Leap Year Payroll: Does February 29 Change Your Paycheck?

Understanding how leap years affect payroll is important for both employers who need to adjust payroll systems and employees who are monitoring their earnings and finances. The addition of February 29 every four years can mean an extra day of wages or even an extra pay period for weekly and biweekly employees.

In this article, we’ll examine how leap years affect salaried and hourly employees and their impact on payroll cycles. We’ll also analyze the tax implications of leap years and go through common payroll mistakes employers make.

How Does Leap Year Affect Employees?

A leap year extends the calendar from 365 to 366 days, which can mean different things for employees depending on their compensation structure and classification under the Fair Labor Standards Act (FLSA).

Some workers may receive an extra paycheck during a leap year, while others may not see any difference. The requirements vary between salaried and hourly employees, and these differences call for careful consideration from employers.

Here’s a quick breakdown of salaried vs. hourly employees in terms of leap year effect:

Salaried Employees

Salaried employees are typically classified as exempt under the FLSA. This means they aren’t eligible for overtime pay and receive a fixed annual salary regardless of their work hours. As a result, a leap year for these employees can feel like an extra day of work for free, since their salary stays the same.

Salaried employees receive their annual pay divided equally across their pay periods, whether weekly, biweekly, semimonthly, or monthly. One additional day doesn’t automatically entitle salaried employees to an increase in annual base pay.

While this may seem unfair at first glance, the entire salary agreement is built around the concept of annualized work. This means a leap year is already priced into the standard calculation.

One important point to be aware of is that a salaried employee’s weekly pay can’t fall below the legally mandated threshold established by the FLSA (or stricter state laws). Since a leap year can add another workweek to the calculation (e.g., 53 instead of 52), it can reduce weekly pay by dividing the annual salary by a higher number.

In a leap year, a salaried employee’s pay must be increased if the weekly rate falls below the threshold. If they aren’t due a raise, the pay should revert to the regular amount the following year.

Hourly Employees

Hourly employees are directly compensated for the hours worked, so the influence of a leap year on their pay is straightforward.

If an hourly employee works on February 29, they must be paid for these hours at their regular rate. Should the number of hours they work result in them exceeding 40 hours in a week, the employer must pay the excess hours at a premium overtime rate of at least 1.5 times the regular rate.

It’s important to note that overtime calculations do not change during leap years. Federal overtime rules require employees to receive overtime pay for every hour worked over 40 in a week, and February 29 does not change that.

In general, hourly employees typically are likely to earn more during a leap year because there’s potentially one extra workday. However, while a leap year does affect pay, this is not considered a raise since they are working proportionally more.

From an employer’s perspective, they typically have to account for a higher payroll budget in a leap year when calculating hourly employee pay. Companies also need to ensure accurate timekeeping to avoid underpayment due to February 29. Increased costs can be particularly noticeable for businesses operating on tight budgets or with large numbers of employees.

How Leap Year Affects Payroll Cycles

A leap year doesn’t just add a day and several working hours to a month; it can shift entire payroll cycles, result in mismatches, andcreate additional pay periods.

A standard 365-day year breaks down into 52 weeks and one extra day. An additional day in a leap year results in two extra days beyond 52 weeks. These days add up over time, eventually resulting in a year that has an unusual number of pay dates and pay periods. This is typically referred to as a “leap payroll year.”

Payroll administration must account for all these shifts and changes, since additional pay periods can affect not just a paycheck, but also:

• Benefit deductions
• Retirement contributions
• Payroll taxes
• PTO accrual
• Wage deductions
• Budget forecasting

The exact impact of a leap year on the payroll cycle depends on how often the business issues paychecks.

Weekly Payroll

Since a standard year consists of 52 weeks, employees on a weekly payroll typically receive 52 paychecks. However, due to the accumulation of additional days, one year will eventually have 53 weekly pay periods. This happens when a leap year begins on Wednesday or when a standard year begins on Thursday.

The biggest difference this makes is with salaried employees, where companies must decide whether to divide their annual pay by 52 or by 53.

A division by 53 will keep their annual pay the same while reducing their weekly installments. As previously mentioned, it’s important not to go below the federal weekly minimum. On the other hand, dividing by 52 will result in one extra installment per year, netting the employee a temporary increase.

Additional payroll considerations include:

• Retirement contribution caps may be reached earlier.
• Benefit deductions may accidentally be collected one additional time.
• Payroll budgets may temporarily increase.

Biweekly Payroll

Biweekly payroll is one of the most common in the U.S., and it’s often the most affected by a leap year.

A typical biweekly payroll schedule consists of 26 paychecks per year, which covers only 364 days. The one day in a standard year and two days in a leap year that aren’t accounted for accumulate. Because of that, every 11 or 12 calendar years, there will be a 27th biweekly pay period.

This puts employers in a dilemma where they can either:

• Make no adjustments to paychecks, effectively compensating employees more that year while employers absorb the extra cost.
• Adjust the biweekly paychecks by temporarily reducing themto keep the annual salary the same.

Beyond that, payroll departments should also review deductions that are configured around the standard 26-pay-period-year, such as:

• 401(k) contribution limits
• HSA contributions
• Wage garnishments
• Child support withholding
• Insurance deductions

Monthly Payroll

Monthly payroll is generally the least affected by a leap year.

Employees on monthly payrolls receive 12 paychecks per year, while those on semimonthly schedules receive 24 paychecks (typically paid on the 15th and the last day of the month). Since pay cycles are tied to months and specific dates, there’s little to no need for administrative adjustments. Many companies opt for these schedules precisely due to their simplicity.

One minor adjustment is the actual payroll processing date in February. In a leap year, the paycheck is distributed on February 29 instead of February 28.

Keep in mind that leap years can still affect:

• Per-day compensation calculations (even if salaries are issued monthly).
• PTO accrual formulas.
• Prorated salary calculations.

Leap Year and Payroll Taxes

A leap year influences payroll taxes and contribution limits, but it does not change tax rates or employer tax obligations. Employers are still legally required to withhold and remit:

• Federal income tax
• Applicable state and local payroll taxes
• Social Security
• Medicare taxes
• Federal unemployment taxes (FUTA)

IRS withholding formulas for these taxes aren’t based on the number of days in a year but on payroll frequency. As a result, employers must use standard withholding tables for weekly, biweekly, semimonthly, or monthly payroll cycles in the same way, even when there’s an additional pay period.

However, the amounts for tax withholding may fluctuate if paychecks are adjusted to account for an extra pay period. Each paycheck may have slightly lower withholding in case employers maintain the same annual salary across a larger number of pay periods.

Also worth noting are the strict maximums the IRS sets for contributions to plans such as 401(k) and Health Savings Accounts (HSAs). If the amounts stay the same with one extra paycheck, employees can reach their annual limits sooner than expected.

Employers also need to keep in mind the Social Security annual limits. If they keep withholding the same amount from each paycheck (e.g., when using automated payroll software that wasn’t configured for a leap year), they may over-withhold Social Security taxes on the final paycheck of the year.

5 Common Payroll Mistakes During Leap Years

A leap year increases the chances of payroll errors by introducing changes that aren’t always intuitive. Here are five most common mistakes that employers make and how to remedy them:

1. Forgetting about the extra pay period. The biggest mistake is forgetting that a year may have 27 biweekly or 53 weekly pay periods. That’s why it’s essential to review your payroll calendar before the start of the year and address any potential changes.
   
   
2. Dropping below minimum salary thresholds. Employers who keep annual salaries the same during years with an extra pay period will reduce employees’ weekly earnings. However, the new weekly rate must not fall below the FLSA (or state-specific) minimum threshold to preserve the worker’s exempt status.
   
   
3. Overdeducting benefits. By continuing to withhold monthly premiums at a standard rate, employers may over-collect them when there’s an additional pay cycle. To remedy this, you should audit your deduction schedules. Many employers implement a “deduction holiday” when there’s an extra paycheck, pausing deductions.
   
   
4. Forgetting to update payroll software. Automated payroll software solutions (especially older ones) may not accurately recognize leap years. That’s why you should carefully review the software you use and make sure it can accommodate the extra pay cycle.
   
   
5. Poor employee communication. Employees will likely be surprised if they receive an “unusual” pay stub and a lower paycheck without communication. That’s why you need to send clear notices and address any concerns about why the paycheck looks different, emphasizing that the salary remains the same.

Navigate Leap Year Payroll with Paystub.org

Paystub.org offers a suite of document generators that can help you create accurate paperwork for your business and employees. This will help you document salaries, deductions, taxes, and more, regardless of leap-year intricacies or the number of pay periods.

The tools that we offer include:

• Pay stub generator. Precisely calculate and report earnings, deductions, gross, and net pay.
• Form W-2 generator. Report total employee annual earnings and taxes withheld even in leap years.

Final Thoughts

Ultimately, how leap years affect payroll primarily depends on employee classification and payroll cycles. The biggest difference is typically with salaried employees and weekly or biweekly pay cycles. Hourly workers and companies with monthly payroll see the least difference.

Beyond recalculating paychecks during a leap year, make sure not to over-withhold taxes or over-collect deductions. Audit your calendar and payroll software for accuracy, and communicate any changes to employees to avoid surprises.

How Leap Years Affect Payroll FAQs

#1. Do I get paid more in a leap year?

You may get paid more in a leap year, but not necessarily. Hourly employees will typically earn more due to their February 29 pay. However, salaried employees have fixed annual wages that generally don’t increase because of the extra calendar day.

#2. Do companies need to adjust payroll systems every leap year?

Companies don’t necessarily need to adjust payroll systems every leap year, but they need to review them to ensure accuracy. They need to see whether the extra day in a leap year pushes them into a 53- or 27-pay-period year and adjust calendars, schedules, salary calculations, and more accordingly.

#3. How to handle 27 pay periods in a year?

To handle 27 pay periods in a year, employers can take a pay-as-usual or pro-rata approach. The first method involves giving employees additional pay as a one-time occurrence. The second method involves keeping the annual salary the same but slightly reducing each paycheck, since there is one additional paycheck.