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2020 is a Leap Year – Here’s What That Means for Payroll
Posted by: Emma Berdanier on November 12th, 2019
As 2019 draws to a close, employers and companies need to begin preparations for the new year. And 2020 is a trickier year than most in terms of payroll because it’s a leap year, with 29 days in February instead of the usual 28. This extra day means an extra payday on the calendar, shifting payroll costs for the year ahead.
When a leap year presents itself, or a regular year where the 365 days don’t divide evenly into 26 pay periods, accounting departments have two main options for how to tackle the extra day. Deciding which option you choose is crucial, but not as crucial as openly communicating your choice to your employees so that they know what to expect for the coming year.
How to Handle Payroll in a Leap Year
Do nothing, pay the same amount each payday, and end up with one extra paycheck for the year.
Divide annual salaries by the number of paydays in the year, resulting in smaller paychecks.
This first option results in a higher payroll cost, but also a higher sense of morale among employees as they have gained money and are still maintaining the same paycheck rate each pay period. The second option doesn’t incur the same elevated payroll cost, but it does result in a lower sense of employee morale. With this option, each paycheck will be smaller, though this is countered by an extra paycheck at the year’s end.
Maintain Open Communication
Regardless of your choice, it’s imperative to maintain open communication with your employees regarding your decision. Explain to them what to expect before they receive their first paycheck for the year, preferably in December before Christmas. This will allow your employees to prepare personal budgets. They can adjust the amounts they wish to defer to benefit contributions to 401(k) plans. And most importantly, they will know what to expect when they receive that first paycheck.