The case of the extra paycheck

It happens every 11 or 12 years — and 2020 is one of those
years. Depending on which day of the week paychecks are
handed out, employees who are paid on a weekly or biweekly
basis may be receiving an extra check this month.

With a biweekly payroll, an employee normally receives 26
paychecks each year. That cycle assumes there are 364 days
in the year (26 x 14 days = 364 days). However, there are
actually 365 days in a year, and 366 in a leap year. And those
extra days eventually catch up with the pay cycle, resulting in
an extra 27th payday in a single year.

For example, if an employee is paid on Wednesdays, the first
payday of 2020 fell on Jan. 1, and the 26th pay date will fall
on Dec. 16 — with an extra 27th paycheck due on Dec. 30.
Similarly, for an employee paid on Thursdays, the first payday
was Jan. 2 and the final 27th payday will be Dec. 31. For Friday
payrolls, 2020 will be a normal 26-payday year — but the 27th
paycheck will show up in 2021, with the first paycheck due on
Jan. 1 and the 27th on Dec. 31.

For hourly employees whose wages are calculated on a
paycheck-by-paycheck basis, the 27th paycheck presents
no problems. But for salaried workers whose annual pay
is prorated over the number of paydays in the year, it’s a
different story. According to numerous surveys, the majority
of employers (more than 80%) take a pay-as-usual approach
to the 27th paycheck. For example, if an employee’s annual
salary is $52,000, his or her gross pay comes to $2,000 per
paycheck in a normal 26-paycheck year. So with a pay-as-usual approach, the employee will receive an extra 27th
paycheck based on $2,000 of gross pay.

On the other hand, churches may be tempted to simply skip the 27th
paycheck for salaried employees. However, that approach
may run afoul of federal or state wage-hour laws, and it is not
likely to sit well with employees who will have a four-week gap
between paychecks at year-end.

The 53rd paycheck
For weekly payrolls, there is a similar phenomenon, but it
shows up more frequently every five or six years — and, again,
2020 is one of those years. For 2020, employees who are
paid weekly on Wednesdays or Thursdays will have 53 weekly
paydays instead of the normal 52. For Friday payrolls, there
will be 53 paydays in 2021.

A 53rd weekly paycheck raises issues similar to the 27th
paycheck for biweekly payrolls. But that extra paycheck is
not as likely to catch employers off guard since it is not as
uncommon. 

Clergy Financial Resources offers several options to help you with your tax questions or filing. We have listed two great options to get started. 

Did you know that Clergy Financial Resources also offers payroll services? If you are ready to make the switch to a church-focused payroll provider, select the desired link below.

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Clergy Financial Resources serves as a resource for clients to help analyze the complexity of clergy tax law, church payroll & HR issues. Our professionals are committed to helping clients stay informed about tax news, developments and trends in various specialty areas.

This article is intended to provide readers with guidance in tax matters. The article does not constitute, and should not be treated as professional advice regarding the use of any particular tax technique. Every effort has been made to assure the accuracy of the information. Clergy Financial Resources and the author do not assume responsibility for any individual’s reliance upon the information provided in the article. Readers should independently verify all information before applying it to a particular fact situation, and should independently determine the impact of any particular tax planning technique. If you are seeking legal advice, you are encouraged to consult an attorney.

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