27 vs 26 Biweekly Payperiods

DB

I work for city govt. We do biweekly payroll with the first check distributed in 2004 on Jan 2. That means we will have 27 payrolls instead of the usual 26. There will be 26 payrolls in both 2003 and 2005. What should I worry about with this extra payroll? Am I getting worked up over nothing?

marc

You are getting worked up over nothing.

Is your payday delayed? The first payday is probably entirely earned in 2003. Do you pay by the hour? If so, you are only paying for hours worked or otherwise earned per your policy - so there is no extra pay going on. Same with exempts, you pay by the week and no one got a free week. It is just the math of 26 pay periods vs a 365 or 366 day year.

There is no free lunch.

Don D

Yes there is Marc! You have one coming for your answer, if you stop by my place one day when I'm off.

marc

You have a deal! I do want to learn more about the deep fried turkey and the tree-dwelling dear.

DB

Let's go back to the exempts. For reasons I can't change, the exempt makes 52,000 a year and is paid 80 hours every two weeks for a total of 2080 hours. But in 2004, they will be paid for 2160 hours. This should at least have a budgeting impact.

Second, what about deductions that are based on 26 payperiods. For example, employees pay $1200 per year for health insurance; we divide by 26 for $46.16 per pay. Should that be adjusted?

juju

Does your payroll system have a max annual limit for deductions? In ours, once the maximum annual deduction is reached, it is turned off in the system for the remaining pays of the year.

As a side note, our company only deducts from the first 2 pays of each month (total of 24 pays per year). Employees like getting the "extra" money in months with 3 pays.

marc

[font size="1" color="#FF0000"]LAST EDITED ON 12-10-03 AT 11:07AM (CST)[/font][br][br]You may need to learn a bit about the Cash basis vs accrual basis. Just because a paycheck hits January 2nd with 80 hours pay in it does not mean the wages were earned in that calendar year, unless you are on the cash basis. No one created 2 additional weeks or work, except for leap day the work year still has the same amount of hours in it.

Speak to your finance and accounting department about how they budget - whether they use a cash or accrual basis. If your Company's fiscal year is January 1 to December 31, then most, if not all of the wages in your January 2 paycheck were budgeted in the year ended 12/31/03, and should be accrued to that period. The only additional budgetary impact should be the extra day in February.

If you look into 2005, you will see that you only have 25 pay periods (if I counted correctly), so even on a cash basis, it levels out over the 2 year period.

DB

Actually 2005 still has 26 payperiods as does 2003.

Since the IRS looks at when the money is paid, the $52,000 employee will earn $54,000 in 2004.

Betty I_O

If applicable, those who have the maximum withheld for 403(b) or 457(b) plans might exceed the allowable annual contribution limit.