2009 Pay Period "Leap Year" - How Will You Deal with an Extra Pay Period?
Every so often, the calendar causes us to have to watch what we are doing. This year, 2009, some employers will have to deal with an extra pay period, if they pay on a bi-weekly basis. How does this happen? If you pay every other Thursday, you will have 27 periods in 2009. Or, if you pay on Fridays and you pay the day before a holiday you will also end up with 27 pay periods, because Christmas falls on a Friday.
So if you started counting and figured out that you will be paying salaried employees over 27 pay periods in 2009, you probably realized that, if you do nothing different, you will be paying them more in 2009 than you might have intended. So what do you do?
The American Institute of Professional Bookkeepers (AIPB) has some suggestions:
Option 1: Divide the total salary among the 27 pay periods rather than 26. This will result in smaller amounts in each paycheck. if you want to do this, be sure to inform your employees, so they don't complain.
Option 2: Pay the same amount in each pay period as you did in 2008. This will result in an effective increase in pay for these employees. If you do this, inform employees, so you can take credit for the increase.
Option 3: Adjust the last paycheck of the year so that the total pay for the year is the same as the prior year.
In any of these circumstances, you will need to inform employees what you are doing.
Some other considerations you will need to be aware of:
- Payroll Taxes
The amount of pay will affect the total Social Security and Medicare you and your employees pay. Some employees may reach the maximum Social Security contribution earlier.
- Employee Benefits
Paying additional salary may also result in paying additional benefits. For example, you might be over-funding someone's 401(k) with the extra pay period, beyond the maximum allowable amount. If that happens, you would have to give back the money to the employee.
Maybe this is another reason not to have employees, and use independent contractors instead. If you have employees and you pay them bi-weekly, let me know how you have decided to handle this situation.
Comments
wow – so this happens every 5 years and you are ready to say f/t employees should be done away with? Are you a consultant? Probably not and think your job is safe…let’s make your position replaceable and see how you feel about it!
I understand what you are saying. Each type of business operates differently. Some businesses can use independent contractors easilyi; some can’t. Some businesses can use part-time employees; some can’t.
Dealing with employee issues (this is just one example) is what I would call a “necessary evil” for most businesses. But I would emphasize the word “necessary.”
I’ll watch my sarcasm in the future.
Having been experienced in payroll processing, I presented this “problem” to our payroll department. Their “solution” is to pay us on Thursday, 12-31-09 (1-1-2010 is a holiday)and postdate the check as 1-1-2010.
This doesn’t seem right to me and it only puts the “problem” off until 2010 where there will be no way to avoid the 27 Pay Period dilemma.
Pay monthly as we do!! Though we have our share of independent contractors and it is so hard to differentiate them in the eyes of the law! Wish I knew how
Thanks for the comments. Paying monthly would solve the problem. I agree that post-dating the check doesn’t solve the problem. The pay is for work in 2009, not 2010. It is being recorded as a business expense in 2009, and the tax liability is incurred in 2009, so it seems to me it should be recorded as paid in 2009.
Although confusing, this is just a time fence issue. If you just think about the pay period, not the pay date, it works out correctly, whether its a 26 or 27 pay date calendar year. In the 27 pay date years, the period of work covered is actually greater than a year (i.e. Dec 14, 2009 to Dec 26, 2010 in 2010). Think of it this way…in a normal 26 pay date year, when the first pay date is on the 2nd or 3rd of Jan, are you going to pay an employee that starts on Jan 1 for two weeks pay?…Negative.
So, another question is whether it is illegal to pay on a holiday?