Paper Trails

How to Handle an Extra Payday

Did you know that even though there are 52 weeks in a year, a certain day, or days in a leap year, will occur 53 times in a year? This means an extra paycheck for your employees! In 2021, there are 53 Fridays. This can be extremely important to many businesses as Friday is the most common payday of the week. The next time this will occur will be in the year 2027. Even for those businesses that have a payday other than Friday, it is important to be aware of which day of the week will occur 53 times and adjust accordingly. 

What does this mean for my business?

Having 53 Fridays in a year can have a significant impact on your business financially. The best way to manage this scenario is to be prepared. Since Friday is the most common payday, years like 2021 can result in your business having increased payroll costs. The extra payroll run will only effect your salaried employees. This is because your hourly employees are paid based on the amount of hours that they work, not a set figure at the beginning of the year. For those companies not factoring in the extra pay period, miscalculations in payroll will occur.

What can I do to manage the extra payday?

There are three options you have to manage a year with an extra payday.

Say you pay your employees $52,000 per year or $1,000 per week.  In this scenario, your employees would receive $53,000 for this particular year.  This can be a nice bonus for your employees.  Just be sure to plan for that in your yearly financial payroll calculations.

Another option would be to calculate your employees pay based on 53 weeks or 24 payments (semimonthly) on the 15th and 30th of each month.  This way, your employees are not receiving extra pay throughout the year.  This does require some forward thinking and should be done at the beginning of the year to keep your employees’ pay consistent.

For example, you would divide $52,000 by 53 weeks as opposed to 52 weeks.  Instead of $1,000 per week, your employees would receive $981.13 per week.

This option may be the least popular in your employees’ minds.  It is ok to not want to pay your employees an extra paycheck in a year with 53 paydays, but consider the other options before this one.  If this is the path you do choose to take, make sure to communicate this decision with your employees well beforehand.  Springing this upon them at year end will likely result in some very unhappy employees.

It does not matter which scenario you chose, as long as you have planned ahead. Knowing which years you will be faced with 53 paydays and having a plan of action is key. Please contact us if you have any question about your companies payroll cycle.