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Extra pay periods are a predictable calendar anomaly that, without proactive planning, can lead to a significant and unplanned increase in annual payroll costs. By auditing your pay schedule and adjusting salaried exempt employee pay calculations, HR and Payroll departments can effectively manage these occurrences, ensuring compliance and budget stability.
An extra pay period arises from a misalignment between the standard calendar year (365 or 366 days) and an employer’s pay cycle. A year has 52 weeks plus one day (or two in a leap year), meaning one or two weekdays will occur 53 times. For employers paying weekly or biweekly, this results in a 53rd pay period about every 5-6 years or 10-11 years, respectively. The specific year this happens depends on the designated payday. Understanding this discrepancy is the first step in strategic payroll forecasting.
The financial impact of an extra pay period is directly tied to your company's pay frequency. The potential for a 53rd pay period does not exist for monthly pay schedules, but it is a regular consideration for weekly and biweekly schedules.
The table below outlines the frequency and basic impact:
| Pay Frequency | Occurrence of Extra Pay Period | Key Consideration |
|---|---|---|
| Weekly | Every 5-6 years | 53rd payday instead of 52. |
| Biweekly | Every 10-11 years | 27th payday instead of 26. |
| Semimonthly (e.g., 15th and last day) | Never a true "extra" period, but year-end timing can create issues. | Shifting a payday for a holiday can result in 23 paydays one year and 25 the next, causing employee confusion. |
For semimonthly schedules, the primary challenge involves year-end holidays. If the normal payday falls on a weekend or holiday, pushing the payment forward into the new year can create the perception of a missing paycheck. The recommended best practice is to pay employees earlier, ensuring they receive their full annual earnings within the correct calendar year and avoiding potential violations of state lag time requirements (the legally mandated maximum time between the end of a pay period and the payment date).
The approach to handling an extra pay period differs significantly based on an employee's classification under the Fair Labor Standards Act (FLSA).
For Exempt Employees: These salaried employees receive a fixed amount regardless of hours worked. The most common and compliant method is to prorate their annual salary across 53 pay periods instead of 52. This results in slightly smaller per-paycheck amounts but ensures the total annual salary remains unchanged and payroll budgets are accurately maintained. This adjustment should be communicated clearly to employees before the year begins.
For Nonexempt Employees: These employees, typically hourly, must be paid for every hour worked. It is improper to reduce their earnings for verifiably completed work. Their pay is inherently tied to time, so if a 53rd workweek occurs, they must be paid for it. This includes any applicable overtime. The extra pay period for nonexempt staff is not an adjustment issue but a scheduling and budgeting reality—you will incur higher payroll costs for that year, which must be forecasted.
Based on our assessment experience, successful management of extra pay periods hinges on early and transparent planning. Key action steps include:
By proactively planning for calendar anomalies and understanding how they affect different employee groups, HR and Payroll can smoothly manage extra pay periods while ensuring compliance with wage payment laws.
