Why does the number of pay checks that you receive vary year to year? An employer’s pay periods and calendar year do not always correlate accurately. For those who are paid on a biweekly schedule, once every 9 to 11 years, an extra pay period will pop up based on the day of the week the payroll comes around. You might probably think “what’s the big deal.”
Due to an irregular payroll, many things get affected – non-hourly salaries, non-exempt, the corresponding benefit values, and also payroll deductions like the insurance deductions and tax payments. Benefits like paid time off accruals and 401(k) plans are also influenced by an extra paycheck.
Since An irregular payroll year affects non-exempt, non-hourly salaries and the corresponding benefit values and payroll deductions such as tax payments and insurance deductions. An extra paycheck also influences benefits such as paid time off accruals, and 401(k) plans.
Since tax liabilities and corporate budgeting is involved, it is important that the employer make decisions far in advance, irrespective of how the employer deals with the extra pay periods.
Here are four easy ways you can handle the week 27 and 53 payments:
Make Sure Whether There Is An Extra Pay Period During The Year
Prior to the starting of the year, an employer must get an idea of the paydays on a wall calendar. Proper considerations must be given to holidays falling on Mondays or Fridays as it is conventional to pay the employees on a day prior to the holiday.
Choose A Plan To Manage Extra Pay Periods
An extra pay period affects both salaried, nonexempt and exempt employees’ pay; it is not a bonus pay period. An employer cannot fail to pay his employees for the 27th pay period and if the employer is not successful, penalties can be imposed on the employer under the state’s wage payment law. All employees’ benefit deductions that are determined on a pay or annual period basis are not affected by the extra pay period. An employee must be paid for every hour he/she worked.
An employer choosing to disregard the extra pay period should adjust its payroll program to assist the 27th or 53rd pay period and budget for extra pay.
Determining The Payroll Tax Liability
The 27th pay period is different from an employer determining ways to handle an exempt employee’s pay for that period. All employees are subject to federal income tax withholding and withholding for Social Security and Medicare taxes except the ones who claim exempt status on Withholding Allowance Certificate, Form W-4. An equal share of Medicare and Social Security taxes are also paid by an employer.
Accounting for Benefit Accruals
An employee may be provided the benefits such as vacation leave, sick leave or personal time off that is accrued on a pay-period basis by the employer. The extra pay period will impact accruals for these benefits. In order to account for the accruals which attribute to the extra pay periods, the employer has two options:
- Divide the value of the employee’s annual benefits by 27 to keep the deductions constant for the year (and change the formula back the next year); or
- Continue to use a schedule of 26 pay periods, but suppress the deductions for the extra check.
To get more detailed insights, join expert speaker Dayna J Reum in this webinar “Dealing With 27th/53rd Payroll Issues” to analyze your specific payroll process to determine what tasks need to be changed or modified because of an additional payroll. Also, learn how to work with business partners to ensure an accurate payroll check and communications to employees that may be necessary. Review special pay or company specific payroll concerns that could affect the 27th and 53rd payroll process and analyze the impact of the 27th/53rd payday.