cashflow.

Months, of course, vary in length. If your company is a restaurant, you make money per day. If you're an apartment complex, you make money per month. So from a business perspective, it's often optimal to align your payroll with how it evens out your cash flow.

The same applies to your workers. If they tend to have more monthly bills they'll prefer semimonthly, and if they tend to live more hand to mouth and have fixed-time expenses they'll prefer weekly.

This is somewhat tied to general wealth level in the first place. Someone who has a monthly car payment, and house payment, and private school payment - they have to pay those whether it's a 28 day month or a 31 day month. So they want the same amount of money per month to align with that. So they prefer something tied to the calendar month (semimonthly, monthly, etc.). Even if the "monthly" pay flexes to represent the right number of days in a month, the cadence is still optimal. Even when payday falls on a weekend, usually the payday is moved up or back in the same way that payment due dates are.

Someone who doesn't, who is just buying food and gas and whatnot, they need the same amount of those things per day. So a biweekly pay schedule, or a schedule otherwise tied to the day (weekly, etc.) are optimal for these folks. Also, these folks tend to be lower compensated, so the differences between the two schemes is more keenly felt.

Many places will pay hourly workers biweekly and salaried workers semimonthly on the pretty good assumption that the higher level/better compensated employees fall more in the former category.

Answer 2

Ask your team what they want. (As mentioned by Pete in the comments).

Really, the only thing that matters for this is employee opinion. Ask them. If the response isn't overwhelmingly in one direction, and you have no reason at all to prefer one or another, put it to a vote.

The fact that you ask your employees, rather than some other source (such as strangers on the internet) is important in making them feel valued and listened to.

Answer 3

If you are in a lower paid position, bi-monthly is harder to manage. People in well paid positions tend to forget that the extra 2 or 3 days makes it hard to get through the pay period if you make less than 50K a year. Look at the professions of your company and how many people would be negatively affected.

To further my point, in most bi-monthly paycheck systems, they pay early if the payday is on a weekend. So it is possible to sometimes have the pay period be 15 days and sometimes it can be 18. That can make it three weekends in which you have to buy groceries for instance which is no big deal when you make a lot of money but is huge when you don't.

On the other hand when many people pay most of their bills online and have exact due dates, it is handy to know the exact day.

What you should do is an analysis of your workforce to see how many likely be more negatively impacted. You might also consider asking employees what their preferences are.

Answer 4

I prefer to get paid monthly on the same date. All of my bills come out on the same date so it's nice to get them out of the way and I can see how much money I've got for the rest of the month.

Where I currently work, they pay us on the second to last Thursday of every month but all my bills come out on the 1st. This can mean up to 13 days of having the money in my account before my bills are removed. Not a problem since the bills are more or less a fixed value, more an annoyance since my bills don't come out on the second Tuesday of every month but on a fixed date.

This method can also mean there is up to 5 weeks between pay days. I always budget carefully but I know some of the people I work with aren't so careful and have run out of money long before the fifth week.