Leap Year Payroll: How to Handle 27 Pay Periods
Leap Year Payroll: How to Handle 27 Pay Periods

Leap Year Payroll: How to Handle 27 Pay Periods

If you pay employees bi-weekly, you normally have 26 pay periods a year. But 2020 brings you an extra one—thanks, leap year. True, an extra pay period isn’t exclusive to leap years, sometimes it just depends on which day of the week you pay your employees. But regardless of when it occurs, it can cause headaches for HR and payroll administrators who aren’t prepared.

There are a few ways to approach a 27-pay-period year, but the most important thing is to communicate your plan to your workforce. Make sure they understand what to expect so there aren’t any surprises surrounding their paychecks.

How to Pay Employees During a Year with 27 Pay Periods

Option 1: Everyone gets an extra paycheck.

Woo-hoo! The extra paycheck would be for the same amount as every other paycheck, but salaried employees would receive 27 instead of the typical 26. In effect, everyone gets a “raise” for the year

Going this route undoubtedly improves employee morale, so be sure to inform everyone what will happen so you can take credit. Also, it’s important to remind everyone this is a temporary bump in pay, and salaries will go back to normal in 2021. Paycor’s Payroll solution is equipped to assist with this option.

extra paycheck leap year Source: ERC

Option 2: Prorate salaries over each pay period.

This option involves taking each salary and dividing it by 27 instead of 26, resulting in slightly less money per paycheck. However, an employee’s total salary will remain the same at the end of the year. Again, it’s important to communicate this to your workforce if you choose to go down this path. No one likes the surprise of a deflated paycheck. Although this option is logical in that salaries remain the same, don’t be surprised if the individually reduced paychecks yield a dip in employee morale. If you choose this option, make sure you communicate it to your workforce early, so they’ll have enough time to make any necessary adjustments with automatic bill withdrawals, etc.

Other Payroll Factors to Consider

As an employer, there are a few things to keep in mind when deciding which option to choose.

If you select option 2, which lowers the amount an employee is paid each pay period, you’ll need to determine if that amount is now below the Fair Labor Standards Act (FLSA) threshold. If so, you may be required to pay that employee overtime.

Either way, keep a close eye on payroll taxes, wage garnishments and employee benefit deductions. You’ll most likely have to adjust the amount to account for the extra pay period or suppress it in the additional paycheck. Also be mindful of potentially over-funding 401(k), HSA and FSA accounts beyond the annual limit, in which case you’ll have to return the money to the employee. Paycor’s Payroll solution does this automatically for you.

However you choose to handle the 27 pay periods, do NOT skip a paycheck. Not only will you be violating wage laws, overall employee morale will plummet.

Optimize Your Payroll Process

If you need help optimizing your payroll process, contact our team for more information. Paycor’s Payroll and Tax solution can help you pay your employees accurately and on time while avoiding any compliance issues.

Get Payroll Expertise

More to Discover

Demotion Letter Template

Demotion Letter Template

There’s nothing better than seeing employees thrive, but setbacks and slips in performance do happen. One way to address performance problems is a demotion. Sometimes, it’s necessary to take a step back before you can take two steps forward. Download Demotion Letter Template When is a Demotion Necessary? In an ideal world, there wouldn’t be demotions. They are a sign something’s wrong: it could be that an employee has failed to respond to a performance improvement plan or they could just be disengaged. A demotion is the last stop before termination. If you believe the person has potential and is worth investing in, then a demotion might be the best way forward. Demotions are risky, though. You could end up with an employee who is even...

Maximum PTO Accrual Letter

Maximum PTO Accrual Letter

Encouraging employees to use their vacation days can feel strange. After all, nobody wants to leave themselves under-staffed and the rest of their team over-worked. On the other hand, what if employees rarely ever, or even never, take time off? That’s been a question facing business owners this year, as vacation plans were delayed, then cancelled, and PTO built up like never before.One problem is, PTO payout laws can turn unused PTO into an unwanted financial liability. There’s also a risk of schedule chaos down the line as everyone tries to use their days up at once. Most worrying of all is that employees who go too long without a break, even by choice, risk ending up disengaged and burned out. Download Sample Maximum PTO Accrual Letter...

Webinar: Paycor's Virtual Payroll Platform Overview

Webinar: Paycor's Virtual Payroll Platform Overview

Focus on what you do best. We’ll take care of the rest, behind the scenes.Over the years, Paycor has conducted hundreds of user groups, one-on-one interviews, and group discussions with HR leaders. One thing we discovered is that HR teams spend nearly 70% of their time on inefficient administrative tasks, some of which are still paper-based. To make a difference in your organization, your team needs to simplify and streamline HR, benefits administration and compliance so you can focus on what you do best.Watch as one of our solution experts walks through how Paycor’s Payroll solution can help you solve some of your biggest HR challenges.Speaker: John RedingJohn is the Senior Director of Deal Success and Pre-Sale Support for Paycor. A...

Payroll Card vs Direct Deposit

Payroll Card vs Direct Deposit

Choosing the Right Payment Method for Your Employees It doesn’t take much business experience to know that getting your compensation strategy right is crucial for recruiting and retaining top talent. But paying employees isn’t only about a question of how much. You also need to know how to pay them. What makes things more complicated is this: almost a quarter of American households are unbanked or underbanked. Either they don’t have a bank account or, if they do, still rely on non-traditional financial services like pay day loans or check-cashing services. This could be down to something as simple as lack of traditional banks close to home, looking to avoid high fees or just not having enough funds to meet minimum balance requirements....