Every four years, our calendars throw us a curveball with the addition of an extra day in February – the leap year. While this extra day might seem like a small and inconspicuous detail, it can have significant implications for various aspects of our lives, including payroll processing for businesses. In this blog post, we will explore how leap years affect payroll, the pitfalls employers need to avoid, and strategies to ensure a smooth transition.

How do leap years impact different pay frequencies?

While not every pay schedule significantly changes in a leap year, all of them can be affected by an extra day. Here’s how a leap year adjusts the four most common pay frequencies.

Weekly

With a weekly pay schedule, employees receive their checks on a fixed day each week: 52 times in a standard year. In most cases, even a leap year won’t alter their pay date or period. Now for the exception: If a year begins on a Thursday — or a Wednesday during a leap year — it will result in 53 full weeks instead of 52. In this case, employees who are paid weekly will have 53 paydays. To determine the weekly gross pay for salaried employees you pay weekly on these years, use this formula: annual salary/53 = weekly gross pay

Biweekly

Employees on biweekly pay schedules receive their checks every other week: 26 paydays in a normal year. Leap years, however, produce 27. This applies to hourly and salaried employees. To calculate the biweekly gross pay of salaried employees during leap years, use this: annual salary/27 = biweekly gross pay

Semimonthly

Employees paid semimonthly receive their checks twice a month on specific dates. But because payday falls on the same date each month and not the same weekday, the exact day you pay employees may change.

Monthly

These employees usually get paid on the same day each month, so their paychecks aren’t significantly affected by a leap year.Employees will receive an additional day’s pay, and employers need to account for this extra compensation in their payroll calculations. Failing to do so could result in errors, dissatisfied employees, and potential legal issues.

How does leap year payroll affect compliance?

Dividing an exempt worker’s annual salary by 53 or 27 could cause their weekly salary to fall below the required state or federal threshold. This could cause an employee to lose their exemption status and trigger wage and hour violations related to overtime, meal breaks and rest breaks.

Since the FLSA and comparable state laws — like those that set a higher minimum wage requirement — require you to pay employees for all hours worked, businesses should never skip that extra pay period.

The simplest solution is to pay employees as usual and let them know that their annual salary increase is due to the leap year. Barring any raises, their annual salary will revert to the regular rate the following year.

Remember, this extra pay period is subject to the same IRS requirements.

How Businesses Prepare for Leap Year Payroll:

Conduct a Payroll Audit:
Before the leap year arrives, businesses should conduct a comprehensive payroll audit. This involves reviewing payroll systems, updating software, and identifying potential challenges that may arise during the leap year.

Communicate Effectively:
Clear communication is key. Employers should inform employees about the impact of the leap year on their pay and provide resources for any questions or concerns. Open communication fosters trust and minimizes misunderstandings.

Seek Professional Guidance:
Consult with payroll professionals, accountants, or HR experts to navigate the complexities of leap year payroll. Professional advice can help ensure compliance with regulations and alleviate any uncertainties.

Plan for Extra Pay Period

Prepare for the financial impact of an additional pay period, ensuring funds are available and deductions are processed normally.

While the leap year adds an extra day to our calendars, its impact on payroll can be substantial. By understanding the potential pitfalls and proactively preparing for leap year payroll, businesses can maintain compliance, keep employees satisfied, and ensure a smooth transition into this rare calendar anomaly. Taking these steps will not only prevent errors but also demonstrate a commitment to accuracy, transparency, and professionalism in payroll management.

If you are looking for the most compliant payroll provider in the nation, contact us today to receive a quote for your business.