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. Click each option below to read more.

You pay your employee an extra paycheck.

Since your salaried employees yearly salary is generally based on 52 paydays, their full salary will have been paid out after 52 weeks. In this case, they would receive an additional paycheck for the year and their actual salary for the year will be higher than the budgeted salary that you had planned for.

This maybe a good way for your business to reward its’ salaried employees if budget allows. You may also think of this as a bonus for your employees.

You adjust your employee’s weekly pay or pay them semimonthly.

In this scenario, you have two choices.

1. You can adjust your employee’s weekly rate to reflect 53 paydays as opposed to 52 paydays.

For example: Joe’s annual salary is $52,000. In a normal year, Joe’s weekly rate would be $52,000/52 weeks or $1000 per week. In a year with 53 paydays, Joe’s weekly rate would be adjusted to $52,000/53 weeks or $981.13 per week. *Do not forget to adjust the rate back to the 52 week rate in future years*

2. You can adjust your employee’s pay schedule to pay them semimonthly. This means that they will receive two paychecks every month, typically on the 15th and 30th of each month.

For example: Joe’s annual salary is $52,000. For a semimonthly payroll, there are 24 paydays. $52,000/24 paydays equals $2,166.67. Joe would receive two paychecks per month of $2,166.67.

You do not pay your employee on the last payroll of the year.

Your last option would be to not pay your salaried employees on the last payroll of the year. While this is a choice many businesses make, we recommend letting your employees know this well in advance as they may be prepared to receive a paycheck on that day.

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.