Running a semi-monthly pay for non-exempt employees can be challenging. It is significantly different from the more common bi-weekly payroll system. Semi-monthly payroll gets complicated because employers are required to track the actual number of hours worked each workweek (seven days) and pay overtime if more than 40 hours are worked in that workweek. But before detailing how to structure semi-monthly pay for your company, it’s first important to clearly understand what semi-monthly pay means.
What Is Semi-Monthly Pay and How is it Different from Bi-Weekly?Semi-monthly pay is payroll distributed to employees 24 times per year. This is a different pay structure than the more common bi-weekly payroll, which is distributed 26 times per year. Semi-monthly pay is typically distributed to employees on the 15th and the last day of each month. Bi-weekly payroll, meanwhile, is paid every other week, usually on Friday.
How Do You Calculate Semi-Monthly Pay?
A common mistake with semi-monthly pay is to assume 86.67 hours each pay period (or some other identical amount every pay period), however employers are required to track (and pay for) all hours actually worked (including overtime) each workweek, not an “average”. Unfortunately, there are not exactly the same number of workweeks in each month nor are there exactly the same number of days and hours in each semi-monthly pay period.
Let’s look at an example. Say the pay periods in a month are the 1st through the 15th and the 16th through the last day of the month. Let’s also say the business operates Monday through Friday.
In July 2017, the first pay period would have 10 workdays and the second pay period would have 11 workdays. If we assume the employee works an eight-hour day, then the following would be true.
- Pay period 1 = 80 hours
- Pay period 2 = 88 hours
But, what about overtime?
By the nature of running a semi-monthly payroll, some workweeks will begin and end during the same pay period; others will begin in one pay period but carry over to the next. This means you won’t know how much overtime is due until the following pay period. Let’s say the employer’s workweek is Monday through Sunday. In July 2017 the workweeks would be:
- 1: July 3-9 (falls in pp 1)
- 2: July 10-16 (begins in pp 1 ends in pp 2)
- 3: July 17-23 (falls in pp 2)
- 4: July 24-30 (falls in pp 2)
- July 31 is in pp 2 but that workweek ends Aug. 6 (pp 1 of Aug.)
Now that you can see how the workweeks fall in the month, let’s assume the following work hours each week:
- 1: July 3-9 (falls in pp 1) 43 hours
- 2: July 10-16 (begins in pp 1 ends in pp 2) 45 hours
- 3: July 17-23 (falls in pp 2) 40 hours
- 4: July 24-30 (falls in pp 2) 41 hours
- July 31 8 hours*
July pay period 1 = 80 straight time hours and 3 hours of overtime
July pay period 2 = 88 straight time hours and 6 hours of overtime
* Even though the straight time hours for July 31st were paid in July pay period 2, if any overtime is worked in that workweek (July 31 – Aug. 6), it will be paid in Aug. pay period 1.
As you can see, accurate record keeping is a crucial step for employers who use a semi-monthly pay frequency for their non-exempt employees. We recommend employers use an electronic time and attendance tracking system in order to properly record and pay overtime.