Pay periods. They’re a crucial part of your payroll, and sometimes the thing that keeps your employees going from one day to the next. A lot depends on accurate and consistent payroll — the obvious accounting duties, taxes for both employer and workers, and even employee morale. 2020 is a leap year, and while leap years are great for keeping our calendar on track, they can cause headaches for employers by increasing the number of pay periods in a year. It may not be commonly thought to ask how many pay periods are in this year, but it’s an important question with real consequences.
What Is a Pay Period?
A pay period is a length of time in which employees’ work accrues before receiving a paycheck for their services. Pay periods are often different for different people. Hourly employees get paid for all the hours they worked during their pay period — these paychecks can vary widely in size depending on how many shifts the employee worked and whether there was overtime or modified pay. For salaried employees, paychecks tend to be more stable, as they are simply the employee’s yearly salary divided by the number of pay periods in a year. All this information is easily accessible through check stubs you should be creating as a part of payroll. (If you aren’t sending out paystubs, check out our paystub generator.)
How Many Pay Periods Are in a Year?
Pay periods vary in length. There are annual pay periods (with one period per year) monthly pay periods (one period per month) and then two that appear similar but are noticeably different: semi-monthly and bi-weekly.
A semi-monthly pay period has 24 pay periods in a year — two each month. But because months don’t run on a perfect 4-week schedule, this can take longer or shorter lengths of time between paychecks for a business’ employees. To improve convenience and dependability of payroll for employees, many business owners choose to use a bi-weekly pay period, paying employees every two weeks on the same day of the week.
The Bi-Weekly Pay Period
There are typically 26 pay periods in a bi-weekly pay schedule. Occasionally, 27 pay periods can be created if a business’ payday lines up with the edges of the calendar year. This problem is compounded by leap years, which add 1/7 probability that your business will end up with 27 pay periods.
Are There 27 Pay Periods in 2020?
Because 2020 is a leap year, chances of your business having a 27 pay period year is increased. If you have a pay period ending on a Wednesday or a Thursday, it’s likely you’ll have 27 periods. Check into your business’ specific schedule to be sure.
Why Are 27 Pay Periods a Problem?
One more pay period in a year isn’t an issue for hourly workers. However, it does present an issue for salaried employees: they are used to a specific amount coming in each paycheck, but if the company was to pay them the same amount 27 times instead of 26, it would result in over-paying the employee.
The Key Is Communication
As long as you are aware of how many pay periods are in a given year, you have nothing to worry about. As a business owner, you have a few options, but you need to be proactive and get out in front of the issue. Explain clearly to your employees what is happening and you’ll avoid issues in payroll and HR. With an extra pay period, you can either add the paycheck to your employees’ typical salary and consider it a bonus, or you can re-divide your workforce’s salaries by 27 instead of 26. Both of these courses should be taken with extreme transparency.
If you decide to add to their wages? Make sure they know it’s happening. They’ll appreciate your generosity and it will boost morale.
Probably more importantly, if you choose to subdivide the checks further be extremely upfront with your salaried employees. Workers on salary know the exact number they expect to see in their bank account on payday, and if it looks like you shorted them nearly four percent of their pay they’ll be filing complaints to HR within the hour. Be direct and clear: They’ll be getting another paycheck this year and their salary stays the same. Nobody is getting shortchanged.
Consequences of Mishandling Payroll
Many of your employees rely on consistent payroll to keep their lives underway. If you pull even four percent of the rug out from under them, not only could it hurt morale in the company — it could hurt people. Being upfront at the onset of a 27 √ year will make a huge difference.
From a business management perspective, you need to prepare for the small but crucial changes an extra pay period can create. It can affect the amount of taxes paid (by both employee and employer) as well as employee benefits. Make sure you don’t over-contribute to employee 401k accounts if you offer a match — overpaying past the legal limit can cause headaches in accounting and payroll.
Just make sure that you know when your company’s “27 paycheck year” will be, and prepare accordingly. However you choose to distribute pay, be clear, transparent, and kind.