In 2026, many employers on a bi-weekly payroll will face an unusual situation: 27 pay periods instead of the usual 26. This happens because January 1, 2027 falls on a Friday (a common payday), so companies that start with a Friday, Jan. 2, 2026 pay date will find the last check lands on Thursday, Dec. 31, 2026, yielding a 27th paycheck. This scenario arises roughly every 11–12 years – 26 biweekly checks cover only 364 days, so the “extra” days accumulate until an entire additional pay period is needed. Employers should plan now to avoid budget and compliance problems when this extra payroll cycle appears.

Effects on Salaried (Exempt) Employees

For exempt salaried employees, dividing their annual salary by 27 (instead of 26) will reduce each paycheck. This can be a serious issue because the Fair Labor Standards Act (FLSA) requires most exempt employees to earn at least $684 per week ($1,368 biweekly) under federal law. (This threshold remains $684/week for 2026.) For example, a $36,000 annual salary yields $1,384.62 per check over 26 pays, but only $1,333.33 over 27 pays – equivalent to $666.67 weekly, which is below the $684 threshold. If an employer blindly divides by 27, that employee would lose exempt status and could become owed overtime pay. In short, don’t let your weekly salary fall below $684.

Moreover, many states set higher thresholds or unique rules. For instance, California requires exempt employees to earn at least twice the $16.90/hour minimum wage (about $1,352/week in 2026), and other states like Alaska, Colorado, Maine, New York, and Washington likewise have higher thresholds. Employers with multistate workforces should carefully review each state’s exemption rules. Before switching to a 27-pay schedule (or issuing an extra check), confirm that all exempt employees still meet federal and state salary tests.

Payroll Taxes and Budgeting

A 27th paycheck also affects payroll taxes and budgeting. Total wages and taxes will increase roughly 3.85% for employees who receive the extra check. For example, a $78,000 salary paid over 27 periods would total $81,000 – $3,000 more than budgeted (about 3.85% extra). Employers should assume a similar boost to Social Security, Medicare, FUTA and state tax liabilities. Ensure your payroll system uses the 2026 IRS withholding tables (Publication 15-T) and is set for the correct number of pay periods. The IRS has released updated 2026 tables and a new W-4 form, so double-check that your software is configured for 26 vs 27 paychecks. In practice, many payroll systems simply take “27” as the pay-period count for withholding calculations. Whichever approach you use, verify the withholding math, especially for multistate employees, to avoid under- or over-withholding.

Benefits and Deductions

An extra payroll cycle can also disrupt deductions for benefits. Many employers normally spread annual contributions (health premiums, FSAs, HSAs, retirement deferrals, etc.) across 26 checks. With 27 checks, you can either reduce each deduction slightly or leave the 27th check clean. Review all benefit plans now:

  • 401(k) and Retirement: The 2026 401(k) deferral limit is $24,500 (plus $8,000 catch-up if 50+). If you leave payroll deferrals unchanged for 27 checks, employees could exceed these limits.
  • HSAs: 2026 HSA contribution limits rise to $4,400 (self) and $8,750 (family). If you normally divide by 26, reallocating across 27 lowers each payroll deduction slightly. Ensure total contributions still hit (but do not exceed) annual caps.
  • FSAs: The 2026 medical FSA limit is $3,400 (up from $3,300). If an employee contributes the max via payroll, decide whether to take a small deduction from each of 27 checks (total still $3,400) or continue taking deductions only on 26 checks (leaving the 27th FSA-free).
  • Other Deductions: Similar logic applies to health insurance, commuter benefits, etc. Verify that annual limits are met without overage. It can help to audit contribution schedules now and communicate any change. For example, you might choose to collect 1/26 of an annual amount for the first 26 checks (making the 27th deduction-free) or 1/27 for all 27 (slightly smaller per-check amounts). Clearly explain whichever method you use.

Proper planning avoids surprises: confirm that retirement and benefit contributions stay within IRS limits, and adjust deduction schedules accordingly.

Two Main Approaches

Biweekly employers typically handle the 27th period in one of two ways, each with trade-offs:

  • Pro-Rated Paychecks (Divide by 27): Calculate annual salary ÷ 27 so each of the 27 paychecks is slightly smaller. This keeps annual payroll costs exactly at budget and simplifies year-end accounting. For example, a $70,200 salary becomes $2,600 per check (27 checks) instead of $2,700 (26 checks). Most employers using this method will still collect benefit premiums and deferrals in the first 26 checks (leaving the 27th without deductions). Employees’ paychecks will be modestly lower each period, so give advance notice (as some states require) before changing salary calculations.

  • Standard Pay + Extra Paycheck: Keep the usual biweekly salary (divide by 26) and issue a 27th full check on Dec. 31. This maintains consistent pay for employees (no per-check reduction) but raises annual payroll by about 3.85%. In our example, the employee continues to get $2,700 each check for 26 pays and then gets an extra $2,700 on Dec. 31, totaling $72,900 for the year (rather than $70,200). Budget and cash flow must accommodate this jump (employer taxes and 401(k) matches rise proportionally). You may choose not to take deductions on that extra check to stay within benefits limits.

Whichever approach you take, be consistent for all employees and all of 2026. Mixing methods or changing midyear can cause confusion and compliance risks.

Key Action Steps

To manage a 27-pay-period year effectively, start by reviewing and updating your payroll processes:

  • Review your payroll calendar. Check if 2026 will indeed have 27 paydates. If your first payroll was Jan. 2, 2026 (Friday), expect a final pay on Dec. 31, 2026. Confirm whether you will adopt 26 pays (skipping Dec 31) or 27 pays (with Dec 31).
  • Choose and implement an approach. Decide now whether to pro-rate salaries or issue an extra paycheck. Discuss with legal counsel and payroll staff. If reducing per-check pay, prepare to notify employees at least one pay period in advance (some states legally require this).
  • Communicate clearly with employees. Explain how the extra pay period will affect their wages, overtime status, and deductions. Good communication avoids confusion and morale issues. If your policy reduces each paycheck, say so in writing (and in some states like CA, NY, AK you must give advance notice).
  • Audit benefits and deductions. Verify health insurance premiums, HSA/FSA/HRA contributions, retirement plan deferrals, and other voluntary deductions. Make sure that 27 checks do not cause employees to exceed annual IRS limits (e.g. 401(k) $24,500, HSA $4,400/ $8,750, medical FSA $3,400). Adjust per-paycheck deduction amounts or contribution schedules as needed.
  • Adjust budgets and cash flow. If issuing an extra check, factor a ~3.85% wage increase into your 2026 budget. If dividing by 27, ensure payroll runs smoothly with slightly different amounts. Also update your tax deposit calendar: the extra payroll means higher wage base for federal and state taxes in 2026.
  • Coordinate with payroll/HR systems. Confirm that your payroll software or service is set up for the correct number of pay periods. Verify that tax withholding tables and rates for 2026 are in place. Check that timekeeping and benefit systems correctly handle the extra days of work (if hourly employees work extra days, they will automatically see higher total wages).
  • Stay the course once decided. After making these adjustments, maintain a consistent pay cycle for the remainder of the year. Changing strategies mid-year can trigger legal headaches and employee confusion.

With thoughtful planning—covering payroll, tax, benefits, and communication—employers can handle the 27-payroll year without surprises or compliance lapses.

Frequently Asked Questions

  • What should employers know about a 27-pay-period year? A 27-pay-period year is rare (about every 11 years) and effectively adds one extra bi-weekly paycheck in the calendar year. It can increase total payroll by about 3.85% for affected employees. Employers must plan ahead: either reduce each check (divide salary by 27) or budget for the extra payout. Crucial considerations include maintaining salary thresholds (federal $684/week plus higher state minimums), adjusting benefit contributions to meet IRS limits, and complying with any legal notice rules. In practice, the extra paycheck can push annual salary totals higher, so review budgets, tax withholdings (using updated IRS tables), and employee communications now.

  • Could a 27-pay-period year affect bonuses or incentive payouts? Generally, annual bonuses based on salary or performance goals won’t automatically change because of the pay schedule. However, if bonus or commission plans are tied to each paycheck or weekly hours, the extra pay period could slightly dilute per-period calculations. Employers should review incentive formulas. For instance, if a bonus is “X% of annual salary,” a 27th paycheck slightly raises the annual salary base. Communicate any adjustments clearly to employees to avoid confusion.

  • How might a 27-pay-period year impact payroll tax filings? Total taxable wages (and thus Social Security/Medicare taxes, unemployment wages, etc.) will be higher by roughly 3.85% if employees receive an extra check. This means slightly more tax liability for the employer and employee. When filing W-2s for 2026, report the higher wages and taxes. Make sure payroll tax deposits (which are often scheduled semi-weekly or monthly) account for the additional wages. Also ensure your payroll system is using the 2026 tax tables (Publication 15 for 2026) so that withholding is calculated correctly for each pay period.

  • Can a 27-pay-period year influence retirement plan contributions? Yes. Retirement plan limits are annual, so you must be careful not to overshoot them. For example, the 2026 401(k) elective deferral limit is $24,500. If your system assumes 26 deferral periods, spreading the same total over 27 checks means each paycheck’s deferral is smaller. You should verify that each employee’s total 2026 deferrals (sum of all 27 contributions) do not exceed the limit. If needed, adjust per-paycheck deferrals or make a one-time catch-up contribution. The same logic applies to other plans (e.g. HSA limits are $4,400 self-only/$8,750 family in 2026). In short, check that 27 paychecks’ worth of contributions exactly meets but does not exceed annual caps, adjusting schedules or communicating with employees if changes are needed.