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.