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Semi-Monthly Payroll: Why Employers Should Be Doing This

Although employees may not like change, switching to semi-monthly payroll can be a benefit to both them and you, the practice owner.

First, a couple of definitions:

  • Bi-weekly: payroll is paid every other week, i.e., every 14 days.  With 52 weeks per year, that creates 26 payroll cycles and 2 months per year in which there are 3 paychecks.
  • Semi-monthly: payroll is paid twice per month, every month.  That means 24 pay cycles per year.

Advantages to employees to going semi-monthly:

  • Each check should be larger, since the pay period expands from 14 days to 15.
  • Monthly budgeting is more predictable.

Advantages to employers going to semi-monthly:

  • Less work and expense with 2 fewer payroll processing cycles per year (about $120 savings).
  • More predictable practice business cash flows – cash flows are often thrown off by those 2 months in a biweekly calendar in which 3 payroll runs occur, which can be stressful and distort operational metrics, like the P&L.
  • It’s intuitively easier to set up deductions, e.g. health insurance, to avoid errors related to the 2 months per year in which there are 3 pay cycles.
     

Many employees are adverse to change and may even think they may lose money.  But that’s not the case at all.  You can do a one-off short cycle payroll to get aligned with a semi-monthly cycle.  And with semi-monthly, you can choose pay dates that are good for practice cash flows, e.g., the 5th and the 20th or the 15th and last day of each month.

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