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Jean   Murray

2009 Pay Period "Leap Year" - How Will You Deal with an Extra Pay Period?

By January 8, 2009

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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.

January 12, 2009 at 8:33 am
(1) non-believer says:

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!

January 15, 2009 at 2:42 pm
(2) biztaxlaw says:

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.

January 23, 2009 at 12:47 pm
(3) Trish Chaney says:

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.

May 19, 2009 at 9:14 pm
(4) ilap says:

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

May 20, 2009 at 11:12 am
(5) biztaxlaw says:

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.

October 14, 2009 at 1:15 pm
(6) finance guy says:

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.

October 15, 2009 at 2:20 pm
(7) HR says:

So, another question is whether it is illegal to pay on a holiday?

December 2, 2009 at 7:40 pm
(8) skeptical says:

I have a couple of issues with this scenario:
1) This problem occurs only if you divide your annual salary by 26. It does not occur if you divide your annual salary by 365 to calculate a daily rate and then multiply by 14 (# days in a bi-weekly payperiod).
2) Isn’t your yearly salary based on your anniversary year and not a calendar year? So, if I was hired in the middle of the year, I will not have a 27th paydate in the same year until my anniversary date 12 or 13 years after my employment began.
My employer is skipping the 27th paydate for all employees this year and I am not convinced that they have a correct understanding of this issue.

December 11, 2009 at 7:44 pm
(9) Susan says:

My employees are paid bi-weekly, with taxes due by the 15th the following month. If I issue paychecks on 12/31/09, but they are actually to be paid on Friday, 1/1/10, won’t that create a problem with taxes?

December 26, 2009 at 3:41 am
(10) Sanity says:

Paying salaried employees on a biweekly schedule? Round peg in a square hole! You should switch to bimonthly.

December 28, 2009 at 8:27 am
(11) DC says:

Dividing ones annual salary by 27 will short employees by approximately 3.3%. Doing nothing will over pay employees by approximately 0.38%.

To be clear, there are never 27 “pay periods” in ANY year. This is a fallacy caused be careless interchanging of the terms paycheck and pay-period. Indeed, some employees will receive 27 paychecks in a given year, but that does not mean they will have worked 27 pay periods for that year.

Leap years have 2088 man-hours instead of the normal 2080. Undoubtedly, the 8 extra hours should be accounted for. This results in 26.1 annual pay periods, not 27!

Thus, annual salaries should be divided by 26.1. This becomes painfully clear if one fires up excel and calculates pay from January 1st through December 31st .

I have the spreadsheet if you are interested.

December 28, 2009 at 12:39 pm
(12) CM says:

DC I would love to get that spreadsheet. I am having the conversation with our HR dept and it is getting pretty interesting

December 29, 2009 at 12:41 pm
(13) BM says:

I would also like to see the spread sheet.

December 30, 2009 at 9:45 am
(14) Debra says:

Same here, would like to see the spreadsheet.

December 30, 2009 at 3:28 pm
(15) last minute info says:

DC – could you please give more info. How did you figure out the 3.3% vs 0.38%? Thank you!

December 30, 2009 at 3:30 pm
(16) np says:

I would love a copy of the spreadsheet, too! We were just told about the change this afternoon.

December 30, 2009 at 3:58 pm
(17) Rachel Coley says:

DC – could you please send that spreedsheet?

January 1, 2010 at 4:02 pm
(18) DC says:

Thanks for all the questions. Before I answer them, I would like to pose a hypothetical CY2010 pay scenario for discussion:

A payroll system that accurately compensates employees for time worked should reflect actual pay regardless of how long, or how short, the employment duration is. I would like to suggest evaluating the case of an employee who works less than one year within calendar year 2010 – not an uncommon occurrence. Any employment period less than one year bounded within 2010 will suffice. For mathematical simplicity, I suggest duration of 6 months, starting March 1, 2010 and ending on August 27th, 2010. The period is exactly 26 weeks – ˝ a year. Would it not be reasonable to expect ˝ of one’s salary? If so, running the proposed 27-paycheck salary adjustment on a $100,000.00 annual salary should yield $50,000.00, correct?

Please run the numbers. I suspect you will be surprised by what you find.

This is what I found:
Check # Check Date Work Days Amount
1 12 Mar 5 $1851.85 (100K/27)/2
2 26 Mar 10 $3703.70
3 9 Apr 10 $3703.70
4 23 Apr 10 $3703.70
5 7 May 10 $3703.70
6 21 May 10 $3703.70
7 4 Jun 10 $3703.70
8 18 Jun 10 $3703.70
9 2 Jul 10 $3703.70
10 16 Jul 10 $3703.70
11 30 Jul 10 $3703.70
12 13 Aug 10 $3703.70
13 27 Aug 10 $3703.70
14 10 Sep 5 $1851.85
130 $48,148.15

$48,148.15/$50,000.00=0.963 or 96.3% of entitled pay!


January 1, 2010 at 5:37 pm
(19) DC says:

CM, BM, Debra, NP and Rachel – I believe the spreadsheet will be posted here – thanks! I hope you find it useful. Please comment if you have any questions or concerns.

last minute info: The numbers quoted fall out of the spreadsheet. However, are fairly easy to derive independently.

The 0.38% overpayment is based on the fact that there are 2088 hours in CY2010 (also in 2088 hours CY2009, but no one noticed because the first and last days were not paydays!). We tend to base our salaries on 2080 work hours. Essentially, an employee is paid for one extra day by applying the 2080 hour convention to a 2088 hour year. Below is a fairly easy approach to understanding the derivation of the percentage.
As I stated above, the overpayment is based on 8 extra hours in CY2010 (and CY2009, but that’s history now). So, 1 days wage divided by the annual wage will yield the over payment percentage. On a sample 100K salary with 26 pay periods, the math is as follows:

Daily wage = $100k/260 = $384.61
$384.61/$100,000 = 0.0038461 or 0.38%

In fairness, I must acknowledge that 260 days is not correct. There are 261 days in CY2010.
The corrected formula is as follows:

Daily wage = $100k/261 = $383.14
$383.14 /$100,000.00 = 0.003814 or 0.38%.

You can check it by dividing 8 hours by 2080 hours (as the salary factors out)…

8/2080 = 0.0038461 or 0.38%

Deriving 3.3% is a little more involved. The percentage is the ratio of actual pay (27 paychecks) divided pay entitled pay (full salary). Again, I will illustrate with a 100K salary. First, we need to determine the actual daily pay with 27 pay-“periods.”

$100,000.00/27 = $3703.70 every 10 work-days.

Next, divide by the number of days in a pay period (10) and we get $370.37 per day. Count the number of work-days in CY2010. You will find there are 261 (261×8 = 2088). Divide $100,000.00 by 261 to get the entitled daily pay. It is $383.14. Please note it is slightly less than the $384.61 shown above, 0.38% to be exact!

From here, we can go a bunch of ways and 27 pay “periods” fails them all. The simplest is to divide our actual daily pay by our entitled daily pay:

$370.37/ $383.14=0.967, or 96.7%. 100% – 96.7% = 3.3% short!


We can multiple the daily wages derived above of $370.37 by 261 workdays to see actual pay:

$370.37 X 261 = $96,666.57 per year!

Poof, $3,333.43 out the window because 1 Jan 2010 happens to be a payday! But, I digress:

$3333.43/$100,000.00 = 0.0333343 or 3.33%

Also, you should also notice that if you divide 261 workdays for CY2010 by 10 workdays/pay period you end up with 26.1 pay periods. Conversely, if you multiple 27 “pay periods” by 10 workdays/pay period, you arrive at 270 workdays – which is clearly impossible (but, HR/Payroll would have you think otherwise). Interestingly, if we could work those 9 mystery days, we would have 9 X $370.37 = $3333.33! We are still out 10 cents due to rounding, but I can live with that.

The bottom line is that 27 “pay periods” sounds great to company HR folks at first glance, but it does not stand mathematical scrutiny as I hope I have demonstrated with the above examples and pending spreadsheet.

All comments welcome, particularly those that can demonstrate any errors I have made!


January 3, 2010 at 12:30 am
(20) Tom says:

I can’t believe how out to lunch this article is.

If you have 27 pay periods in a year the first one is for time worked in the last year. Obviously if someone didn’t work the previous year/pay period they won’t get that pay cheque.

If you divide their salary by 27 and give that to them for each pay period you are ripping everyone off.

Jean Murray: How can you be so oblivious to this?

January 4, 2010 at 8:02 pm
(21) TGS says:

27 check dates will ALWAYS equate to 54 weeks. So why should any employer seriously consider dividing by 27.

January 5, 2010 at 4:01 pm
(22) Pay Savings Guy says:

I am a consultant that assists organizations in saving money on their payroll while ensuring that employees are paid their correct annual salary each year. I have studied the 27 pay check issue relentlessly and can confirm that DC’s assessment is correct. Either dividing annual salary by 26 or 27 for bi-weekly pay periods results in over or under payment.

The only item I would add to his comments is that the pay rate for each employee must be recalculated each year in order to ensure accuracy. So while dividing by 26.1 will work in 2010, it will not work for 2011.

I welcome any comments or questions.

January 6, 2010 at 10:11 am
(23) TGS says:

As stated by Pay Savings Guy, you would need to recalculate each year to ensure accuracy, IF you use number of workdays. This is because some years will have 260 workdays, some 261 and some 262. Strange but it is possible for a leap year to only have 260 workdays (Monday-Friday). This will happen when January 1st of leap year falls on a Saturday. For example look at 2000, or 1972, or 2028.

As everyone probably knows, sometimes the 27th check date occurs every 11 years and sometimes it is every 12 years. But what you may not know is that it takes 800 years to fully complete the cycle. During these 800 years there will be 20,871 check dates. (Excel and formulas were a tremendous help in determining this 800 year cycle!) Therefore, to determine a consistent salary for a two week period, it would be appropriate to take annual salary, mulitply by 800, and then divide by 20,871.

Another approach, and easier to understand, would be to take annual salary divided by 365.25 (number of days in a year, considering leap year is every 4 years) and then multiply by 14 (number of days for two weeks). The difference between these two methods (800 years or 365.25 days) should be pennies, depending on the annual salary amount.

At one time during my research, I thought that a semi-monthly or monthly pay frequency was the answer. But it brought on another equitable issue. Scenario: Jack and Bill have the same stated semi-monthly (or monthly) salary? If Jack only worked the month of February and Bill only worked the month of March, would Jack and Bill get the same gross payroll even though Bill will have worked more days than Jack? It is possible that Bill could have worked as many as 3 more days than Jack.

I like this approach best: Do not state salary as an “annual” amount. Rather state the salary on the same basis as the pay frequency! Then the issue of 26 or 27 is eliminated. If paid weekly, then state the salary as a weekly amount. If biweekly, then state the salary as a biweekly amount.

January 7, 2010 at 3:05 pm
(24) LS says:

My executive’s issue is they feel they are overpaying our salaried employees. They feel that with an annual salary plan of X, in a given year that we are overpaying them an entire paycheck.

I am really struggling explaining this to them.

In 1999 when this last happened without our company – everyone got the same bi-weekly amount. I think we should continue the bi-weekly amount.

January 12, 2010 at 11:26 pm
(25) JhnsnKth says:

The employer and the employee look at this problem differently. The employer wants to control their annual payroll budget in terms of both absolute costs and growth versus the previous year. This long-term view helps employers feel justified in whatever action they take to control the budget because they don’t see the adjustments as a change of the original contract.

The employee is thinking in a shorter time frame and has become accustomed to replenishing the bank account on a bi-weekly basis. The employee then feels like the employer is short changing them or changing the terms of the contract.

Therefore, the problem is created when both parties agree to convert an annual salary to a bi-weekly, weekly, or even hourly pay rate. This will always be a HR time bomb unless the pay is determined on a monthly or bi-monthly basis or unless the pay is calculated by dividing annual pay by 365 calendar days and paying on a 14-day pay cycle (or 260 work days as described previously).

If I were the employer, I would continue paying bi-weekly pay that my employees had become use to. I would then “quietly” adjust annual pay raises down to bring my budgets back under control, and finally change my new hire compensation system to correctly calculate the pay to avoid the problem on a long-term basis. . . . but I’m obviously not in charge and this problem seems to be widespread.

January 13, 2010 at 10:37 am
(26) Jean Murray says:

After all the comments on this post, I think the last one, by JhnsnKth, makes sense. If you are paying employees a little more, just adjust your budget to cover the additional cost. I would let employees know, though. I know some people who would notice a few penny’s difference in a paycheck, either way, and would comment on it. The only problem with taking credit for the little bit of additional pay is that people might expect it, so be sure to let them know this is a one-time thing.

January 14, 2010 at 7:09 pm
(27) JH says:

I think TGS has the right solution: “state the salary on the same basis as the pay frequency.” But there is another elephant in the room. Company budgets are normally on an annual basis. In pay leap years, the company is faced with a salary expense that is 27/26 of what it is in other years. No CEO is going to like having to explain that profits are down one year because there were 27 pay periods in that year.

The solution I would propose is that companies convert annual salaries to biweekly salaries as (14 / 365.25) x annual salary. In most years they pay out (364 / 365.25) of the annual salary. The other (1.25 / 365.25) of the annual salary should be placed into an accrual account and expensed in that year (I’m not an accountant so I don’t know if that is permissible but it does represent an accrued but unpaid obligation of the company.) By the time the 27th pay period comes due in pay leap year, the funds necessary to pay the 27th period will be available in the accrual account and the expense will have been properly spread over the time that salary was accruing.

January 16, 2010 at 5:37 pm
(28) UnexpectedlyBroke says:

My employer just informed us this past week that they ‘overpaid’ everyone and are going to adjust our W-2′s so the last paycheck (2-weeks) is deducted from the total. The overpayment will then be broken up and deducted from each biweekly paycheck in 2010. WE’RE TOLD TO DIVIDE THE TOTAL OVERPAYMENT INTO 26 PAY PERIODS AND IT WILL BE DEDUCTED FROM THE ‘NET’ AMOUNT ON YOUR 2010 CHECK. *Our last paycheck shows that taxes were paid on this money, 401K, etc. IS THIS LEGAL???? Does this mean for the time between 12/18/2008 and the first paycheck of 2009 was applied to 2009 year end shown on check making it appear that we were overpaid? Any suggestions out there?

January 20, 2010 at 6:51 pm
(29) cs says:

I am dealing with this know and would like your opinion. Normally 26 pay periods, but there were 27 last year. My pay rate for last year was $52,478.40 ($25.23/hr), but the contract does not brake down the hourly rate, eventhough I am paid by the hour. Now my employer wants me to pay this money back, but I am entitled to a 3% raise this year. Can they legally make me pay them back?

January 25, 2010 at 8:24 am
(30) Greg says:

My wife is a teacher paid bi-weekly. During August 2009 she was informed that she would have to wait an extra week before payment due to the 12-year rule. I was livid until I took a pencil too it. Every 12 years, a bi-weekly paid employee will receive 1 extra pay (due to days in a year & leap year) and therefore be overpaid compared to a semi-monthly paid employee.

$36,000/yr = $1,500.00 semi-monthly or $1,384.62 bi-weekly

There are 288 semi-monthly pay periods in 12 years versus 313 bi-weekly pay periods. Therefore over 12 years bi-weekly employee would receive $433,384.62 compared to $432,000.00 for a semi-monthly employee.

26 X 14 days = 364 days
Every year a bi-weekly employee gains 1 day and every 12 years another 4 leap days.

February 20, 2010 at 10:45 am
(31) sharon says:

I understand the logic of this and why our employer has to make a change. However, they were clearly aware of the situation and did not chose to do something about it until now. 2 weeks ago we were told for the rest of the year our pay will be less. We will not be paid for 3 hours per pay period to ensure that we are only paid our salary. I am confused after already receiving 3 pay checks in 2007 that I will now recieve less money and was over paid since the beginning of the year. I believe the way this way handled was inappropriate.

March 2, 2010 at 2:24 pm
(32) Barry says:

Could someone send me the spreadsheet?
Thanks in advance.

March 2, 2010 at 2:45 pm
(33) biztaxlaw says:

I stopped sending out the spreadsheet; I didn’t want people to rely on it, as I could not verify its accuracy. I would suggest checking with your tax attorney for advice on how to handle this matter.

March 16, 2010 at 12:42 pm
(34) AlleyGator says:

I don’t see the problem. Pay me my regularly scheduled salary every two weeks. Let’s assume my biweekly salary is $1000.

If I work for you for 80 hours/week on a normal year, I’m not overpayed if you pay me $1000.

If I work for you for 80 hours on a leap year, suddenly I’m being “overpayed by 0.38%” when you pay me my $1000? Um, no ma’am. No, what happened was that you got an extra 1/365th of a year in manpower, and now you have to pay me for working just like normal.

If the best advice for your association of bookkeepers is represented above, I fear for your society, ma’am.

March 23, 2010 at 9:06 am
(35) Sam says:

If a company does this, it is fraud, pure and simple. They made a contract (written, verbal, implicit or whatever) to pay at a certain rate. Now they are reducing that rate and paying less for the same amount of work. What’s more they are tricking their employees into thinking it’s the right thing. There are no 2 sides to the issue. It is simply a case of faulty math and FRAUD! I would love to see someone bring a class action suit on one of these companies and have them be required to track down every employee that they did this to (whether currently employed there or not) and pay them what they owe, plus interest and punitive damages. With enough publicity, that should put a stop to these shananigans.

April 6, 2010 at 12:53 pm
(36) TGS says:

It has been awhile since I have visited this site. For those who might be skeptical of the effect on the annual budget, here is some good news. There is no difference in the annual budget due to having one year with 27 check dates versus other years with only 26 check dates. This is due to accounting rules. I am a CPA. tgscheer@comcast.net

September 2, 2010 at 9:35 pm
(37) mg82 says:

If you base every year on 26.1 pay periods and average only 26 paychecks for all but one year in 12 you cheat your employee 1 day of pay every year, towns are good at hiding this fact. If you write 26 checks for 10 days each that’s 260 days paid not 261 the 261st day gets pushed back into the next year and so forth every year, the first paycheck is 261-9 to make up for the one day. At the end of that year the last check would be for 249- 259, and then the 260 and 261 day of that year would be pushed into the next year. I to have a spread sheet that shows the how the actual pay checks look and I carried it out for 7 years. 7 x 261= 1827pay period days 26 checks good for 10 work days =260 X 7yrs = 1820days of pay actually given to worker.

January 22, 2012 at 4:36 am
(38) Waldo says:

Interesting issue!
But, did anyone look at a calendar recently?
Every single year (except leap years), the first day of the year is the same as the last day of the year.
Every year has this possibility of 27 pay periods!
If a paycheque falls on January 1st, you will get a 27th paycheque dated December 31st.

The problem of the leap year is…
There is now a doubled up chance of this situation happening.

January 22, 2012 at 5:16 am
(39) Waldo says:

Jean Murray said, “If you pay every other Thursday, you will have 27 periods in 2009”

This statement is correct, I originally thought she was wrong because I was reading 2008 in her sentence (I was thinking she was actually talking about the leap year that just ended).

Her error was thinking that this problem was only due to the leap year that preceded 2009.

January 4, 2013 at 4:40 pm
(40) Jack says:

The issue that almost everyone misses is that if the 53rd / 27th payment is not paid at the full weekly / bi-weekly pay amount, the worker is NOT getting paid for a week / two weeks of work.

Think about it– a salaried worker goes to work Monday to Friday every week and gets paid a set amount on a weekly basis. Assuming no pay raises or reductions, at some point over 5 years, that worker will have a 27th pay period. If the worker is not paid for that 27th pay period, the worker will have worked Monday through Friday for no pay. The same is true for a bi-weekly worker except it happens once every 11 years and the worker works two weeks for no pay.

Jean Murray misses this point TOTALLY. The employer is giving the employee NOTHING extra. The worker deserves to get paid for every week worked. And not at a reduced pay rate throughout the year.

The semi-monthly and monthly paid worker is losing out once every 5 years because they work an extra week without any pay. It’s an injustice that employers get away with.

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