What Happens When Payday Falls on a Holiday? Full Guide

When payday falls on a holiday, it is generally processed in advance or on the next business day. Since banks don’t operate on these dates, holiday pay can’t be distributed according to the regular payroll schedule. Instead, employers must adjust their schedules, shift holiday payday, and communicate that to employees to avoid potential frustration.

In this article, we’ll explain what happens if payday falls on a holiday, and then go through some of the most common holiday payday scenarios. We’ll show you how different payroll types are affected and what changes to expect with pay stubs. Finally, we’ll examine some of the payroll mistakes employers make during holidays.

What Happens When Payday Falls on a Holiday?

When payday falls on a federal holiday, the process is temporarily interrupted because the banks aren’t open.

Under normal circumstances, employers send the money from their bank accounts to their employees’ bank accounts using the Automated Clearinghouse (ACH) network. ACH is a nationwide network that operates Monday to Friday, except on federal holidays.

Because the ACH network is shut down on federal holidays, they aren’t able to process any transactions. Banks put financial transactions on hold until the next business day. As a result, if a company tries to process paydays on holidays, direct deposits won’t reach employee accounts until the system starts working again.

To avoid (potentially illegal) wage delays and to prevent workforce dissatisfaction, many employers opt to process payroll in advance. They initiate the transfer one or more business days before the holiday, so that banks and ACH have time to process it before they shut down.

Processing payroll in advance can be mandatory in states with strict payment frequency laws. For example, if your state requires you to pay employees every two weeks (biweekly payroll), and a payday falls on a federal holiday, you must process it in advance to avoid breaking the law.

Common Holiday Payday Scenarios

Bank holidays can fall on any day of the week, creating different scenarios and requiring different adjustments, all of which employers need to be aware of. Here are the most common ones:

Payday Falls on a Federal Holiday

Payday falling on a federal holiday is the most common scenario. If you’re supposed to send salaries on a holiday like Thanksgiving Day or Veterans Day, know that the banks will be closed and won’t be able to process your payments.

Since a payday delay is likely to frustrate employees, many employers adjust payroll calendars and change direct deposit holiday timing to the business day right before the holiday.

For example, if you’re expecting to be paid on a Thursday, but Thursday is Thanksgiving this year, your employer will likely adjust the holiday payroll schedule so that your paycheck is deposited into your bank account on a Wednesday.

Payday Falls on a Weekend + Holiday

If a payday falls on both a weekend and a federal holiday, or on a weekend adjacent to a federal holiday, the situation becomes more complicated. Since ACH doesn’t process payments on Saturdays and Sundays, as well as bank holidays, payday delays can be significant.

For instance, if a scheduled payday falls on Saturday, but the following Monday is Memorial Day, the banks will effectively be closed for three days in a row. Employees who are due their paychecks on Saturday won’t receive them until Tuesday.

Additionally, it’s vital to note that many organizations (including banks) can observe holidays on the preceding Friday or following Monday when they fall on weekends. If a holiday falls on Sunday, banks may observe Monday, and if it falls on Saturday, banks may observe Friday.

As a result, even if a holiday doesn’t fall on a weekday according to the calendar, banks may still be closed and your payroll processing delayed.

Paper checks can be even more susceptible to delays, since mail carriers may also remain closed throughout the holiday weekend.

Payroll Processed After Holiday Cutoff

Banks and payroll processors have strict cutoff times before holidays, which can be one or two business days before the actual payday. If an employer submits payroll after the cutoff, direct deposits won’t be processed on the planned date, even if the company intended to pay their employees early.

If a company uses a third-party payroll provider, it may require payroll to be submitted several business days in advance (typically two to four). In addition to delayed direct deposits, missed cutoffs can result in incorrect pay dates and even failed ACH transfers.

Some payroll providers offer same-day ACH processing for an additional fee, which can help recover from a missed cutoff in non-holiday situations. However, same-day ACH is not available on federal holidays.

How Different Payroll Types Are Affected

Holiday payday disruptions have different implications based on whether an employee is classified as salaried or hourly, since wages are tracked and calculated differently.

For salaried employees, changes and adjustments are straightforward. Since these workers earn the same amounts each pay period, employers already know how much to pay them in advance. They simply issue the same paycheck a few days in advance or after the holiday. The gross pay, taxes, and deductions stay the same.

However, the process can be more complicated when handling holiday pay for hourly workers. Since their wages are based on their exact hours worked, employers have to choose one of the two approaches:

• Pay them in advance, in which case employers must estimate how many hours employees will work in the current pay period.
• Pay them after the holiday, in which case they will have to cut the pay period short and transfer the remaining hours to the next pay cycle.

The risk of paying employees in advance is that any discrepancies will require manual adjustments on the following paycheck. For instance, if the employee works fewer hours than expected, their next paycheck will need to be reduced accordingly, which can cause confusion.

To avoid this administrative burden, many companies choose to pay hourly employees on the first business day after the holiday, provided state law allows it.

How Holiday Payroll Affects Pay Stubs

How holiday payroll affects pay stubs depends on the scenario and the change compared to a standard payday.

In many cases, the only difference employees will notice is the payment date. For instance, if an employer decides to run payroll early and give their employees wages ahead of the holidays, the official pay date on the pay stub will be updated to reflect the day the funds were distributed.

Regardless, the dates of the official pay period will likely remain the same, indicating the exact timeframe during which you earned wages.

What’s more, there will often be no change in gross or net pay. Moving a payday by a couple of business days to accommodate a federal holiday does not change how much employees earn. The only difference may be with hourly employees, for whom employers want to pay in advance, so they estimate their hours worked.

In addition to pay, deductions like tax withholdings, Social Security and Medicare contributions, and healthcare premiums will also stay the same and be processed as they would be on a regular payday.

Lastly, your year-to-date (YTD) earnings also remain unaffected. A YTD section on a pay stub simply aggregates your total earnings from the beginning of a calendar year up to the specific pay period related to the pay stub.

The only major difference can happen if a New Year’s Day holiday pushes your December 31 payday to January. The earnings from that paycheck will be counted toward the next year’s tax reporting instead of the previous year.

5 Common Payroll Mistakes During Holiday Pay Periods

Payroll processing is a delicate process, and adding a holiday payday increases the risk of administrative errors. Here are the five most common payroll mistakes that happen during holiday pay periods:

1. Forgetting to adjust payroll dates. The most common mistake that employers make is to leave payroll dates as they are, without manually adjusting them for the holiday calendar. Without an override, automated payroll software will attempt to process payroll on the day the banks are closed, resulting in delayed paychecks for the holiday.
   
   
2. Submitting payroll late. The ACH network does not operate on holidays, so there are specific cutoff dates that have to be met. If employers don’t submit their payroll on time (typically at least one or two full business days in advance), the funds won’t be transferred, even if the goal was to issue employees' paychecks before holidays.
   
   
3. Not accounting for bank closures. Private businesses aren’t legally prevented from working during federal holidays. As a result, some owners may simply assume that since they are operating, the banks are too. That’s why it’s critical to check the official federal banking calendar and avoid late holiday payroll processing.
   
   
4. Delayed timesheet approvals. Businesses that employ hourly workers may continue with regular operations regarding manager timesheet approvals, overtime verification, and employee hour submissions. These processes take time and often need to be done in advance for holiday pay.
   
   
5. Failing to communicate with employees. Employers can do everything right when it comes to administrative work, yet fail to communicate it to their workforce. Employees need to know whether they are receiving an early paycheck on a holiday, and even more so if paychecks are coming in a day or more late.

Manage Holiday Payday with Paystub.org

Managing holiday paydays is much easier when you can create professional, accurate documentation that reflects any adjustments. At Paystub.org, you can use our robust pay stub generator to adjust pay dates and make any other changes to record payments made to your employees.

The tool comes with ready-made templates and a built-in calculator, so you can also adjust payments issued to hourly workers if necessary.

We also have an invoice generator that you can use to bill clients with appropriate payment terms, helping you avoid delayed payments during holidays.

Final Thoughts

Handling holiday paydays doesn’t have to be stressful once you’re familiar with the official bank holiday schedule and you understand how ACH works. By being proactive with your payroll calendar planning and adjusting processing times in advance, you’ll avoid any potential administrative headaches and delays.

Don’t forget to communicate the changes to your employees, however small. A paycheck one day in advance might not raise any concerns, but any delays or temporary pay reductions can significantly impact employee morale. And if you need a way to simplify holiday pay paperwork, feel free to use our generators at Paystub.org.

Holiday Payday FAQs

#1. Would I get paid early or late on a holiday?

In most cases, you would get paid early on a holiday. Most employers adjust their schedules to process payroll at least one business day before the holiday. However, you may also get paid late if that’s the company policy and state labor laws allow it.

#2. Do freelancers get affected by holiday paydays?

Yes, freelancers get affected by holiday paydays. Freelancers are often paid via bank or wire transfers, which can’t be processed when banks are closed. That’s why freelancers should expect delays or invoice clients in advance to secure payments before holidays.

#3. What do I do if my pay is delayed?

If your pay is delayed because of a holiday, you should check your employer’s official policy. Some companies have policies of paying the next business day. However, if the delay extends beyond that, you should contact your HR or payroll department, as employers are legally required to pay you promptly.