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Hi, I’m Brad Feld, a managing director at the Foundry Group who lives in Boulder, Colorado. I invest in software and Internet companies around the US, run marathons and read a lot.

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Payroll – Bi-weekly vs. Semi-monthly

Comments (27)

I was on a board call for a company today that pays their employees bi-weekly (every two weeks). At some point in time there was a rationale for this since this company has a lot of hourly employees and there was a perception that folks would want to be paid every two weeks. So – presumably this was a logical decision at the time.

However, it creates havoc with our monthly reporting and forecasting as we have at least two months per year with three pay periods. This adds an extra pay period to our expense structure for those two months (and lowers it correspondingly for the other months where we only have two pay periods). As a result of this, we are constantly backing out expenses (or adding it back in) to get “apples to apples” monthly comparisons.

The vast majority of the companies I’ve been involved with pay employees semi-monthly (twice a month – usually on the 15th and last day or the month). While you obviously can do the work to “normalize” month to month expenses if you pay your employees bi-weekly, do yourself and your investors a favor and pay semi-monthly. It’s so much easier to deal with.

  • Dave Jilk

    Accounting for payrolls as they happen is CASH BASIS accounting, not GAAP. GAAP requires that the backout/addback happen as a matter of course — the payroll costs are counted in the month they are incurred, not when they are paid.

    So at a higher level, the real problem that company has is that they are not paying attention to basic accrual accounting.

    I worked with a small company a couple of years ago, a vendor of mine actually, that almost went BANKRUPT because they forgot to plan for a three-payroll month. Running that tightly you REALLY need to be on accrual accounting.

  • Debbie

    Is there a big difference or advantage for a company switching to bi-weekly payroll from a weekly payroll?

  • http://www.nationalpeo.com/payrollprocessing.htm Arizona Payroll Proc

    No, Debbie! There is no advantage OR difference for a company switching from a weekly payroll. The only possible advantage is only for your accountant: he'll have less to work.

  • http://www.nationalpeo.com/payrollprocessing.htm Arizona Payroll Processing

    No, Debbie! There is no advantage OR difference for a company switching from a weekly payroll. The only possible advantage is only for your accountant: he’ll have less to work.

  • Lee

    What about the first pay period after converting from a Semi monthly to a bi-weekly for a salaried employee? Is this amount prorated, or is the annual base salary just divided by the 26 pay periods?

    • Cindy

      Is there a big advange for a company going from a bi-weekly payroll to a monthly payroll?

      • http://intensedebate.com/people/bfeld Brad Feld

        I don’t believe there is a huge advantage. Some companies find it to be easier administratively, although depending on the types of employees it’s often harder on them as it’s better to have smaller regular payments. Financially (taxes / administration) it’s probably about the same for a small company.

  • Betty

    When paying an employee on a bi-monthly basis what is considered over time, anything over 88 hours or is there no over time please let me know thank you.

    • http://intensedebate.com/people/bfeld Brad Feld

      You’ll have to check with your lawyer on this as the answer will depend on your state’s labor laws.

  • Monique

    I work for a small company and get paid salary, every other friday. Now they want to change to semi-monthly. How will this be calculated?

    • http://intensedebate.com/people/bfeld Brad Feld

      You’ll have to ask them – it should work out to the same amount for you either way over time.

  • randall givens

    our company is about to change from semi-monthly to bi-weekly. it will really mess up my budget (smaller checks same monthly bills) any ideas on how to convince them otherwise?

    • http://intensedebate.com/people/bfeld Brad Feld

      No clue – sorry.

  • kat

    Our company pays us semi-montly. Some of my co-workers believe they do this to pocket more of our money. Are there differences in the amount of taxes deducted from our payroll in a semi-monthly verses bi-weekly? How does the company benefit from either of these? Who benefits from either of these more?

  • kat

    Our company pays us semi-montly. Some of my co-workers believe they do this to pocket more of our money. Are there differences in the amount of taxes deducted from our payroll in a semi-monthly verses bi-weekly? How does the company benefit from either of these? Who benefits from either of these more?

    • http://www.feld.com Brad Feld

      Over time there should be no difference.

  • http://intensedebate.com/people/bfeld bfeld

    Over time there should be no difference.

  • Ash

    i get paid semi monthly but i am hourly bases, meaning I get paid by the hour but get paid the 1st and the 15th, and NO OT is allowed, is this legal

  • Ash

    i get paid semi monthly but i am hourly bases, meaning I get paid by the hour but get paid the 1st and the 15th, and NO OT is allowed, is this legal

  • Howard

    Whether no o/t is allowed to be WORKED is a matter of company policy. Regardless of your pay frequency, you must have a defined workweek of 168 hours (seven days of 24 hours each) and if you work more than 40 hours in a defined workweek you must be paid overtime.

  • M Borko

    Each state regulates pay frequency and the amount of time that may lapse before wages must be paid after the pay period ends. States also vary between FLSA non-exempt v. exempt status employees as to whether or not they can be paid semi-monthly or not. Some are more strict than others; ex: Massachusetts more strict – Florida no provisions. You need to know the requirements of the state before making pay frequency policies.

  • Erl_09

    How did the companies who pay employees semi-monthly address the issue of a payroll period that has 11 days? What about overtime for hourly employees? Thanks!

    • moni_d

      Overtime is calculated on a weekly basis, not per payroll, so as overtime is still calculated the same way.

  • Buzzard1950

    my wife does not understand why she gets the third paychek could someone explain for her

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