How Should I Handle the Extra Payday in 2015?

A calendar anomaly will create an extra payday for some companies in 2015. Many companies’ first payday of 2016 will fall on Friday, January 1, 2016. Because that is a federal holiday, companies on that schedule may choose to pay on Thursday, December 31, 2015. This means that employees who are paid weekly on Fridays will see 53 paydays, instead of the usual 52. Likewise, employees who are paid bi-weekly will receive 27 paychecks. Companies that choose to pay on January 1, 2016, will see the extra paycheck in 2016.

While employees paid either monthly or semi-monthly are not affected, thousands of salaried employees paid weekly and bi-weekly are. This can affect payroll budgeting for the year.

For example, if an employee earns $52,000 a year and is paid every other Friday—26 times during a typical year—that base salary is generally divided by 26, earning the employee $2,000 every two weeks. With an extra pay date in 2015 or 2016, the budget will look like that employee earned $54,000 in the year. But because most companies subtract payroll from the budget for when the work was actually done—not when the paycheck is written—for most companies that had a paycheck on Jan. 1, that expense will actually come out of the 2015 budget. When you pay an annual salary on a bi-weekly basis, for example, what you are really saying is, “In 26 pay periods, I’ll pay you this amount,” not, “For this exact calendar year of work, I’ll pay you this amount.”

Under the Fair Labor Standards Act, nonexempt employees must be paid each payday at their hourly rate for all hours worked, so there can be no adjustments. It is legal to reduce an exempt employee’s income per check as long as the total yearly amount is paid and there was no agreement on the specific amount of the employee’s weekly or biweekly salary. However, it does result in getting less pay for the same amount of work. If you have offer letters that quote a weekly or bi-weekly rate for salaried employees, it is not recommended you reduce employees’ pay.

Think of it this way: Even though you are issuing the employee one extra paycheck, the amount of work is the same, and one of those checks is for work done in the previous year, and/or some of their work will actually be paid in the following year.

In addition, it will be important to look at how benefits are deducted from an employee’s paycheck. If your company has benefits set up to come out of paychecks 24 times a year, you will not be affected. If you deduct from every paycheck on a weekly or bi-weekly basis, you should assess all benefits, including but not limited to flexible spending accounts and any retirement benefits that could reach the annual cap.