Every four years, the calendar offers up a dilemma to the world: How exactly will you spend that extra day in the wonderful blustery gray month of February? Well, actually leap year doesn’t really present too much of a problem. It’s pretty predictable – it comes every four years at the same time. So not a whole lot of preparation is required. But there are other calendar irregularities that can cause a bit more of a problem.
While you have no doubt heard of leap year, have you heard of a payroll leap year? Payroll leap year is the term given to a year when companies which pay biweekly will experience 27 pay periods, instead of the usual 26. The cause of this event is really a matter of simple mathematics. Most years contain 26 pay periods, but the total number of days in 26 biweekly pay periods (with a length of 14 days) is only 364. That one extra day means that eventually (approximately every 11 years) there will be 27 pay periods within a calendar year.
The occurrence of a payroll leap year will, of course, have some effect on payroll. Some employees will enjoy the added windfall of a 27th check that year. Other times companies will divide the yearly salaries by 27 and adjust all checks for the year accordingly. The course of action is determined based on how the employment contracts have been written. Employee benefits and taxes will also be influenced by this event, and care must be taken to ensure that contributions and withholdings are correctly calculated.
The payroll leap year is an example of the payroll oddities that cause many small business owners to turn over their payroll operation to a trusted payroll company like The Payroll Department. Often these kinds of abnormal situations are not on the radar of small business owners until the last minute or even after the fact. Then immediate action (or worse, remedial action) is required, and inexperienced employers may not know how to handle specific situations. On the other hand, events like the payroll leap year come as no surprise to the professionals at The Payroll Department. If you are interested in delegating this important business function to a reliable payroll company, contact Teresa Ray at 317-852-2568.
-Jessica of The Payroll Department Blog Team