For many employers, semi-monthly payroll is an efficient method for paying their employees. However, calculating overtime pay under this method can be complex. It’s essential to get the calculations right to avoid legal issues and ensure employees are paid fairly.
However, it’s not that difficult once it’s understood – it’s a simple method of calculating the overtime rate for a semi-monthly payroll.
What is Semi Monthly Payroll?
Semi-monthly payroll is a payment method where employees are paid twice a month, on the 15th and last day of the month.
It’s different from biweekly payroll where employees are paid every two weeks. With semi-monthly payroll, an employee receives two payments in a single month, covering different time periods.
So in simple words, employees are receiving 24 paychecks a year in semi-monthly payroll, compared to 26 paychecks if they were on a biweekly system.
Calculating overtime pay under this system is slightly more complex than other payroll methods – however, if done properly, employers can ensure they are meeting all legal requirements.
How to Calculate Overtime for Semi-Monthly Payroll
There are a few things that are needed to be considered to accurately calculate the overtime rate for a semi-monthly payroll
- Determine the workweeks in a pay period: The first step is to determine the number of workweeks in a pay period. In semi-monthly payroll, there will be two pay periods in a month. In each period, the number of workweeks will vary depending on the calendar.
- Determine the number of hours in each workweek: Once you have determined the number of workweeks in a pay period, you need to determine how many hours are workable in each week. The Department of Labor (DOL) requires that employees be paid overtime for any hours worked over 40 hours in one workweek.
- Calculate the regular rate for the period: The next step is to calculate the regular rate for the entire pay period. This can be done by dividing the total amount of wages (including overtime) earned in that period by the total number of hours worked.
- Calculate the overtime rate for each hour worked over 40 hours: Finally, you must calculate the overtime rate for each hour worked over 40 hours in a workweek. This can be done by multiplying the regular rate by 1.5 (the DOL’s overtime multiplier).
Example of Calculating Overtime For Semi Monthly Payroll
Let’s take a look at a scenario of company ABC which has a semi-monthly payroll system. In a certain month, the employees worked 7 workweeks with 40 hours in each week – and the pay period will be 1st April to 15th April. Also, let’s say they are getting paid $20/hour
1st Workweek (1st April to 7th April)
For the first work week the employee, let’s say, has worked for 46 hours. Meaning, the employee has worked 6 overtime hours.
The regular rate for the week: (40 hours x $20/hour) = $800
The overtime rate for the 6 hours: ($20 x 1.5) = $30/hour
So he will be getting paid (6 hours x $30/hour) + $880 = $960.
2nd Workweek (8th April to 15th April)
For the second work week, the employee worked for 44 hours. Meaning, they have worked 4 overtime hours.
The regular rate for the week: (40 hours x $20/hour) = $800
The overtime rate for the 4 hours: ($20 x 1.5) = $30/hour
So he will be getting paid (4 hours x $30/hour) + $800 = $920.
Total wages for the pay period
The total salary earned in this period is ($960 + $920) = $1880.
Conclusion
Calculating the overtime rate for semi-monthly payroll may seem complicated and confusing. But to be compliant and ensure employees are paid correctly, it is important that employers understand the process of calculating overtime for this type of payroll system. To make sure the calculations are accurate, employers should consult with an accountant or payroll expert.
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