Employment Law Blog

News, trends and analysis in employment law and HR

Feb 03, 2015

Timing of paydays may bring an extra pay period in 2015

 

If you pay your employees on a weekly or bi-weekly basis, the 2015 calendar may include an “extra” payday.

If you pay your employees on a weekly or bi-weekly basis, the 2015 calendar may include an “extra” payday. Many employers pay employees every week (usually 52 paydays per year), or every other week (usually 26 paydays per year). These regular paydays account for 364 days each year. But, since there are actually 365-366 days per year, the extra day or two that is unaccounted for adds up to an extra payday every 11 years. The New Year – 2015 – is most likely one of these years. This “extra” payday can create a dilemma for employers who are not prepared.

In a normal year, for example, a salaried employee who makes $52,000 per year receives $2,000 every two weeks. In 2015, what would usually be the last payday of the year (the 26th payday) will fall on December 18th for employers who pay on Friday. The next payday is then scheduled to fall on Friday, January 1, 2016; but since New Year’s Day is a national holiday, most employers will pay the day before, Thursday, December 31, 2015, which then becomes the 27th payday. In our example, the salaried employee will receive $54,000 in 2015, instead of $52,000. For employers with a large number of salaried employees, this additional pay could be fairly significant, especially if it has not been accounted for in the company’s budget.

Employers have a few other options for handling this situation besides paying salaried employees for an extra payday. One option is to simply skip the “extra” payday, and continue paying on the next regularly scheduled payday in January 2016. Since this would result in employees waiting four weeks between paychecks during the December holiday period, this option may be viewed by employees as the company Grinch stealing Christmas. Another option is to spread the employee’s annual salary over 27 paydays instead of 26 (or 53 instead of 52). In our example above, the employee would receive $1,926 each payday instead of $2,000. This option would probably require adjustments to some payroll deductions, such as medical benefits and 401(k), and again is not likely to be well received by employees. It also costs to change the payroll system to reflect the adjustments for 2015 and then back to the regular system in 2016.

One final option is to shift the Friday, January 1, 2016, payday to Monday, January 4, 2016 (instead of Thursday, December 31, 2015). This option eliminates the “extra” payday in 2015, but will result in an “extra” payday in 2016 instead, merely shifting the problem. Since there is never a calendar year with only 25 bi-weekly (or 51 weekly) paydays, there’s no way to catch up or even out the paydays over time—eventually the “extra” payday will need to be addressed. This may be a viable option, however, for companies that need time to address the extra payroll in their budget.

Some employers may decide to eliminate this extra payday problem once and for all by switching to semi-monthly pay periods. Whichever system you use, be sure to clearly communicate your plans to employees with as much advance notice as possible, and give employees a chance to ask questions so they can fully understand the impact of your upcoming payroll changes. Happy New Year!

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