I'm getting paid 2x a month - this year has an 'extra' pay period; is this a bonus?
October 19, 2004 10:15 AM   Subscribe

Are you getting the 12-year bonus this year? Questions about 2004 and its 27 pay periods for employees paid bi-weekly inside...

OK, a bit of background - If you are on a bi-weekly pay schedule and were paid on January 1st or 2nd of this year, then your 2004 has 27 pay dates rather than the normal 26 This is due to the gregorian calendar not matching up nicely with fortnights. This happens every 12 years, so it will happen again next in 2016 and so on. This does not affect people paid bi-monthly, monthly, daily or hourly.

A company can handle this one of several ways:
-Divide the total salary by 27, resulting in a bi-weekly payment slightly less than in 2003 but equalling the yearly salary
-Withhold the final payment due December 31st 2004, fullfiling the yearly salary
-Paying a once-every-twelve-year bonus, equalling a normal, 26 pay period cheque. In effect, if your yearly salary is $100,000, you will have been paid that in 2002 and 2003, but roughly $103,846 in 2004.

These articles discuss some of the issues around these options.

Any of theses options come with personal tax implications, RRSP (or 401k or whatever) adjustments, 27 bi-weekly mortgage payments and much more. For the company, they must account for changes to total payroll, taxes, whatever. For the world, it should theoretically affect GDP, disposable income, retail sales, savings, and so on.

My questions are:
-Is what I say correct, or am I missing something?
-How is it possible that companies continue to pay bi-weekly salaries if this comes up every once in a while? It must a complete mess, no?
-Given the third choice, the bonus payment (which it looks like I will receive), does this not mean a huge one-time spike in purchasing power for those affected and their families? Will this Christmas season set records due to the 4% bonus that millions of people will be receiving this year?
-In general, can anyone tell me how their workplace is handling this, or how the world at large handled it in 1992?
-Finally, how is this not bigger news? It seems to affect many people, companies and even countries greatly no matter which option of handling this is chosen, yet all I could really find are the two articles I linked to.
posted by loquax to Work & Money (15 answers total)
Oh, and if you're still reading, thanks for making it through all that - I hope most of it made sense...
posted by loquax at 10:20 AM on October 19, 2004

You are correct, Loquax. Most of us evil HR/Payroll people figured that out last year and made adjustments accordingly, so we wouldn't have to pay our minions more than 26x in 2004. But then YOU came along and sniffed out our plans!
posted by pomegranate at 10:45 AM on October 19, 2004

So pomegranate, what did you do? Divide by 27? Were your employees upset? Did they notice? It shocks me that dividing by 27 results in roughly 4% less take home pay every two weeks that isn't made up until the end of the year, yet the issue is barely discussed (that I've seen). And even doing that results in a psychological bonus at the end of the year, affecting retailers at Christmas, and then another bi-weekly bonus in 2005 when pay returns to the normal cycle of 26. Yikes! This is basically the forced creation of a savings vehicle for many that may not be able to afford it. If you're breaking even every month in 2003, in 2004 you're in the hole from the get go. Did bankruptcies rise in 2004? How did this affect personal debt burdens? The shocking thing for me is that dividing by 27 seems to make the most sense. Am I overreacting here?
posted by loquax at 11:25 AM on October 19, 2004

I am now totally freaked out by this because I've been more broke this year than normal.
posted by agregoli at 11:36 AM on October 19, 2004

We're paid biweekly here, and the company is just paying everybody like normal. It's still only once every two weeks, so it really doesn't mean anything. There are already two months out of the year where we get an extra paycheck, so now it'll be three months out of the year instead.

If you make 52,000 dollars a year, you make 200 dollars a day. There are 260 days of pay in that scenario, and that doesn't change no matter how it's broken up...the only thing that changes is how it's recorded....but this year you're not paid a "bonus", you're simply working an extra 40 hours so that the payroll year can stay relatively stable.

To wit: Very few employment contracts specifically state that you're getting paid XXX a year. Salaried folks are paid weekly and hourly folks are paid hourly...the only thing that changes is when you rake in the cash. If you took a yearly salary and divided it by 27 instead of 26 (I think we're in agreement this doesn't affect hourly individuals), then it's changing your weekly salary, which has IRS fraud implications, and doesn't take into account that you worked an extra pay cycle this year.

Eh, I'm no expert..I'm just laying some observations out for everybody.
posted by taumeson at 11:46 AM on October 19, 2004

You wouldn't BELIEVE how many people don't look at their paycheck stubs, particularly salaried people.

Essentially, your employer pays you for your previous two weeks of work every two weeks. $52K divided by 27 is still $52K a year but a little less in terms of paystub to paystub.

Companies that think of their payroll in terms of "previous two weeks of work" will probably pay their salaried employees the extra $$$ this year. But, as taumeson pointed out, it's not really extra - you earned it.
posted by pomegranate at 11:48 AM on October 19, 2004

There are already two months out of the year where we get an extra paycheck, so now it'll be three months out of the year instead

Which is good news for folks like me because that third paycheck of the month has no deductions for health insurance and union dues [which I pay twice per month] so I make out like a bandit! Also I don't know if this matters but our fiscal year is something like July through July so we either already dealt with this, or it won't come up for a while now.
posted by jessamyn at 11:59 AM on October 19, 2004

Taumeson - I think it does mean something. Think about it in terms of getting paid for calendar years, 2002, 2003, 2004, 2005. The number of days or pay periods doesn't really matter, nor does what you "earn" in terms of time put in. What matters is what you declare to the IRS (or CCRA). In 2002 and 2003 you are declaring the $100,000 you received each year, and are paying taxes accordingly. In 2004 you are declaring $104,000 and paying higher taxes, etc, but still ending up with more disposable income. Then in 2005 it goes back to $100,000. It means that having a salary of $100,000 really means having a salary of $1,204,000 over 12 years (or $100,333 yearly) any way you slice it. That is, if companies are just paying out the bonus payment and taking the 4% hit to their payrolls.

In terms of "earning it", every contract I've ever signed has been for a yearly salary, to be paid in bi-weekly installments. That means that if my salary is $100,000, that's all I'm legally entitled to, no matter how many bi-weekly periods happen to occur in a given year. Which is why I think that dividing by 27 makes the most sense. At the same time, pomegranate, when you say it's a little less paystub to paystub, for someone making $25,000, it's around $60 per month, enough to make a difference for many people. Until the last paydate in december, that person has netted around $800 dollars less than usual, a huge amount.

From the employer perspective, jessamyn, a fiscal year different from the calendar will result in this hit being felt in a different yaer by the company, assuming they are just paying the bonus. I think it's 2005/2006 that will have 27 periods if the year is April-March.

I guess I just can't understand why anyone still uses the bi-weekly system when it results in these quirks, no matter how it's addressed. Or how all of this impacts the economy at the macro level, which I'm sure it does in a meaningful way. (And by the way, I'm no expert either, just very very befuddled about all this)
posted by loquax at 1:17 PM on October 19, 2004

I think you're making it too hard. Just go ask your HRchick and she'll (or he'll, but I doubt it) explain what your company plans to do.
posted by pomegranate at 1:50 PM on October 19, 2004

I think it's 2005/2006 that will have 27 periods if the year is April-March.

Or how all of this impacts the economy at the macro level, which I'm sure it does in a meaningful way.

The first quote is a pretty good reason why the second quote is not really a big deal. Where and when this is an issue varies depending on who you work for, and in the case of a company that pays annual salaries based on the anniversary date of the employee instead of the fiscal year of the company, who you are.
posted by jacquilynne at 2:01 PM on October 19, 2004

How odd.

Most Brits are paid a weekly or monthly salary: the month my employer uses is a calendar month, so I get paid my annual salary/12, 12 times a year (the last weekday in the month). Those on a weekly salary may have a similar issue, though of half the scale, I don't know. I kinda assumed that you yanks also were monthly paid, in the main.

What about the rest of the world? How is it in your country?
posted by dash_slot- at 2:21 PM on October 19, 2004

I have been paid bi-weekly, weekly, and semi-monthly in various jobs. I have never been paid only monthly. Currently I'm being paid semi-monthly.

Being paid monthly would be a real drag, because when you start a new job it would be a whole month before you got your first paycheck.
posted by kindall at 2:49 PM on October 19, 2004

Being paid monthly would be a real drag, because when you start a new job it would be a whole month before you got your first paycheck.

No, not really; you just live on the last paycheck from your previous employer while you earn your first check from your new employer. It does suck switching from a semi-monthly paycheck to a monthly, though; my employer did that a few years ago, and it was like living on half salary for a month. Ugh. It all added up at the end of the year but it was a colossal pain in the ass during the switchover.
posted by Mars Saxman at 3:52 PM on October 19, 2004

I'm in the UK and I get paid every 4 weeks, meaning that my annual salary is divided into 13 payments each year. It's no biggie that I lose a bit of cash to make up for that extra payment. However, it does make it difficult to budget for automatic monthly payments (direct debits) that are debited from your bank account on a specific date each month.

I've had weekly and monthly salaries before, and I think I actually prefer the 4 weekly timescale because payday comes that little bit earlier than if paid on a set date each month. Bi-weekly is a new one on me tho, it must be another odd thing from across the pond ;)
posted by floanna at 4:21 PM on October 19, 2004

Public servants (and gubmint pensions) are paid fortnightly in Australia. What is this "bi-weekly" of which you speak? Sounds like a personals mag.
posted by obiwanwasabi at 10:50 PM on October 19, 2004

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