Will the Leap Year Affect My 2024 Payroll?
In 2024, we celebrate leap year which happens every four years or 1,461 days. While we all enjoy having an additional day added to our calendar on February 29th, there are possibilities of it affecting payroll and bookkeeping in various ways.
What is Leap Year Payroll?
Leap year payroll refers to any year in which there is more than the usual number of pay periods and derives from the fact that in a leap year, there is usually an extra pay period. If a company pays hourly or salaried employees monthly or semi-monthly on the 15th and 30th/31st, then they will not be impacted by the extra day.
Best Practices for Handling Leap Year Payroll
- Review current payroll system – Best practice is to check your payroll system every year, especially before a leap year, to make sure that leap day is addressed in the system, additional pay periods are accounted for, taxes are withheld correctly and pay dates are accurate, so employees are paid on time.
- Communicate with employees – Companies that pay workers on a weekly or biweekly basis could end up with an extra pay period, which would impact employees. Communicate with those impacted employees in advance on how leap year payroll will be handled and how it will affect their pay. Options are to leave pay periods as-is, despite the increase in wages paid out, or to spread their annual salaries over the increased pay periods, which would result in them being paid less per paycheck. The last option is not recommended if it was not planned due to the ramifications on employee deductions for benefits or contributions to retirement or health savings plan.
- Prepare for an additional pay period – Companies should plan for the additional pay period in their budget and cash flow while ensuring that their company has enough funds to cover the extra payroll expenses.
- Stay compliant with tax laws – Now is the time to reassess your compliance responsibilities. If companies compensate any employees with minimum wage, overtime pay or need to comply with youth employment regulations, there’s a possibility that an employee’s weekly salary might fall below the federal or state-exempt salary threshold this year. This situation could jeopardize their Fair Labor Standards Act (FLSA) exempt status, potentially resulting in wage and hour violations if not promptly addressed.
- Keep accurate records – Maintaining accurate records of payroll expenses and tax withholdings for the additional pay period will aid in staying compliant in case of an audit.
- Review pay period dates – Depending on how a company decides to handle leap year payroll, adjustments might need to be made to their regular pay schedule so that impacted employees receive their paychecks on time.
Are Benefits Impacted by Leap Day?
Just like pay periods, benefit deductions might also need to be adjusted. If your benefits provider, manager or payroll system hasn’t automatically recalculated health plan deductions, it’s important to review these amounts to ensure that your employees contribute the maximum by the end of 2024. Leap day has also affected reporting deadlines for benefits. Regarding Affordable Care Act reporting regulations, there is a permanent 30-day automatic extension from January 31 for employers to furnish Form 1095-C to employees. In 2024, the deadline to furnish Form 1095-C to employees is March 1, 2024, instead of March 2, as 2023 was not a leap year.
If you have any questions on leap day affecting payroll for 2024, reach out to a Brown Plus advisor.