How A Pesky Leap Year Can Affect Your Payroll

What is payroll to do with an extra day? If you were not aware, 2020 is a leap year which creates the unique problem of an extra pay period for some employers. If you pay employees on a bi-weekly basis, there will be 27 pay-periods in 2020, instead of 26. So how should your payroll address this? There are two options:

I. PAY THE SAME AMOUNT FOR EACH PAY PERIOD

This option may be the easiest for payroll, but would increase employees salaries by one pay period. If you go this route, make sure to inform employees that this salary increase will revert back in 2021 (with 26 pay periods) so there is no confusion.

Keep in mind that paying additional salary may also result in the company paying for additional benefits or taxes. For example, you may over-fund a 401(k) contribution and may have to give the money back to the employee at the end of the year. Additionally, this increase in salary can affect the cost of Social Security payments for your employees.

II. DIVIDE EMPLOYEE SALARIES BY THE NUMBER OF PAY PERIODS

Instead of dividing salaries by 26 pay periods payroll would divide the salary by 27 pay periods. This would result in a smaller amount for employees, so communicating this change is important.

Communication is KEY

No matter what option you choose, you should make sure to COMMUNICATE this decision with your employees at the beginning of the year and again when W-2 forms are issued. This decision on changing payments to employees is tricky and may have some payroll and legal pitfalls. If you have any questions regarding your decision, please contact us at MYHRGENIUS at 651-389-5000 or myhrgenius@thompsoncoe.com to discuss with an attorney

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