Understanding Payroll Accounting

Payroll Accounting

Understanding Payroll Accounting

From the moment a business is formed to the length of the business’s life a fundamental decision must be made: How often will we pay our employees? 

While there are dozens of variable pay-periods, there are four which stand out the most: 

Weekly pay 

Monthly pay 

Bi-weekly pay 

Semi-monthly pay 

Of these, one of the most common questions that a person in payroll accounting receives is, what is the difference between bi-weekly and semi-monthly pay periods? At a glance the two seem to be the same thing, but for a business they are very different. So, while trying to balance employee and business expectations keep these valuable points in mind.  

Bi-weekly pay 

Bi-weekly pay periods are paid every two weeks and result in 26 pay periods per calendar year. This system may occasionally result in three pay periods in a single month, and in leap years this can result in 27 pay periods each year instead of 26.  

While bi-weekly pay periods are more popular among employees due to the frequency and consistency which makes paying personal bills more manageable, there are downsides that a company must manage, such as: 

The system is less efficient than monthly and semi-monthly pay periods.  

Monthly benefit premiums can be difficult to manage.  

The lack of consistency in pay dates can result in payroll errors.  

3 pay periods per month and a 27th pay period can result in complications when it comes to annual pay expectations and employer sponsored benefits and contributions.  

Semi-monthly pay 

Semi-monthly pay periods are any two reoccurring and evenly spaced pay dates in a month. For example, most companies which choose semi-monthly pay will pay employees on the 1st and 15th of each month and occasionally the 15th and the last day of the month.  

For companies with a high percentage of salaried workers or who are trying to manage efficiency when accounting for payroll this can be a good option as it is more efficient and set on a specific timeline each month. However, semi-monthly pay does not come without complications, such as: 

Potential errors when calculating overtime. 

Some work weeks may not align with pay cycles. 

Holidays may affect when an employee is paid.  

Both bi-weekly and semi-monthly pay periods have their positives and negatives when managing payroll accounting but understanding how each works and the benefits that can be accommodated for your business will help you determine how to account for payroll as your business grows.