When I was developing my podcast, I had a crucial decision to make: the schedule for releases. Everyone who’s anyone in the podcasting world says that deciding on a schedule and keeping rigorously to it is vital for the show’s success.
Many podcasts come out weekly, every week at the same time. But I wanted my podcast to be not just good, but great. Thoughtful, well-written, with very high production values. And I was pretty sure I couldn’t keep up with a weekly schedule. Or if I did, the quality would suffer. So I leaned toward bi-weekly, every other week. I was pretty sure I could do that.
Then I thought, but hey, this is a business-oriented show, how about semi-monthly? Like a paycheck. On the fifteenth and last day. And that’s what I settled on. The Leading Smart podcast releases on that schedule.
When I told a young friend about that, he got the connection to paychecks, and thought that was kind of neat. But then he asked me, “why do we get paid on the fifteenth and last day? That seems weird.” It is, and there’s a story behind it.
I know this story because when I first became responsible for payroll for 30+ thousand employees in 160+ taxing jurisdictions worldwide, I wondered too. So I researched it.
Payroll is Hard
On a small scale, and long ago, people used to be paid in cash. Usually on Friday before the weekend so they could
use it on the weekend blow it all in the bars. Seriously, there were company towns that wanted to pay on Friday, so the employees would spend it all in the company-owned stores, bars, and brothels. Before Monday, so they’d have to come back to work the next week.
Companies went to a lot of trouble to get the cash in just in time for Friday’s payroll. Many of the great robbery stories of the Old West are about robbing the payroll for the mines. Payroll offices were as flush with cash as any bank. Handling that cash was complicated, dirty, and dangerous.
With the dawn of the industrial age, and broad availability of banking, companies began issuing checks. Still every week, but at least the check was easier, and certainly less dangerous than hordes of cash.
But payroll for hundreds or thousands of employees is hard. Each person is different, with different pay amounts, different taxing responsibilities, different deductions. Doing that every week is a pain.
So companies started to pay their employees every other week (bi-weekly). This made the payroll easier to handle internally, and cut companies’ costs. Rather than paying 52 times a year, they paid 26, a huge difference. Half as many checks, fewer hours of calculations, fewer bank fees, and so on. Employees didn’t like it but they got over it.
From Bi to Semi
Bi-weekly was the norm for a long time, and it still is in some companies. But it has a lot of problems. Most stem from the fact that weeks don’t align well to the calendar. 365 (or 366) isn’t evenly divisible by seven. Neither are months with 30, 31, or 29 days (though 28 is). This meant that payroll coming every other week falls in random spots on the calendar. Some years have 53 Fridays, like 2016 or 2021, for example. Months are a mess, with some having three payrolls.
For businesses where employees make up a large portion of their costs, those additional payrolls could really mess with any kind of profitability calculations. For public companies, where their earnings are a very important component of their stock price, this volatility in the number of payrolls in a given period caused a lot of noise. Analysts constantly had to add this into their calculations. Quarter to quarter trends were a mess. “Well their earnings are down this quarter, because of the extra payroll, and they’ll be overstated next quarter, because of the fewer payrolls.” Ugh.
This is what prompted the change from bi-weekly (every two weeks on the same weekday) to semi-monthly (twice a month on the same calendar days). Oh, and of course, the number of payrolls in a year went from 26 to 24 — see the above discussion about payroll costs.
First to Last
You’ve decide to move from bi-weekly to semi-monthly, but what days to choose, especially since about half the months have an odd number of days? Many companies started with paying on the 1st and 15th. That seems reasonable, even though admittedly it makes one paycheck cover more days. And it can easily be accounted for. Hourly employees get checks that vary with hours worked anyway. Salaried workers just got over the difference of a day, in exchange for the reliability of a consistent paycheck.
But paying on the first has its own problems. With most companies using accrual accounting, this meant that payroll would be determined and checks would be cut on the last day of the preceding month, to be available on the first. This, again, messed with accounting and earnings. The paychecks written for delivery on January 1st, for example, would actually be entered into the books for the year before. Same is true for any given month or quarter. If those costs varied, they could affect earnings.
This caused most businesses to move to paying on the first and last day. This solved all the problems. Payrolls would fall evenly into months, quarters, and years. There were only 24 of them, and they were accounted for in the period that mattered.
And that’s why you almost certainly get paid on the 15th and the last day of the month. That’s why the Leading Smart podcast releases on that schedule too. But purely for the metaphor, not for the accounting. If you’re not a listener, please give it a try. If you are, remember to subscribe, and give me your feedback.