for people expecting to be paid on Friday 1/1/2021 - slightly odd note from employer HR

[cas]

DH's employer stuck this slightly odd paragraph in the middle of this year's benefit enrollment booklet. This is a Fortune 500 company, so they aren't particularly prone to do things that other big companies aren't also prone to do.

"GOOD NEWS!

January 1, 2021 is a pay day, however we're paying you on December 31, 2020, so that your pay deposits in the bank before the holiday.
Paying you on December 31 creates 27 pays in 2020, so we won't take any benefits deductions (annual biweekly benefit premiums are split over 26 pays). The additional pay is yours to keep - and perfect timing - a little extra to save in the new year, make a year-end donation or spend it on something new for you!

I'm posting this because:

1. If this Fortune 500 company is doing this, I thought other people might want a bit of head's up in case they are trying to predict income for this year for various income threshold reasons (Roth conversions, income limits for deducting trad IRA or making "front door" Roth contributions, etc.). If you were expecting to be paid (biweekly) on Friday 1/1/2021 ... and if you have an income cliff of some sort you need to pay attention to ... Might want to double check with your HR exactly which year (2020 or 2021) is going to be the 27 pay period year for your company.

2. Anyone see anything else to beware of due to this, other than just accepting that the 27 pay period year is going to occur in 2020 (with all the associated W-2 and (probably) 401(k) ramifications) rather than in 2021? The over-enthusiastic tone of this (and its position hidden in the middle of the benefits enrollment book) has the suspicious hairs on the back of my neck slightly tingling. (Sorry HR. I'm not buying it that some new money suddenly appeared out of thin air. That kind of spin just makes me wonder if you are trying to redirect my attention away from something else you would rather I didn't notice.)

3. Just kind of curious - what are other people's employers doing? Moving the deposit to 12/31/2020 (creating 27 pay periods in 2020) or leaving it at 1/1/2021 (creating 27 pay periods in 2021)? (For all I know, this is actually some sort of banking issue where some bank(s) aren't enthusiastic about processing a bunch of payroll deposits on 1/1 and pushed back on the employer(s).)

[rkhusky]

If you have 27 paychecks in the year, you will want to make sure that you don't miss out on 401k matching amounts. If your employer will only give you a match for each pay period that you contribute some minimum amount and you have your contributions set up to get the maximum contribution over 26 paychecks, then you will not be making a contribution on the 27th paycheck and will miss out on the match for the 27th paycheck. (Some employers use a true-up system where you get the match based on your total contributions for the year, rather than on a per paycheck basis).

I would also be concerned if your employer is not taking SS or Fed Inc tax or L&I or Unemployment Insurance, etc out for the 27th paycheck. That would be unusual, but the quoted text did not specifically address that.

[JohnFiscal]

Is this because this year is a leap year?

Otherwise, makes no sense to me, unless there is a tax benefit to the employer.

[Tom_T]

Getting paid on 1/1 seems odd to me. I get paid the 15th and end-of-month, adjusted for weekends/holidays. If Sunday is the 15th, I get paid Friday. If Friday is December 25th or January 1st, I get paid Thursday. I can only speak for myself, but I've had a few jobs over many years in Corporate America, and this has always been the practice.

[JediMisty]

Timely post as I am worrying about this myself. I would lose the match as I have already contributed every dollar I can except 5% for each paycheck. Also the extra income counted in this year would mean I'd lose the eligibility to make a Roth contribution. My end of year dividends at my three JH funds will likely put me just over the 122k MAGI income limit for a full contribution and I will be in the range that every dollar of income is prorated to decrease my contribution limit. I suspect the company might do this to get the payroll off their books for 2020. But it would screw. Our official payroll would be January 1st. also.

[sailaway]

What do they usually do when payday is a holiday? Seems the only unusual thing is that this particular holiday affects the tax year.

[cas]

If you have 27 paychecks in the year, you will want to make sure that you don't miss out on 401k matching amounts. If your employer will only give you a match for each pay period that you contribute and you have your contributions set up to get the maximum contribution over 26 paychecks, then you will not be making a contribution on the 27th paycheck. (Some employers use a true-up system where you get the match based on your total contributions for the year, rather than on a per paycheck basis).

I would also be concerned if your employer is not taking SS or Fed Inc tax or L&I or Unemployment Insurance out for the 27th paycheck. That would be unusual.

Yeah, all of those thoughts went through my mind, too. I wish they had laid out exactly how they expect all the normal paystub items to be affected, rather than making me spend brain cycles wondering how competent they will be at doing what I think they are supposed to do. (As well as wondering how competent any answers will be if I (nag DH to) call them and ask.)

[rkhusky]

Getting paid on 1/1 seems odd to me. I get paid the 15th and end-of-month, adjusted for weekends/holidays. If Sunday is the 15th, I get paid Friday. If Friday is December 25th or January 1st, I get paid Thursday. I can only speak for myself, but I've had a few jobs over many years in Corporate America, and this has always been the practice.

Many people get paid every two weeks. If payday falls on a holiday, many get paid the prior business day, but some could get paid the following business day. For taxes, the important holiday would be Jan 1, because that would determine which year your paycheck falls.

For bi-weekly paychecks, a 27th paycheck probably happens about once every 10 years.

[Kingghoti]

Is this because this year is a leap year?

Otherwise, makes no sense to me, unless there is a tax benefit to the employer.

I always understood this is because you are paid your full 365- day annual salary amount every 364 days (26 * 14 = 364).

So every year there’s a day slippage. You get the next year’s full annual amount after another 364 days. So now you start getting paid the next year’s comp 2 days early.

After 12 years ( two Leaps ) you have slipped a full 14 days backwards and there’s now a full pay period of slippage that creates the 27th pay check )

Edit: so in other words during such a calendar year you are being paid ( 27/26 ) 103.8% of your salary. Based on the calendar year. But It doesn’t feel like a 4% one-year raise does it! Except you were getting that whole one extra day’s pay every 364-day pay cycle. At one former employer believe it or not when they planned for such an upcoming 27-pay year they decided to reduce every paycheck by 3.8% so the calendar year payout matched the budgeted annual comp. Be glad that’s not what they’re doing to you!




Best.

[WillRetire]

This situation arises because your company pays biweekly, rather than semi-monthly. Your 2020 income will be higher than normal as a result of receiving 27 paychecks in this calendar year. BTW, every so often you receive 3 paychecks in 1 month.

Employees of companies that pay monthly or semi-monthly don't encounter this problem because you are paid exactly twice per month, and IN that month, so it never spans calendar years.

[gorow]

From my experience in HR, I would say this is just not clear enough. My guess is that the reference to benefit deductions means that you have already paid the full medical, dental, LTD, Life Insurance premiums for the year, and these deductions will not be made. I bet that 401k and all taxes will be withheld as per usual.

[whodidntante]

My employer has paid early before with late notice. It's annoying to those of who want to max a 401k with their final paycheck to maximize employer match, but it's not a huge issue.

[Shallowpockets]

From my experience in HR, I would say this is just not clear enough. My guess is that the reference to benefit deductions means that you have already paid the full medical, dental, LTD, Life Insurance premiums for the year, and these deductions will not be made. I bet that 401k and all taxes will be withheld as per usual.

+1

If you are unclear about this, then why not contact HR for further explanation? That seems the reasonable thing to do. Maybe if the above is the case then you are ahead by the amount of benefits usually taken from your pay. You are ahead.
Instead of suspicion, be proactive and contact HR.
You can always add to your 401 or other plan to enhance this years investments and lower your income for 2020 if needed.
You have almost two months to address this.

[Watty]

The over-enthusiastic tone of this (and its position hidden in the middle of the benefits enrollment book) has the suspicious hairs on the back of my neck slightly tingling. (Sorry HR. I'm not buying it that some new money suddenly appeared out of thin air. That kind of spin just makes me wonder if you are trying to redirect my attention away from something else you would rather I didn't notice.)

I suspect that part of what is going on is that they want that payroll expense to count on their 2020 taxes and financial statements instead of 2021.

With the pandemic many companies 2020 numbers will already look bad, and may have already reduced or eliminated some executives bonuses.

By shifting this to 2020 they may be able to make their 2021 numbers look better and make the financial statements and executive bonuses better in 2021.

I am retired now but I used to work in IT and occasionally large purchases were approved and rushed through late in the year when the financial numbers for that quarter or year already looked bad. They would even have us do things like order a several months worth of office supplies to get those expenses in the current year.

[RyeBourbon]

The over-enthusiastic tone of this (and its position hidden in the middle of the benefits enrollment book) has the suspicious hairs on the back of my neck slightly tingling. (Sorry HR. I'm not buying it that some new money suddenly appeared out of thin air. That kind of spin just makes me wonder if you are trying to redirect my attention away from something else you would rather I didn't notice.)

I suspect that part of what is going on is that they want that payroll expense to count on their 2020 taxes and financial statements instead of 2021.

With the pandemic many companies 2020 numbers will already look bad, and may have already reduced or eliminated some executives bonuses.

By shifting this to 2020 they may be able to make their 2021 numbers look better and make the financial statements and executive bonuses better in 2021.

I don't think they really have a choice. If they pay every other Friday and it falls on a holiday, the policy is always to make payment on the previous business day.

[RyeBourbon]

DH's employer stuck this slightly odd paragraph in the middle of this year's benefit enrollment booklet. This is a Fortune 500 company, so they aren't particularly prone to do things that other big companies aren't also prone to do.

"GOOD NEWS!

January 1, 2021 is a pay day, however we're paying you on December 31, 2020, so that your pay deposits in the bank before the holiday.
Paying you on December 31 creates 27 pays in 2020, so we won't take any benefits deductions (annual biweekly benefit premiums are split over 26 pays). The additional pay is yours to keep - and perfect timing - a little extra to save in the new year, make a year-end donation or spend it on something new for you!

I'm posting this because:

1. If this Fortune 500 company is doing this, I thought other people might want a bit of head's up in case they are trying to predict income for this year for various income threshold reasons (Roth conversions, income limits for deducting trad IRA or making "front door" Roth contributions, etc.). If you were expecting to be paid (biweekly) on Friday 1/1/2021 ... and if you have an income cliff of some sort you need to pay attention to ... Might want to double check with your HR exactly which year (2020 or 2021) is going to be the 27 pay period year for your company.

2. Anyone see anything else to beware of due to this, other than just accepting that the 27 pay period year is going to occur in 2020 (with all the associated W-2 and (probably) 401(k) ramifications) rather than in 2021? The over-enthusiastic tone of this (and its position hidden in the middle of the benefits enrollment book) has the suspicious hairs on the back of my neck slightly tingling. (Sorry HR. I'm not buying it that some new money suddenly appeared out of thin air. That kind of spin just makes me wonder if you are trying to redirect my attention away from something else you would rather I didn't notice.)

3. Just kind of curious - what are other people's employers doing? Moving the deposit to 12/31/2020 (creating 27 pay periods in 2020) or leaving it at 1/1/2021 (creating 27 pay periods in 2021)? (For all I know, this is actually some sort of banking issue where some bank(s) aren't enthusiastic about processing a bunch of payroll deposits on 1/1 and pushed back on the employer(s).)

I was just thinking about this the other day, when I noticed that I was going to get paid on 12/31. Hoping that I hadn't gotten too close to the 401k contribution limit, but I hadn't thought about the deductions for benefits. Some of ours are computed per pay period, e.g. health insurance, so I'm sure they'll take that out, but others, like FSA contribution are done by taking the annual amount you want to contribute and divide by 26. This will result in getting more in your HSA than requested, which again can hit you up against some limits. That and the fact that we are getting an unexpected large bonus in December is going to mess with some people's carefully laid plans.

[Katietsu]

There are no conspiracies here. This is normal practice. Companies with bi-weekly pay periods will have 27 pay periods once every 11 years. Honestly, I have not sat down to figure out if this average is with or without January 1 being on the day of the week when payment would normally fall. But any employer my DH or I have ever had, have always paid one day early when the normal pay date was a bank holiday. Combine this with the calendar this year, and those on a Friday bi weekly schedule that started on January 3, 2020 will get 27 paychecks in 2020.

A local governmental agency wanted to switch from semi monthly to bi weekly. It took three years to get it approved because the elected officials were convinced that the employees were going to get a bonus in years like 2020. As anyone on BH can presumably knows, it does not work that way. A salaried person is paid at a different rate if they are no weekly instead of semi monthly so it all works out in the end. So, I am just rolling my eyes at whoever included the last part of the communication to OP’s wife sort of implying it is a bonus. But I am pretty sure some of the local elected officials still think the employees are getting away with something this year and could have easily written that missive.

[Kookaburra]

"GOOD NEWS!

The additional pay is yours to keep - and perfect timing - a little extra to save in the new year, make a year-end donation or spend it on something new for you!

Greasy wording, trying to make it sound like the company is being all benevolent and just giving you additional pay. How big of them for actually paying you for your hard work and letting you “keep” it.

[Big Dog]

DH's employer stuck this slightly odd paragraph in the middle of this year's benefit enrollment booklet. This is a Fortune 500 company, so they aren't particularly prone to do things that other big companies aren't also prone to do.

"GOOD NEWS!

January 1, 2021 is a pay day, however we're paying you on December 31, 2020, so that your pay deposits in the bank before the holiday.
Paying you on December 31 creates 27 pays in 2020, so we won't take any benefits deductions (annual biweekly benefit premiums are split over 26 pays). The additional pay is yours to keep - and perfect timing - a little extra to save in the new year, make a year-end donation or spend it on something new for you!

I'm posting this because:

1. If this Fortune 500 company is doing this, I thought other people might want a bit of head's up in case they are trying to predict income for this year for various income threshold reasons (Roth conversions, income limits for deducting trad IRA or making "front door" Roth contributions, etc.). If you were expecting to be paid (biweekly) on Friday 1/1/2021 ... and if you have an income cliff of some sort you need to pay attention to ... Might want to double check with your HR exactly which year (2020 or 2021) is going to be the 27 pay period year for your company.

2. Anyone see anything else to beware of due to this, other than just accepting that the 27 pay period year is going to occur in 2020 (with all the associated W-2 and (probably) 401(k) ramifications) rather than in 2021? The over-enthusiastic tone of this (and its position hidden in the middle of the benefits enrollment book) has the suspicious hairs on the back of my neck slightly tingling. (Sorry HR. I'm not buying it that some new money suddenly appeared out of thin air. That kind of spin just makes me wonder if you are trying to redirect my attention away from something else you would rather I didn't notice.)

3. Just kind of curious - what are other people's employers doing? Moving the deposit to 12/31/2020 (creating 27 pay periods in 2020) or leaving it at 1/1/2021 (creating 27 pay periods in 2021)? (For all I know, this is actually some sort of banking issue where some bank(s) aren't enthusiastic about processing a bunch of payroll deposits on 1/1 and pushed back on the employer(s).)

This is common when a holiday hits a payday. For most, paying early is better than paying late (Jan 3/4); Plus, late paydays can be a legal no-no in many states.

But also agree, the messaging is a little over the top (and unecessary, IMO). Many times its better to stick with the facts, and this is one of them.

[LittleMaggieMae]

My employer warned us that there would be 27 pay periods in 2020 during Open Enrollment in 2019. Some of our benefit deductions are effected by it (401K, HSA are deducted on one schedule, FSA/dependent care on another, and I think there's some other stuff... It also helped with any sort of planning based on Income totals for 2020. The extra pay check effects total income for 2020... which might mean MORE income than is typical. Which might mean a change in managing one's taxes (or things effected by income levels).

As to the OP's example of their employer's wording... I'd be rolling my eyes as it sounds like the employer is trying to make it sound like the employer is giving employees a "bonus" or like the employer did a "nice" for the employees. Weather it's a "nice" or not - will depend on each employees finances. If I was actively working my plans around my income for the year - I MIGHT be annoyed by the sudden/unexpected jump in income for 2020 with so little notice (nice a wrench thrown into the "end game of 2020" financial plans.)

FWIW: New Year's Eve and January 1st aren't much of a "holiday" for my employer's Accounting and IT departments. I can count the New Year's Eves on one hand that Accounting (and IT) went home before Midnight. It was business as usual on New Years day. We "close the books" on December 31st and so a bunch of processing and number crunching and reporting happens the last week of the year and over the New Year's holiday.

I have a hard time thinking banks shut down their back office processing for the "holiday" - I suspect that Big Companies doing ACH payroll payments on 1/1/2021 would be totally automated and the data is at the "banks" there BEFORE 1/1/2021... it just doesn't hit one's account(s) until 1/1/2021.

[FIREchief]

"GOOD NEWS!

The additional pay is yours to keep - and perfect timing - a little extra to save in the new year, make a year-end donation or spend it on something new for you!

Greasy wording, trying to make it sound like the company is being all benevolent and just giving you additional pay. How big of them for actually paying you for your hard work and letting you “keep” it.

Yep. This looks like standard Megacorp HR BS. One year they decided that we could no longer keep 4 weeks of vacation on the books, so they forced out three of them as extra weeks of pay late in the year (for anybody who had more than one week saved). They told in early November, so I had to scramble to ensure 401k match.

[ram]

Getting paid on 1/1 seems odd to me. I get paid the 15th and end-of-month, adjusted for weekends/holidays. If Sunday is the 15th, I get paid Friday. If Friday is December 25th or January 1st, I get paid Thursday. I can only speak for myself, but I've had a few jobs over many years in Corporate America, and this has always been the practice.

Many people get paid every two weeks. If payday falls on a holiday, many get paid the prior business day, but some could get paid the following business day. For taxes, the important holiday would be Jan 1, because that would determine which year your paycheck falls.

For bi-weekly paychecks, a 27th paycheck probably happens about once every 10 years.

On an average a year is 365.25 days
In 6 years there are 2191.5 days.
A week is 7 days.

In 6 years there are 2191/7 = 313 weeks or 1 extra week.

Added: Thus an extra fortnight (2 weeks) per 12 years. But please also note rhusky's comments below. As he points out it may be once after 11 years when Jan 1 pay gets moved to Dec 31. If that happens the next such event will likely occur in 13 years to maintain approximately the 12 year average. (More specifically there are 1.07 extra fortnights per 12 years)

[rkhusky]

Getting paid on 1/1 seems odd to me. I get paid the 15th and end-of-month, adjusted for weekends/holidays. If Sunday is the 15th, I get paid Friday. If Friday is December 25th or January 1st, I get paid Thursday. I can only speak for myself, but I've had a few jobs over many years in Corporate America, and this has always been the practice.

Many people get paid every two weeks. If payday falls on a holiday, many get paid the prior business day, but some could get paid the following business day. For taxes, the important holiday would be Jan 1, because that would determine which year your paycheck falls.

For bi-weekly paychecks, a 27th paycheck probably happens about once every 10 years.

On an average a year is 365.25 days
In 6 years there are 2191.5 days.
A week is 7 days.

In 6 years there are 2191/7 = 313 weeks or 1 extra week.

So, every 12 years you get a 27th paycheck if you are paid bi-weekly? But if the payday falls on Jan 1 and is moved to Dec 31, you get an extra adjustment, so it might be every 11 years.

[RyeBourbon]

Getting paid on 1/1 seems odd to me. I get paid the 15th and end-of-month, adjusted for weekends/holidays. If Sunday is the 15th, I get paid Friday. If Friday is December 25th or January 1st, I get paid Thursday. I can only speak for myself, but I've had a few jobs over many years in Corporate America, and this has always been the practice.

Many people get paid every two weeks. If payday falls on a holiday, many get paid the prior business day, but some could get paid the following business day. For taxes, the important holiday would be Jan 1, because that would determine which year your paycheck falls.

For bi-weekly paychecks, a 27th paycheck probably happens about once every 10 years.

On an average a year is 365.25 days
In 6 years there are 2191.5 days.
A week is 7 days.

In 6 years there are 2191/7 = 313 weeks or 1 extra week.

Bi-weekly is 14 days. In 12 years there are 3 leap years, so 12*365+3 = 4383 days / 14 = 313 pays (and 1 day). That's one extra pay per 12 years.

[cshell2]

"GOOD NEWS!

The additional pay is yours to keep - and perfect timing - a little extra to save in the new year, make a year-end donation or spend it on something new for you!

Greasy wording, trying to make it sound like the company is being all benevolent and just giving you additional pay. How big of them for actually paying you for your hard work and letting you “keep” it.

It is extra if you're salary though and they didn't account for the extra paycheck and divided your salary by 26 instead of 27. This happened at our company a few years back. No benefits were taken out of the last check either.

[mortfree]

I view it as a third paycheck of the month that happens twice a year

This year happens to have three.

I expect the 401k to come out but medical dental etc will not be paid.

We were told prior to 2020.

Big global company

[marcopolo]

Is this because this year is a leap year?

Otherwise, makes no sense to me, unless there is a tax benefit to the employer.

This happens roughly every 12/13 years to many people that are paid every two weeks because 52 weeks (26 pay periods) is 364 days, leaving an extra day each year, and 2 days on leap years, that accumulate until an extra pay period occurs in certain years.

[dratkinson]

Potential problem: over 401K contribution.

Recall a past topic in which OP needed to fix over contribution to his 401K due to additional pay period for the year.

[JD2775]

Ughhh this would explain my HSA issue!

I’m maxing out my HSA, just like last year, but this year the $ per paycheck deducted is less than last year and I could never figure out why and eventually just forgot about it.
Now I’m thinking they are doing 27 paychecks instead of 26 which would make sense

[JD2775]

Potential problem: over 401K contribution.

Recall a past topic in which OP needed to fix over contribution to his 401K due to additional pay period for the year.

Lucky for me my custodian (or employer, whoever it is) stops contributing automatically once I hit the max

[2cents2]

DH had a conversation with his HR department about this situation. HR seemed to indicate that payday was being moved to 12/31/2020. But, when DH asked if there were 27 pay periods this year he was told no. (But, with a pay day on 12/31 there would be 27 pay periods).
So, I don't know. We want to do some conversions to Roth and this would have an impact. Either we convert too much (if it counts for 2020). Or, if we make allowances for the increased income in 2020 and find out we didn't convert enough because it actually counts for 2021. And, we won't know how they are counting it until it happens and DH gets a pay slip. (Which might be too late to make any further conversions).

DH has a true up policy for his 401K, so he should get the match.

[toofache32]

DH had a conversation with his HR department about this situation. HR seemed to indicate that payday was being moved to 12/31/2020. But, when DH asked if there were 27 pay periods this year he was told no. (But, with a pay day on 12/31 there would be 27 pay periods).
So, I don't know. We want to do some conversions to Roth and this would have an impact. Either we convert too much (if it counts for 2020). Or, if we make allowances for the increased income in 2020 and find out we didn't convert enough because it actually counts for 2021. And, we won't know how they are counting it until it happens and DH gets a pay slip. (Which might be too late to make any further conversions).

DH has a true up policy for his 401K, so he should get the match.

If paid on Jan 1, that's still 27 pay periods in 2020, since the Jan 1 payment is for December period.

[JD2775]

DH had a conversation with his HR department about this situation. HR seemed to indicate that payday was being moved to 12/31/2020. But, when DH asked if there were 27 pay periods this year he was told no. (But, with a pay day on 12/31 there would be 27 pay periods).
So, I don't know. We want to do some conversions to Roth and this would have an impact. Either we convert too much (if it counts for 2020). Or, if we make allowances for the increased income in 2020 and find out we didn't convert enough because it actually counts for 2021. And, we won't know how they are counting it until it happens and DH gets a pay slip. (Which might be too late to make any further conversions).

DH has a true up policy for his 401K, so he should get the match.

If paid on Jan 1, that's still 27 pay periods in 2020, since the Jan 1 payment is for December period.

But for W2 purposes it’s earnings towards 2021.

[pasadena]

This happened a couple of times with my previous employer. HOWEVER, the pay *date* didn't change. What changed was the *deposit* date.

This sounds a little fishy to me. You might lose on some 401(k) or other benefits. And when they say that you "win" a pay period, how about next year when there will be only 25 instead of 26? I'm not even sure they could do this.

[pasadena]

DH had a conversation with his HR department about this situation. HR seemed to indicate that payday was being moved to 12/31/2020. But, when DH asked if there were 27 pay periods this year he was told no. (But, with a pay day on 12/31 there would be 27 pay periods).

ok, so the way I understand this is the way it worked for me above. The day you get the money is 12/31. The paystub / pay period / pay date doesn't change. They just give you the check or deposit one day earlier to avoir the holiday.

In my current job, I'm not paid bi-weekly anymore, but twice monthly on the 15th and the 30/31st. If those fall on a week-end or a federal holiday, we get the money deposited on Friday. The actual, official pay date doesn't change.

[lstone19]

I have a hard time thinking banks shut down their back office processing for the "holiday" - I suspect that Big Companies doing ACH payroll payments on 1/1/2021 would be totally automated and the data is at the "banks" there BEFORE 1/1/2021... it just doesn't hit one's account(s) until 1/1/2021.

ACH transactions only post on banking days. Weekends and holidays are not banking days. There are good reasons related to the safeguards that insure that transactions aren’t lost due to system problems for why ACH transactions only post on banking days.

[rkhusky]

DH had a conversation with his HR department about this situation. HR seemed to indicate that payday was being moved to 12/31/2020. But, when DH asked if there were 27 pay periods this year he was told no. (But, with a pay day on 12/31 there would be 27 pay periods).

ok, so the way I understand this is the way it worked for me above. The day you get the money is 12/31. The paystub / pay period / pay date doesn't change. They just give you the check or deposit one day earlier to avoir the holiday.

So, the employer is post-dating the checks? That may be illegal.

[absolute zero]

Is this because this year is a leap year?

Otherwise, makes no sense to me, unless there is a tax benefit to the employer.

This happens roughly every 12/13 years to many people that are paid every two weeks because 52 weeks (26 pay periods) is 364 days, leaving an extra day each year, and 2 days on leap years, that accumulate until an extra pay period occurs in certain years.

And if you’re my employer, you correct for the extra pay period by slightly reducing everyone’s per-pay-period income, so that on an annual basis, everyone’s income stays the same.

As I understand, some employers don’t make any correction and just allow their employees to make a bit more money when this happens. I’m obviously slightly jealous of those people.

[lstone19]

And if you’re my employer, you correct for the extra pay period by slightly reducing everyone’s per-pay-period income, so that on an annual basis, everyone’s income stays the same.

As I understand, some employers don’t make any correction and just allow their employees to make a bit more money when this happens. I’m obviously slightly jealous of those people.

If you’re paid a monthly or annual salary, that makes sense. If you’re paid a weekly or hourly rate, then no adjustment is needed. At my last employer, management employees on monthly salaries were paid semi-monthly while employees on hourly wage rates were paid bi-weekly. So everything just worked for everyone.

[Quirkz]

From my experience in HR, I would say this is just not clear enough. My guess is that the reference to benefit deductions means that you have already paid the full medical, dental, LTD, Life Insurance premiums for the year, and these deductions will not be made. I bet that 401k and all taxes will be withheld as per usual.

This seems right. The last place I worked paid every two weeks, and took out insurance premiums twice a month. On those occasional three-paycheck months, the third paycheck just didn't have any insurance deductions, but 401k benefits and taxes stayed consistent.

[Spirit Rider]

DH had a conversation with his HR department about this situation. HR seemed to indicate that payday was being moved to 12/31/2020. But, when DH asked if there were 27 pay periods this year he was told no. (But, with a pay day on 12/31 there would be 27 pay periods).

Pay periods and pay dates are separate for the large majority of employees. Most companies pay their employees in arrears.

Typically a bi-weekly pay period ends on a Saturday or Sunday. The pay date is typically the following Thursday or Friday.

In this case the pay date is Friday 1/1/21 and the employer is choosing to move the pay date up to 12/31/20. The pay period did not change.

[cas]

In this case the pay date is Friday 1/1/21 and the employer is choosing to move the pay date up to 12/31/20. The pay period did not change.

And ... just to confirm, this particular change in "pay date" also causes the W2 that reports those pay dollars to change, correct?

In other words...

"Pay date" of 12/31/2020 (i.e. direct deposit posts in employee's bank account 12/31/2020) -> dollars appear on the 2020 W2.
"Pay date" of 1/1/2021 (i.e. direct deposit posts in employee's bank account 1/1/2021 or later) -> dollars appear on the 2021 W2.

I'm basing this reasoning on the IRS' instructions to employers on how to fill out an employee's W2:

Calendar year basis.

The entries on Form W-2 must be based on wages paid during the calendar year. Use Form W-2 for the correct tax year. For example, if the employee worked from December 20, 2020, through January 2, 2021, and the wages for that period were paid on January 7, 2021, include those wages on the 2021 Form W-2.

[Spirit Rider]

Correct, this will be reported on your 2020 W-2 as 2020 wages. Any contributions, deductions and withholding will be reported for 2020. Watch for any excess contributions* to 401k, HSA, etc..

*Excess deferrals should only happen if more than one employer. If only one employer, they are required to automatically stop at the employee deferral limit. Those trying to max Mega Backdoor Roth, should watch the annual addition limit with late employer match/profit sharing.

[Brianmcg321]

Getting paid on 1/1 seems odd to me. I get paid the 15th and end-of-month, adjusted for weekends/holidays. If Sunday is the 15th, I get paid Friday. If Friday is December 25th or January 1st, I get paid Thursday. I can only speak for myself, but I've had a few jobs over many years in Corporate America, and this has always been the practice.

I get paid every other Friday. The 1/1 is a payday for me also.

[cas]

Watch for any excess contributions to 401k, HSA, etc..

(Edit: Whoops. I was writing while SpiritRider was editing and adding his second paragraph. Didn't see his edited post before hitting submit. But I'll leave this, for now, while I read and think.)

Thanks. Follow-on question:

Contributions to 401k, HSA, etc. from that paycheck (with the 12/31/2020 pay date) are supposed to be reported for 2020? And this is regardless of when the 401k/HSA custodian actually receives/posts those funds? (I'm pretty sure I've seen you write elsewhere that employers have a certain grace period to actually get 401k/HSA funds to the correct custodian.*)

(In other words, if the 401k/HSA employee contribution from that paycheck doesn't actually post on the 401k/HSA custodian account until sometime in 2021, it is still supposed to be reported as a 2020 contribution on the W2?)

And that is by some regulation somewhere?

But you are saying to watch for excess contributions because HR (or their software) may get confused by the changed pay date and flub it up? (Edit: Nope. In his edited post SpritRider clarifies he was saying to watch out if you had more than one employer during the year.)

*I once had a small employer/HSA custodian combination that routinely took weeks to do whatever needed to be done to post the HSA contribution from a given paycheck into my HSA account. Every year, the HSA contribution from the last (December) paycheck of the year would not post in the HSA custodian account until January of the following year. But it always reported on various tax forms as an HSA contribution for the year associated with the December pay date (and not the January post date.) (With caveat that whichever HSA-related tax form reports that kind of thing (1099-SA? 5498-SA? I forget.) has those two lines where it distinguishes between "contribution *in* the year and contribution *for* the year.)

[Grogs]

Is this because this year is a leap year?

Otherwise, makes no sense to me, unless there is a tax benefit to the employer.

I always understood this is because you are paid your full 365- day annual salary amount every 364 days (26 * 14 = 364).

So every year there’s a day slippage. You get the next year’s full annual amount after another 364 days. So now you start getting paid the next year’s comp 2 days early.

After 12 years ( two Leaps ) you have slipped a full 14 days backwards and there’s now a full pay period of slippage that creates the 27th pay check )

Edit: so in other words during such a calendar year you are being paid ( 27/26 ) 103.8% of your salary. Based on the calendar year. But It doesn’t feel like a 4% one-year raise does it! Except you were getting that whole one extra day’s pay every 364-day pay cycle. At one former employer believe it or not when they planned for such an upcoming 27-pay year they decided to reduce every paycheck by 3.8% so the calendar year payout matched the budgeted annual comp. Be glad that’s not what they’re doing to you!

Man, this thread seems like a catalogue of of all the problems biweekly pay causes but I believe this one takes the cake. You get slightly underpaid (364/365) most years, but nobody notices. Then when that cycle finally catches up and generates an extra paycheck, they start freaking out and saying that you're being overpaid. I've never heard anyone suggest that monthly/salaried types get paid less in February since they worked fewer days. HR people seem smart enough on that one to figure out it all averages out over time.

[lstone19]

The only thing unusual here, from my experience, is OP's employer just realizing it. My wife's employer pays bi-weekly but on the alternate Friday's from OP's employer (12/25 is a payday for her) so they had the 27 pay checks issue last in 2015. But the company was upfront about it saying it would happen when they had the benefits election period 12 months earlier. IIRC, at the time, insurance deductions and the like were only deducted from the first two pay periods of the month so this just meant a third month with three pay dates in it. It really wasn't a big deal and IMHO, it's only a big deal for the people who try to get too fine with their income trying to hit certain limits within a few dollars and if you're going to play that game, you really need to be looking ahead to make sure you know everything that's coming and when.

It's standard to be paid early when a pay date is on a weekend or holiday. The only exception I ever see is two pensions I receive that pay early for weekends and holidays except in January when it gets paid the first banking day after 1/1 (and every year on 12/31, the FB group for those retired from one of those employers lights up with "why didn't I get my pension payment today?"). This keeps it consistent at 12 payments a year (although they could decide to always pay the 1/1 on 12/31 and other than a one year transition, still be consistent with 12 a year).

OTOH, my MIL receives her SS payment on the 3rd of each month. With 1/3/21 being a Sunday, we've already seen that that will be paid on 12/31 meaning she gets 13 SS payments in 2020 and 11 in 2021.

[uslee2004]

Was asking DW yesterday on this exact topic.

My employer provided a pay schedule for the year showing the exact pay day through the year, thus there is no ambiguity. One flag to me is that the 401k contribution always shows up at 401k custodian a week later than the pay day. Would such practice have any meaningful impact? After all, the contribution shown on the last paycheck should be listed that it is for 2020.

[TheGraduate]

I work in this industry on the software side. There’s nothing weird about non-deduction paydays due to scheduling. (Often those non-deduction days do still include 401k deductions, though.)

As per other questions about whether a 401k provider who received the deduction past 12/31, I’m also not clear whether that counts for this year or the next. It’s always been frustrating to me how difficult it is to accurately max out a 401k given stuff like this.

[rkhusky]

As per other questions about whether a 401k provider who received the deduction past 12/31, I’m also not clear whether that counts for this year or the next. It’s always been frustrating to me how difficult it is to accurately max out a 401k given stuff like this.

In terms of taxes, it doesn't matter when the 401k provider receives the money. It matters when the employer says the paycheck with the contribution amount deducted was made. That determines the total amount contributed for the year.