When you hire your first employee, one of the first decisions is how often to pay them. The two most common choices sound almost the same, biweekly and semi-monthly, but they work differently and affect your payroll costs, overtime and cash flow.
Here's how they compare, and how to pick the right one.
The four common pay schedules
| Schedule | When you pay | Paychecks per year |
|---|---|---|
| Weekly | Every week, on the same day | 52 |
| Biweekly | Every two weeks, on the same day | 26 (occasionally 27) |
| Semi-monthly | Twice a month, on set dates such as the 15th and the last day | 24 |
| Monthly | Once a month | 12 |
A note on "bi-monthly": people use it to mean twice a month, but it can also mean every two months. To avoid confusion, say "semi-monthly" for twice a month.
Biweekly payroll
Employees are paid every other week on the same weekday, usually Friday.
Advantages
- Easy for hourly employees. Each pay period covers exactly two full workweeks, so hours and overtime line up cleanly.
- Predictable for employees. Payday is always the same day of the week.
- Slightly smaller paychecks, more often. Employees like that two months a year include a third paycheck.
Drawbacks
- Two "three-paycheck" months a year. Your payroll cash outflow is higher in those months, so plan for them.
- Benefit deductions are awkward. Monthly premiums don't divide evenly into 26 paychecks. Many employers take deductions from only 24 of them.
- More payroll runs. 26 runs instead of 24, which matters if your payroll provider charges per run.
- The occasional 27th payday. Every 11 years or so, the calendar gives you 27 paydays in a year, which affects salaried employees' per-paycheck amounts.
Semi-monthly payroll
Employees are paid on two fixed dates each month, commonly the 15th and the last day of the month.
Advantages
- Lines up with monthly accounting. Payroll expense is the same every month, which makes budgeting and month-end closing simpler.
- Easy for salaried employees. Annual salary divided by 24 gives the same paycheck every time.
- Benefits divide evenly. Monthly premiums split cleanly into two deductions.
- Fewer payroll runs. 24 instead of 26.
Drawbacks
- Overtime is more complicated. Overtime is calculated by the workweek, but semi-monthly pay periods don't line up with workweeks. A week can be split across two pay periods, which makes hourly payroll harder to get right.
- Payday moves around. When the 15th falls on a weekend or holiday, payday shifts, which can confuse employees.
- Pay periods vary in length. Some periods have more workdays than others, so hourly employees' paychecks change more from period to period.
What Texas law requires
Texas sets minimum pay frequencies under the Texas Payday Law:
- Employees who are exempt from overtime under federal law (typically salaried professional, executive and administrative staff) must be paid at least once a month.
- All other employees must be paid at least twice a month, with the two pay periods as close to equal in length as possible.
- Employers must designate paydays and post them where employees can see them. If you don't designate paydays, the law sets them as the 1st and 15th of each month.
So in Texas, monthly payroll is only an option for overtime-exempt employees. Biweekly, semi-monthly and weekly schedules all meet the twice-a-month rule for everyone else. Other states have their own rules, so check them if you have employees outside Texas.
Which should you choose?
Choose biweekly if:
- Most of your employees are hourly
- Your team works overtime regularly
- You want the simplest overtime calculations
Choose semi-monthly if:
- Most of your employees are salaried
- You want payroll expense to match your monthly books
- You offer benefits with monthly premiums
Mixed team? Many small businesses with both hourly and salaried staff choose biweekly to keep overtime simple. Running two schedules is possible, but it doubles the work and the room for error.
Switching schedules later
You can change pay frequency, but do it carefully. Give employees plenty of notice, update your posted paydays, plan a transition period so nobody goes too long without pay, and recalculate salaried employees' per-paycheck amounts and benefit deductions. The start of a calendar year is usually the cleanest time to switch.
Get payroll set up right
The schedule is just the start. Payroll also has to be recorded correctly in your books, with taxes, deductions and reports kept ready for year-end.
I set up and run payroll for small businesses with QuickBooks Payroll, fully online. See my payroll services, or book a short intro call to talk about your team.
This article is general information, not legal or tax advice for your specific situation.