Extra Payroll in 2015

If you pay weekly or biweekly, you may have an extra pay period in 2015 ... 27 payrolls instead of 26 or 53 instead of 52.  The extra payday can have both financial and legal repercussions if not handled correctly.

Most calendar years have 26 biweekly or 52 weekly pay periods.  For biweekly payers, this 27th payroll occurs only every 11 years; for weekly payers, the 53rd payroll occurs every 5 years.

But if biweekly payers distribute only 26 biweekly paychecks in Leap Years, they are paying employees for only 364 days, instead of 365 or 366.  Therefore, every 11 years, biweekly payers need an additional pay period to cover the unaccounted-for days.

There is generally no problem with hourly employees because they are paid for hours worked.  But if you pay exempt employees biweekly, may could end up this year with unintended extra pay because of the extra pay period.

Example:  John's salary is $100,000 a year, so his biweekly pay is $3,846.  If you don't recalculate his pay, you will pay him $103,842 (27 x $3,846) because of the extra pay period.

What to do
Divide each exempt employee's annual salary by 27 or 53 (instead of 26 or 52).  But let employees know ahead of time.  If you do not notify employees, they may think that their pay has been cut and that can create morale problems which may lead to legal challenges that are costly even if you win.  For instance, in 2015, John would be paid $3,703 each pay period ($100,000/27) instead of his usual $3,846 and may wonder why you cut his pay.

Once you have informed exempt employees, you must still recalculate their biweekly pay on a case-by-case basis, especially if your firm has any employment agreements.  These may contain language that prevents the recalculation of payroll period wages.

To avoid potential legal problems, before making any announcements or recalculating any salaries, review employee letters, contracts or other documents that set compensation,  When a specific weekly or biweekly amount is stipulated, you may want to consult a labor lawyer.