Umbaugh It's all about experience

(888) 516 9594

The 27th Pay Period Conundrum

By Daniel A. Hedden, CPA, Partner, November 16, 2017

Every few years we experience a phenomenon caused when the calendar eventually results in a 27th bi-weekly payday.  Although it may not sound like a big deal, this phenomenon often leads to many questions and concerns. 

What are the issues? 

For hourly paid employees, there should be no issues.  They are paid an hourly rate based on the Salary Ordinance for hours worked and each week stands on its own.

There should also be no issues with employees paid bi-weekly if the Salary Ordinance shows a bi-weekly pay (rather than an annual salary). 

Most issues arise in connection with salaried employees.  An employee who has an approved salary of $50,000 on the salary ordinance will make $1,923 bi-weekly if divided by 26 pay periods.  If the bi-weekly amount is not amended in a year with 27 pays, that same employee would make nearly $52,000.  So, what are the options?

  1. Do nothing.  Pay employees the same amount each pay period as in a normal year.  This will result in an effective increase in pay for salaried employees (see example above).
  2. At the start of a 27th pay year, divide the salary by 27 pays instead of 26.  The problem with this option is that the employee perceives that he or she is receiving a reduction in pay.
  3. Pay employees on a semi-monthly basis (like on the 15th and the 30th).  This seems like an easy option to implement but dealing with overtime on hourly employees may be tricky.
  4. Do not set salaries as an annual amount on the Salary Ordinance.  Use hourly or bi-weekly instead. If the Salary Ordinance is consistently prepared this way, no changes will be necessary for the years with 27 pay periods.

The key to handling the 27th pay period conundrum is planning and preparation.  Be aware of those odd years and decide which option works best for you.

If you have questions or need assistance with accounting issues, please contact us at .(JavaScript must be enabled to view this email address).

 

Information in this article was believed current as of the date of publication. As you know, changes occur frequently. The information presented is of a general educational nature. Before applying to your specific circumstances, please contact us at vision@umbaugh.com.


Categories


Newsletter Sign-Up

To receive our Vision Newsletters please provide us with your email address: