Leap Years pre-date the Roman Empire, and yet they still mess with our payroll. Before we complain too much, we should consider what happened in 1592 when Pope Gregory XIII decreed a switch from the Julian calendar to the current Gregorian calendar. Everyone went to bed on October 4 and when they woke up it was October 15. That would really mess with your payroll.
All joking aside, 2020 is the forthcoming Leap Year, bringing an extra day and, depending on your schedule, an extra payday.
We know that a standard year is 365 days and that there are 52 weeks in a year. Because of this, every weekday is repeated 52 times in a year, except for one—the day of New Year's Day is repeated 53 times (in 2019, January 1 was Tuesday, therefore there are 53 Tuesdays in 2019). We also know that Leap Years are not normal years because of that darned 366th day, which makes two weekdays repeat 53 times rather than just one. In 2020's case, there are 53 Wednesdays and 53 Thursdays.
Having an extra payday isn't exclusive to Leap Years. In 2019, for example, if your payroll is scheduled for Tuesdays, you had an extra payday because there was an extra Tuesday. Leap Years just make the probability of the extra pay day greater because two weekdays are repeated 53 times. So, in 2020 if your pay day is on Wednesdays or Thursdays, you have an extra pay period.
One small caveat that applies to 2020 specifically: New Year's Day 2021 happens to fall on a Friday: the first day of the New Year is a federal holiday so your payroll in 2020 may be affected depending on company policy. At Payroll Partners, we will have a payday on Thursday December 31, 2020 and we know we're not alone in that policy. So even though we pay biweekly on Fridays, we too have a 27th pay period.
Confused yet? Don't worry, we're here to help.
There are two options for dealing with this brain-scrambling challenge. The first is to do nothing and pay the same amount for each payday. In this case, you will recognize one extra paycheck for every employee. This results in a higher payroll cost. The alternative is to divide salaried employees' paychecks into 53 (for weekly pay) or 27 (for biweekly pay) rather than 52 or 26 in order to maintain their annual salaries. Now, math wizards out there will immediately know that this means smaller paychecks even if the total is the same. Let's say, for example, you have an employee who earns $40,000/year and she is paid every two weeks. In a normal pay period, she would be paid $769.24. But in 2020 she is paid 53 times—so her pay would be $754.72 per period, a difference of $14.52.
Whichever road you choose, you must inform your employees what is happening to their pay. Especially if you choose smaller paychecks, it is vital for employee morale to know why. That $14.52 every two weeks may not seem like a big deal, but if the employee interprets that as a pay cut without any warning or explanation from her employer, not only can her morale would take a hit, but you may be in violation of the Fair Labor Standards Act.
Employers should also ensure that payroll and time-and-attendance systems or software are programmed with February 29 as a day in the 2020 calendar so it doesn't skip forward to March 1. Also, ensure that you are in-step with your employees' contracts. If they have been promised fixed weekly or bi-weekly pay rather than an annual salary, you must stay in-line with those contracts.
Don't let the Leap Year throw a wrench in your payroll the way they messed up the Mayan Calendar. Instead, keep on top of it and be prepared to make the necessary changes to your payroll. And if you need any help, let us know.