Chances are, you’re familiar with mnemonic rhyme, “30 days hath September.” It’s a great way of remembering which months have fewer than 31 days. February is always the outlier, with 28 days—but because 2020 is a leap year, it’ll have 29 days. If you’re an HR professional, that can wreak havoc with your bookkeeping.
365-Day Years Aren’t Easily Divisible
Whether or not your company will see an extra pay period in 2020 depends on how often your payroll is deposited and when it is processed. Even during non-leap years extra pay periods are possible due to the simple fact that 365 can’t be divided neatly into a seven-day week. In any normal year, there will be six days of the week that occur 52 times and one day of the week that occurs 53 times. In leap years, five days of the week occur 52 times and two days of the week occur 53 times. This makes the possibility of an extra pay period in 2020 more likely than in non-leap years.
Should your organization end up with 27 (biweekly) or 53 (weekly) paydays in 2020, you have two options: treat the extra payday the same as the others and simply generate one extra paycheck in the same amount, or divide your employees’ annual salaries by either 27 or 53, reducing the amount of each paycheck but counteracting that with an extra paycheck at the end of the year. Your employees’ take-home pay will work out the same in the long run, but you will benefit from a reduced payroll cost if you choose this option. Be sure you remain in compliance with the federal Fair Labor Standards Act and any state wage laws. Alternatively, you could switch from biweekly paychecks to twice-per-month paychecks, adjusting salary and benefits deductions to comply.
Regardless of which option you choose, it’s important to let your staff know what you are doing ahead of time. If you are prorating paychecks downward each pay period throughout the year to compensate for the extra pay period, explain this to them and let them know their salary will work out to be the same. This is especially important for those employees with fixed monthly expenses such as daycare costs or tuition; give them time to adjust their personal budgets to prevent an unexpected financial deficit.
Salary isn’t the only thing affected by additional pay periods. Wage deductions, such as those applied to health insurance premiums or child support garnishments, will need to be adjusted, as well. There are also implications for contributions to 401(k) plans, health savings accounts (HSAs) and flexible savings accounts (FSAs). Letting your employees know ahead of time about extra pay periods will enable them to make decisions on how much money to defer from each paycheck into these accounts.
Payroll and time-and-attendance systems may have to be reprogrammed to account for an extra payday, as many platforms rely on predetermined tables from the IRS and state tax agencies that are based upon 26/52 payroll periods.
Aren’t you glad leap years only occur once every four years?