Leap Year and the Payroll Predicament
By Andrea Parker, HR Business Partner
A leap year contains one extra day in order to keep the calendar year synchronized with the astronomical or seasonal year. In each leap year, the month of February has 29 days instead of 28. Adding an extra day to the calendar every four years compensates for the fact that a period of 365 days is shorter than a solar year by almost 6 hours.
Why is this information important other than a potential Jeopardy question? It’s because the added day of the year is relative to payroll processing calculations. This means that two days of the week will occur 53 times during a leap year. For typical years of 365 days, only one day of the week repeats 53 times. It might not seem all that complicated, unless that 53rd day of the week falls on a scheduled payday. If this happens, then employers that are used to having 52 paydays per year (or 26 if they pay biweekly) could face a payroll dilemma on how to account for this extra payday.
Companies should consider all the options in recalculating paychecks before making a final decision. There are four options that may be used to deal with the extra pay period:
- Do nothing;
- Change the employees’ pay for 53 pay periods;
- Change the standard hours used for calculating rates; or
- Change the pay cycle.
You will want to do a cost analysis of the monetary savings of reducing the number of payrolls processed in a year. If you are currently paying weekly, you have 52/53 payrolls, but if you pay semi-monthly you would only have 24 payrolls. If your company is still using paper checks, mailing or sending overnight packages, or using an outsourced vendor, these costs can be reduced by changing to a semi-monthly frequency. Whatever your payroll prerogative, the best solution is to have a conversation with your payroll company. It is most likely that leap year payroll is a processing event that your payroll company is well prepared to manage for you.