How Does a Leap Year Affect Payroll

How Does a Leap Year Affect Payroll

Leap Year

As we get ready to close out the books for 2020, you may have noticed an additional payday this year if your pay periods are weekly or bi-weekly.

What an Extra Pay Period Means for You  

Due to the leap year, there is a good chance that your 2020 payroll has gained an additional payday depending on how your pay periods fall.  An additional pay period can happen due to other reasons, but for this year, the majority is due to the leap year. When that happens, if HR or payroll is not aware of this, it can be a cause for concern if not handled properly.


Source: SHRM Better Workplaces Better World

How Do I Handle This?

There are a couple of ways that you can approach this:

The first way would be to slightly decrease each paycheck for the year, but still totaling the yearly salary. To do this, you would take the employee salary and divide it by 27 (bi-weekly) or 53 (weekly) pay periods instead of 26 (bi-weekly) or 52 (weekly). The results are less money each paycheck, but it still totals to the employee salary at year-end. 

The second option would be to change nothing and keep what you currently have in place for paying out each paycheck. The results would be a bonus paycheck for all salaried employees. Again, traditionally bi-weekly paychecks amount to a total of 26 and weekly paychecks are 52, but that will change to 27 if bi-weekly or 53 if weekly. According to ERC100, they found 86% of employers choose to pay their employees the extra paycheck for those who are paid weekly or bi-weekly. 

The third option would be to only decrease the employee's last paycheck for the year.

What Should I Do and What Should I Expect After Making My Decision?

If you decide to go with the first option where you lower the amount on each paycheck to total the  salary, you will need to communicate to your employees that the smaller paycheck will still total up to their yearly salary. If you don’t communicate this properly, you could have angry and confused employees.

If you choose the second option to pay out the extra paycheck, you will also want to inform your employees of your decision. When you inform your employees about the extra paycheck, you could see an increase in your employee’s morale. 

If you choose to go with the third option, again, you will want to communicate your intentions with your employees so they are aware that their yearly salary amount will still be met with the smaller paycheck at the end of the year. 

In an article written by Paycor, something to keep in mind if you decide to go the route of lessening one or all of the paychecks for 2020, you will need to ensure you are in compliance with the federal Fair Labor Standards Act and any of your state's wage laws. If you lessen the amount of any of the paychecks you will need to ensure that you are meeting the minimum wage requirements. 

What About Employees Who Are Paid Monthly, Semi-Monthly or Hourly?

Employees that are paid monthly, semi-monthly or hourly are not affected by the extra pay period. Employees that fall into one of these three categories are not paid based on the number of days that are in a year like weekly or bi-weekly employees are. 

This is because monthly and semi-monthly employees are paid 12 (monthly) or 24 (semi-monthly)  paychecks every year. Hourly employees are paid based on the number of hours they have worked. Properly setting up pay periods to work with pay dates will improve the payroll process and eliminate payroll errors. 

Final Payroll Decision

To conclude, you will want to choose the option that will best fit your company's needs. You will want to ensure you do not violate any laws in the process and keep your interests in mind.

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