Forums
26 vs 27 pay periods
Legal Forum
26 vs 27 pay periods
Discuss employment-law issues such as family leave, overtime, disabilities law, harassment, immigration and termination.
In 2004, for our company there will be 27 bi-weekly pay periods compared to the normal 26. This is a phenomenon that happens every 12 years. What this means is that without adjusting bi-weekly payroll
0
Cat:Topic ForumsForum:ForumId54
Cat:Topic ForumsForum:ForumId54Discussion:DiscussionId25877
Forums » Topic Forums » Legal Forum » 26 vs 27 pay periods
|
26 vs 27 pay periods
posted at 12/5/2003 12:54 AM EST
|
Posts: 8
First: 12/4/2003 Last: 1/5/2011 |
In 2004, for our company there will be 27 bi-weekly pay periods compared to the normal 26. This is a phenomenon that happens every 12 years. What this means is that without adjusting bi-weekly payroll checks salaried employees would receive an additional check in 2004. As a result employees would be paid more than their normal salary. It is currently being discussed to rectify this situation that all employees who receive bi-weekly paychecks to receive a lesser amount each pay period in 2004. For example, in a normal year (26 bi-weekly pay period) if an employee earns $30 annually, their bi-weekly gross check would be $ 1153.85. In 2004, the $30 annual salary will be divided by 27 pay periods, which equals a bi-weekly gross payment of $ 1111.11. In 2005, when we again have 26 pay periods everyone’s annual salary will be divided by 26.
What has your company done? Is it legal to recalculate each salaried employees rate of pay to fix this phenomenon? |
|
|
26 vs 27 pay periods
posted at 12/5/2003 3:11 AM EST
|
|
Posts: 3870
First: 2/12/2002 Last: 11/2/2009 |
I think you're looking at this the wrong way. You're only counting paydays here.
Fact is, you're paying people on payday for work done in a previous two week period. The fact that a year might have an extra payday in it is totally irrelevant. If a year only had 25 paydays in it, would you pay your employees more per pay period to make up for that? |
|
|
26 vs 27 pay periods
posted at 12/18/2003 1:00 AM EST
|
|
Posts: 824
First: 7/10/2002 Last: 9/1/2004 |
Boy, do I have a different take on this NOW!
1) An Admission. I was completely wrong about this. I agreed with Carl's answer. I was convinced he was 100 percent right and I could not understand how anyone could see it otherwise. And then, I had to look into it and I learned a bit. 2) This is only a problem for employees paid a yearly salary on a bi-weekly basis. You see, what employers generally do is take the annual salary and divide it into either 26 pay periods or 52 weeks. Do the math and you will see the problem. Suppose an employee is paid $52,000 per year. If that figure is divided into 26 pay periods, then the employee will be paid $2,000 per pay period. If that figure is divided into 52 weeks and then multiplied by 2 (because its paid every 2 weeks), the employee will still be paid $2,000 per pay period. What's the problem you ask? Well, unfortunately, a year is not 52 weeks long - its close, but it is not exactly. Take 365 days and divide it by 7 (days in the week) and you find out that ON AVERAGE a year is 52.142 weeks long (it comes out to be about 52 weeks and 1 day). If the employer took the annual salary and divided it into a daily rate ($52,000 divided by 365), then the employee would be paid a daily rate of $142.465 or $1994.52 per biweekly pay period. If this number is multiplied by 26 (the AVERAGE number of biweekly pay periods in an AVERAGE year), then the employee would only be paid $51,857.53 for that calendar year. Now, most payroll folks know this fact and then compensate for it by ROUNDING UP so that the employee gets pretty close to $2,000 per biweekly payroll period. Because the salary is rounded up for those years where there are only 26 payroll periods, it does make some sense to round it back down when the employer is paid 27 times. (I found out when my client blew its payroll budget by 3.8 percent before the year started.) What to do? Well, I cannot tell you what to do. First, you have to find out how your company actually calculates the biweekly pay of its salaried work force. Second, under the salary basis test, an employer must pay the same salary each week regardless of the number of hours worked each week. Third, under wage and hour laws, if an employer is going to change the weekly salary of an employee, s/he must get written notice of that in advance. Fourth, there may be a big HR impact (and this stuff clearly is not easy to explain). |
|
|
26 vs 27 pay periods
posted at 12/18/2003 5:57 AM EST
|
|
Posts: 3
First: 12/4/2003 Last: 8/20/2004 |
I hate to contradict our host, but you're still mixing up pay DATES with pay PERIODS. The salary for employees paid biweekly is annual salary divided by 26- the number of pay PERIODS in a year, not the number of pay dates. I just looked at the 2004 calendar and there are still only 26 pay PERIODS in 2004. The only way that a company can have 27 pay DATES is if the first pay date is Jan 1st or 2nd. Even if salary is paid current and not in arrears, the bulk of that pay check will be for work performed in 2003 (all but 2 days actually). If the employeees are paid in arrears, then ALL of the salary is for work performed in 2003. The only reason that there can be 27 pay dates in 2004 is because there is one extra day (leap year) causing December 31 to fall on Friday, instead of on Thursday thus producing the extra pay date. So if we're going to break annualized pay down to a daily rate then every leap year we salaried employees are actually entitled to an extra day's pay. Yet by your logic, not only do we miss out on that extra day, but we get paid less for each of the other 365. To put it another way, 2004 is only one day longer than 2003, not 14 days longer.
|
|
|
26 vs 27 pay periods
posted at 12/18/2003 6:22 AM EST
|
|
Posts: 3870
First: 2/12/2002 Last: 11/2/2009 |
After careful reflection, I still stand by my original answer regardless of the enormous amount of respect I have for the sagacity of our hosts.
From an accounting perspective, monies to pay salaries are accrued prior to actual paydate. Hence, although monies may not actually be paid out until Jan 2, it's already been counted as part of the previous year's wages. Therefore, while it appears as though the employee is getting an extra 2 weeks pay in the year, that's not really happening from an accounting perspective. |
|
|
26 vs 27 pay periods
posted at 12/18/2003 6:32 AM EST
|
|
Posts: 8
First: 12/4/2003 Last: 1/5/2011 |
Thank you for everyone that has replied to my question.
I wanted to update what our company has done regarding the 27 vs. 26 pay periods. Tomorrow every salaried employee will be receiving in his or her check a notice that we are going to a semi-monthly pay period in 2004 to avoid this ever happening again. This means we will only be paid 24 times in a year starting January 1, 2004. Our last pay period in 2003 was going to be December 19th. (Our 1st pay period for 2004 was going to be January 2, 2004), but in order to convert to a semi-monthly payroll our Corporate attorneys have advised us that we must pay out all salaried wages earned in 2003. So we will have another check run on 12-31-03 paying 8/10ths of everyones salary so they are paid up to date (yes, making 27 pay periods in 2003). Our first pay period for semi-monthly pay will be January 15th in 2004, with the next being the 30th, with every month following on that pay schedule. To put it all in a nutshell it has really not saved us in compensation (like our accounting department first thought it would), but by the next time there is a year with 27 pay periods (in 12 years) we will have saved by converting to semi-monthly now. |
|
|
26 vs 27 pay periods
posted at 12/18/2003 7:06 AM EST
|
|
Posts: 3870
First: 2/12/2002 Last: 11/2/2009 |
I would be very interested in knowing what your accounting department thought the cost savings would be by going to a bi-weekly vs semi-monthly pay program. Given an extra payroll run, I see only costs associated with bi-weekly (additional checks to be processed, payroll processing costs, etc) vs semi-monthly. |
|
|
26 vs 27 pay periods
posted at 12/18/2003 7:43 AM EST
|
|
Posts: 8
First: 12/4/2003 Last: 1/5/2011 |
Maybe my update was confusing. The decision has been made to get rid of the bi-weekly pay and go to semi-annual. Originally, Accounting thought we all were going to be over paid in 2004 because we would have 27 pay periods (the first be January 2, 2004). So my original note was they wanted to continue with the bi-weekly payroll and reduce everyones salary. Divide employees annual pay by 27 vs. 26. We in HR were confused because we understood the pay was for the week of December 22 through January 2, so we didnt see an extra pay period, but accounting did. HR was concerned legally on reducing everyones pay. We checked with our attorneys. They advised us that you couldnt do what was first proposed to us. So the decision was made to payout everyone for days worked in December (pay for December 22 December 31) and then when January 15th comes you pay him or her for January 1 through January 15th. Continuing semi-monthly.
I guess without going in to details it would take over a 12-year period to gain the extra pay for the employee costing the company additional money over that 12-year period. By now going to semi-monthly this will never happen. |
|
|
26 vs 27 pay periods
posted at 1/4/2011 9:05 PM EST
|
|
Posts: 1
First: 1/4/2011 Last: 1/4/2011 |
The whole idea of reducing someones pay for years when there are 27 pay periods as opposed to 26 is silly. If one looks at the first pay period in such a year they will see that 13 out of 14 days for that pay period occurred in the prior year, and the fact that the period ends on the first day of the new year and causes that year to have 27 pay periods has nothing to with earnings. More on how this happens later. First, let review what an annual salary really means.
The universal understanding is that an annual salary amount is what an employee will earn over the course of a 365 day year. Regardless of pay period end dates, how many pay periods in a year, or when payment is made, the key is earnings per 365 day year. When it is understood that someone will be paid an annual salary, whether stated as part of a formal employement contract, or as a written offer in an "at will" state like Texas where the fact of employment does not create a contractual liability over any given period of time, the annual salary is literally understood as earnings based on a 365 day year. No one disputes this. So why all this hub bub about 26 verses 27 pay periods? In fact, there are only 364 days in 26, 14 day pay periods. For convenience, lets assume a pay period that begins on Monday and ends on Sunday. For our example, we will pick Jan 1, 2007 since that was in fact, a Monday. Necessarily, the last day of the last pay period for that year was 12/30. Thus, based on pay periods, the worker only earned 364/365 days for the pay periods within that year, and the last day of the year, 12/31 was the first day in the next pay period. The workers still earns his full salary. Now turn the clock forward to 2017, the first year after 2006 that there we're 26 pay periods that begin on Monday and end on Sunday. The first pay period of 2017 begins on 12/19/2016 and ends on Jan 1, 2017. The last pay period, number 27, neatly ends on 12/31/2017. In this case, the first 13 days of the first pay period were earned in the prior year and only one day is earned in 2017. Thus, 26 more 14 day periods will occur from Jan 2, 2017 through 12/31/2017, and well they should. If we assume that pay dates lag pay period end dates by five days (the maximum grace period for payment in most states), whatever is earned in the prior accounting period but not paid until the next is accrued. So for 2007 the accountants should have accrued one full pay period plus 1 day, since neither the the full pay period prior or the one day of the final pay period would be paid until 2008. For 2017, the accountants would accrue only 13 days. So much for accounting issues. The question of 27 pay periods versus 26 is irrelevant from an earnings perspective. Incidentally, the reason there are 27 pay periods every 11 years is that 11, 364 day years equals only 4004 days. Whereas 11 calendar years equals 8*365 plus 3*366 (there will be three leap years in any 11 year period, so three years will have 366 days) = 4018 days. Mathematically, there has to be an extra pay period every 11 years! If your pay period begins on a Monday and ends on a Sunday, the 27 pay period years are easy to spot: when the last pay period of the year ends on 12/31 in any year or on 12/30 in a leap year, that year will have 27 pay periods - its the only time the calendar catches up to the 14 day pay period cycle. If a different pay period start day is used, say Sunday as opposed to Monday, then the 27 pay period still cycles every 11 years, but the cycle begins in years where the first day of the year coincides with the first day of the week of the pay period. |
Forums » Topic Forums » Legal Forum » 26 vs 27 pay periods
