Leap Year Could put a Wrinkle in Your Payroll

February has 29 days; are you considering how it might affect your payroll? There are a couple of things to be thinking about as you look ahead.

First, because there are 366 days in 2020, there will be 53 Wednesdays and 53 Thursdays. For employers that pay weekly or bi-weekly on Wednesday or Thursday, this could create an extra payday for the year, which will hit your budget. For example, if an employee earns $52,000 a year and is paid every other Thursday – or 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, the budget will look like that employee earned $54,000 in the year.

Under the Fair Labor Standards Act, hourly 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 a salaried 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 bi-weekly 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. Another way of looking at this is that, even though you’re issuing the employee one extra paycheck, the amount of work is the same.

Also, it will be essential 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 are set up to deduct from every paycheck on a weekly or bi-weekly basis, you will need to assess all benefits, including but not limited to FSA and any retirement benefits that could reach the annual cap.

In addition to the potential extra payday, employers should check with their payroll providers to ensure that time and attendance systems are programmed to recognize February 29 as a valid work day. Also, be sure you make any applicable adjustments to payroll deductions, benefit contributions, and time off accruals.