The payroll schedule is very important for employees because it directly impacts their budgets. It also affects accounting in the company. Semi-monthly payrolls are offered twice a month. Usually, people employed with this schedule, receive their payments on the 15 and the last day of the month. This kind of schedule is similar to bi-weekly payrolls (paid every 14 days), but bi-weekly payrolls offer 26 payments in a year and the semi-monthly schedule includes 24 payments in a year. This schedule affects paychecks of workers and it is also a factor included in calculations of overtime, external billing of worker time and deductions for benefits.
Semi-monthly payroll calculation methods
We can use more than one calculation method for semi-monthly payroll. For example, it is possible to calculate it based on the annual salary of an employee. In this case, we need to divide the annual salary by 24. So an employee who earns a gross annual income of $96000 receives a semi-monthly salary of $4000 ($96000 / 24 = $4000).
Some employers decide to switch from bi-weekly salaries into a semi-monthly payroll. In this case, the gross income on the employee’s paycheck will be higher even if the annual salary remains the same because we have a smaller number of payments (24 instead of 26). We can divide the annual income of a worker by 24 or we can use the following method to calculate a semi-monthly payroll. First of all, we have to multiply one bi-weekly payment by 26, so we will receive the annual income and then we have to divide the result by 24 to determine a single semi-monthly payment.
In other words, an employee who earns $1846,15 in a bi-weekly payment, receives an annual salary of $47999,90. After dividing this sum by 24, the semi-monthly payment will be slightly higher ($1999,99).
Daily rate calculation
Employees not always start their work on the first day of the month. A company can also use the time of a worker for certain projects or external customers. That is why it is important to know the daily rate of an employee. The method of calculation is not very complicated:
The gross semi-monthly payment has to be divided by the number of calendar days in a payment period. In case of a semi-monthly payment of $2000, a worker receives a daily rate of $133,33 if a pay period includes 15 days. In the case of a 16-day pay period, the daily rate will be smaller ($125). We should also remember about February that has only 28 or 29 days. In these cases, a daily rate associated with the aforementioned example will be $153,85 or $142,86.
Other important facts
Of course, we can also perform many other calculations of semi-monthly payments. For example, we can calculate this type of payment for hourly employees. In the case of overtime workers, bi-weekly payments are better, because they allow for overtime premiums.
As you can see, a semi-monthly payment schedule is a very useful tool preferred by many companies and their employees. It is not very complicated and its calculation methods are very simple, so nobody should have problems with it.