How the 2020 Leap Year Could Affect Your Payroll
A leap year occurs every four years, and for some employees it means an additional payday. With 2020 being a leap year, you should know whether your payroll will be affected.
Note that leap years impact only salaried employees who are paid weekly or biweekly. Leap years have no effect on hourly paid employees or salaried employees who are paid semimonthly or monthly.
How does a leap year affect salaried weekly or biweekly paid employees?
Normally, a calendar year has 365 days, over which weekly paid employees receive 52 paychecks per year and biweekly paid employees get 26 paychecks per year. But if you do the math, you’ll see some unaccounted overage:
- 365 days / 7 days = 52.14 (weekly)
- 365 days / 14 days = 26.07 (biweekly)
Over time, those extra fractions add up, resulting in 53 paydays for weekly paid employees and 27 paydays for biweekly paid employees. Therefore, the potential for an extra payday is present in both nonleap and leap years.
Here’s the bottom line: A nonleap year has 365 days, in which six days of the week happen 52 times and one day happens 53 times. However, a leap year has 366 days — due to February having 29 days instead of 28 — in which five days of the week happen 52 times and two days happen 53 times. So, a leap year has two extra days, increasing the likelihood of an additional payday for salaried employees who are paid weekly or biweekly.
Why aren’t employees who are paid hourly, semimonthly or monthly impacted by leap years?
Annually, semimonthly paid employees receive 24 paychecks and monthly paid employees receive 12 paychecks, no matter how many days are in the year. Further, hourly employees are paid according to time worked, not based on the number of days in the year.
What does the 2020 leap year mean for payroll?
The 2020 leap year has 53 Wednesdays and 53 Thursdays. So, if your salaried employees are paid weekly or biweekly on a Wednesday or Thursday, they might get an extra paycheck.
For example, salaried employees who get paid biweekly on every other Thursday typically receive 26 paychecks per year. Because 2020 has an extra Thursday, they will get 27 paychecks for 2020.
You can handle the extra pay period in one of three ways:
- Keep everything as is. This will result in employees receiving more money because they are literally receiving an extra paycheck at the same salary.
- Prorate salaries based on the number of pay periods. For weekly pay periods, divide the annual salary by 53 instead of 52. For biweekly pay periods, divide the annual salary by 27 instead of 26. This will slightly decrease employees’ paychecks, but it should even out to their normal salary at the end of the year.
- Reduce employees’ last paycheck of the year.
Whichever option you choose, be sure to inform your employees up front so they know what to expect. Also, consider the impact of the extra payday on paycheck deductions, such as payroll taxes and voluntary benefits. To minimize errors, make sure your payroll system is configured to account for leap years.