While a leap year doesn’t guarantee an additional payday for your employees, it does increase the chances. We generally calculate employees’ salaries, contributions and deductions based on a 52-week calendar year, not bothering to count the leap year. But it’s not simply a matter of adding a pay period when leap year rolls around every four years. In fact, companies with biweekly pay periods will have 27 pay periods only every 11 years, and companies with weekly pay periods will have 53 every 5-6 years.
You still with me? Just wait – it gets more complicated from here.
For example, employers who pay employees weekly on Wednesdays or Thursdays will have 53 pay periods in 2020, and employers who pay bi-weekly on Wednesdays or Thursdays could have 27 pay periods if their first payroll period of the year is during the first week of January (this will also depend on how holidays impact your paydays).
The distinction here is really whether the extra day will cause an additional pay period for your organization in 2020. You should determine the number of pay periods you will have prior to the start of the year to make sure salaries, contributions and deductions are being calculated appropriately.
An additional pay period isn’t going to impact your hourly folks, because they will be paid for every hour worked regardless of the number of pay periods. You should, however, make sure that your payroll system recognizes February 29, 2020 as a legitimate day. Similarly, an extra day in February will not impact employees who are paid on a semi-monthly schedule (i.e. twice per month) because they will receive 24 paychecks per month regardless of the number of days in the year.
Employees who are paid on a weekly or bi-weekly basis, however, are impacted because the number of payroll periods fluctuates based on the number of days each year. So in the year 2020, Wednesdays and Thursdays will occur 53 times, which means that employees who are paid weekly or bi-weekly on Wednesday or Thursday may receive an extra paycheck—but whether or not that results in more money will depend on how you structure compensation.
For example, if an employee’s bi-weekly compensation is based on an annual salary, then you will need to recalculate the bi-weekly amount when there are 27 pay periods in a year. Consider this example:
If, on the other hand employees are paid a bi-weekly compensation that equates to an annual amount, then you will need to be prepared for the additional expense in years with 27 pay periods. Consider this example:
Another option would be to modify the annual salary to reflect the actual number of pay periods per year—26.0893, which would mean she is paid $49,828.71 in years with 26 payroll periods, and $51,7745.23 in years with 27 payroll periods.
It’s up to employers to decide how to navigate this, but it’s important to determine how salaries will be calculated up front so you are able to appropriately manage employees’ expectations and avoid unexpectedly exceeding your budget in years with 27 payroll periods.
If you base contributions to benefits such as 401(k) plans, Health Savings Accounts (HSAs) or Flexible Spending Arrangements (FSAs) on a 26 bi-weekly or 52 week cycle, you will need to account for an additional pay period where necessary to avoid exceeding the elected contribution amounts (and risk exceeding contribution limits for employees who elect maximum contributions). Similarly, health plan and other premium payments must either be adjusted to reflect an additional payroll period, or suppressed during a payroll period to avoid taking too much in premiums.
Consider whether 2020 will bring about an additional payroll period for your organization, and if so, consider how you will navigate your options. Hotline clients can reach out to us for additional information.
Hannah advises employers on leave policies, discrimination, harassment, accommodations, wage and hour obligations and any other issues that may arise in the workplace.
Hannah advises employers on leave policies, discrimination, harassment, accommodations, wage and hour obligations and any other issues that may arise in the workplace. In addition to providing practical solutions to employment law matters, Hannah has extensive private practice experience. Her focus included early intervention advice and solutions to employers, as well as representing them in the defense of administrative claims. She now works on a team dedicated to providing solutions for employment law and compliance matters for employers of all sizes. Hannah graduated from William Mitchell College of Law, after receiving a Bachelor of Arts degree from Winona State University.
On May 11, 2014, the governor of Minnesota signed the Women’s Economic Security Act (WESA), a bill that will require Minnesota employers to make dramatic changes to their employment policies and practices.
While WESA directly impacts employers who conduct business in Minnesota, the changes follow plans by federal and local governments to expand legal protections for women and other employees. For this reason, employers in other jurisdictions should pay close attention to these national and state law trends.
“The only thing that is constant is change.”
Turns out that dusty old Greek philosophers occasionally say profound things (Heraclitus also said that a man’s character is his destiny). And since the Greeks are considered the fathers of democracy and were responsible for no small number of laws themselves, it seems an appropriate departure point to talk about the constantly changing landscape of employment laws.
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