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What Impact Would There Be to Salaried Employees When Changing Paydays From Bi-weekly to Semi-monthly Mid-year?

by Sherrill Martin
(Portland, OR)

We switched our paydays from bi-weekly to semi-monthly on 5/15/10 and now one of our employees is questioning their annual salary calculation.

Would this change cause problems in the salary calculation since we started the year paying employees 1/26th of their salary and then went to 1/24th of their salary? We think that this may be the case because there are fewer days in the beginning of the year than the end of the year.




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What Impact Would There Be to Salaried Employees When Changing Paydays From Bi-weekly to Semi-monthly Mid-year?

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starstarstarstarstar 		Bi-Weekly to Semi-Monthly Impact
by: Best Business Payroll

Going from bi-weekly payroll (26 payrolls per year) to semi-monthly payroll (24 payrolls per year)mid-year will probably create some temporary challenges for you.

Presuming your pay dates don't line up nicely (if both happened to fall on the 15th, for example) the first pay period of the new frequency would have to be a little larger or smaller so that there is no gap in between the Period End date of the old frequency and the Period Begin of the new one. Obviously, this is not a problem when going from weekly to bi-weekly where the pay frequency is simply cut in half. This is a problem when going from bi-weekly to semi-monthly because the two frequencies divy up the month so differently. You will need to be sure that the hours worked during those "gap days" are paid accordingly.

Your employee's fears about losing pay simply based on there being more days with semi-monthly than bi-weekly are unfounded, however. Take for example a hypothetical salary of $10,000. With 26 pay periods per year, he would receive $384.62 bi-weekly before taxes; with 24 pay periods per year he would receive $416.67 semi-monthly.

Presuming 1/4 of the year (for simplicity's sake) was at bi-weekly, that would be 6.5 pay periods (26 x .25), for a total paid bi-weekly of $2,500.03 (6.5 bi-weekly pay periods x $384.62). The remaining 3/4 of the year would be paid semi-monthly, for 18 pay periods (24 x .75) for a total payment of $7500.06 (18 semi-monthly pay periods x $416.67). His total annual salary paid would then equal $10,000.09 ($2,500.03 + $7500.06)

In addition, you will need to check a few things: earnings/deductions that might fluctuate due to different frequency, and your employee's Direct Deposits. Any fixed amount going into a checking account or a direct deposit paying back a loan will have to be modified.

The good news is that there should not be any problem with the payroll taxes, which should work out once you have addressed the above issues.

Switching from bi-weekly to semi-monthly payroll CAN be done as long as you pay attention to detail, and in the end, many find semi-monthly payroll easier to administer.

Best of luck sorting it all out!

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