Beware: 2009 is a "Pay Period Leap Year" When it Comes to Bi-Weekly Payroll Periods
UPDATED 12/8/08
I must confess that every once in a while there's an employment law issue that pops up that makes me scratch my head at first. Today's issue is one of them and introduces the concept of a "pay period leap year".
Michael Moore, of the Pennsylvania Labor and Employment Blog, first posted about this today. Moore notes that 2009 is one of those strange years with 27 bi-weekly paydays instead of 26. The issue arises because bi-weekly pay programs pay employe
es in 14-day increments resulting in a 364 day annual pay cycle. And so, every five years or so, there is a calendar year with 27 pay periods instead of the typical 26.
Moore adds that this is mainly an issue for salaried employees and suggests two approaches:
The 27 pay periods for 2009 create a compensation issue for salaried employees. Bi-weekly pay is typically calculated by dividing annual salary by 26 and employees are accustomed to a payroll amount based on this division. Continuing this practice in 2009 will result in an "extra" paycheck in 2009, but the normal 26 pay periods will resume in 2010. Some commentators have characterized this as a "timing issue". It is not. There are never years with only 25 pay periods to offset the years with 27.
Employers approach this situation in two ways. Some employers adjust salaried employee bi-weekly compensation for the 27 pay period years by dividing the stated annual salary by 27 rather than 26 resulting in a lower pay for each pay period in the year. Salaried employees are paid the same gross salary in smaller increments. However, this approach can cause problems with automatic deductions. Other employers allow the extra pay check and inflated compensation, not wanting to mess with the largely automated payroll system. Both approaches will require employee communication and may be influenced by an employer's past practice. Legal issues can arise from reducing the bi-weekly salary amount.
Some employer may think about moving to a semi-monthly pay period. This causes issues for hourly workers because it may change the calculations of weekly overtime.
Before Connecticut employers start changing payroll periods, however, employers must be aware that Connecticut requires that employees be paid on a weekly basis (though employers can get a waiver and pay on a bi-weekly basis through submission of a form available here.) For employers seeking to pay employees on a semi-monthly basis, additional papers are required to be filed with the Connecticut Department of Labor; it is far from certain that such a request will be granted either absent strong circumstances.
So, give thanks to the notion that you have a few weeks to think about this issue and make sure you have a plan of action for 2009 if you pay your employees on a bi-weekly basis.
UPDATE: One commenter noted that the issue will arise primarily for those employers with pay dates on a Thursday (with employers with a Friday paydate facing the issue in 2010). That is true, though there are some employers that will pay their employees the day before a holiday if it falls on a Friday. In any event, each HR person should evaluate their calendar to determine what will be the specific impact will be on his or her employer.
While I was preparing for my 2009 budget and payroll accrual, I just realized that 2009 will have 27 bi-weekly pay periods vs the normal 26. I thought I have done something wrong in my MS Outlook calendar and began to re-check it. I couldn't find a mistake on my part and decided to Google "27 Pay Periods for 2009" and sure enough your article popped up.
As a Controller for a small non-profit company who bases it's exempt employee's pay based on an annual basis divided by 26 pay periods, we will probably have to take the approach of dividing their begainning 2009 annual salary by 27 vs 26 and try to explain this to our emplyees who do no have employment contracts. We will have to adjust our ADP payroll base amounts starting with the first payroll process in 2009. Yikes!
I have been thinking about this issue, since I am moving from a semi-monthly pay schedule to a bi-weekly pay schedule. However, this would only affect 2009 if you get paid every other THURSDAY, starting 1/1/2009. If you get paid every other Friday (starting 1/2/2009) then you will get 27 paychecks in 2010 (since both 1/1/2010 and 12/31/2010 are both Fridays).
We pay biweekly on Friday and will have the "extra" pay date in 2009 because what should be the first pay date of 2010 will be on a holiday. When pay dates fall on a holiday, we pay on the the day prior to the holiday.
My concern is extra benefit deduction will will come out resulting in over payments of contributions and helping HR understand the impact.