Have you checked your calendars? With 2024 being a leap year, the return of Feb. 29 means more than an opportunity for HR-led initiatives to build morale. It also means you could end up paying salaried workers more if you haven’t already done some due diligence.
Leap year impacts payroll, taxes, and benefits, all of which your payroll platform and other support services should be set up to handle. But let’s look at what you should double check before the extra day arrives.
Changes to Payroll
The good news is that if you pay your employees hourly or pay salaried employees monthly or semi-monthly (e.g. on the 15th and 30th/31st of each month) then leap day will not impact you.
But with an extra day in the calendar, workers paid on a weekly or biweekly basis could end up with an extra pay period. Given that we are a few weeks out from the end of February, if you haven’t adjusted your pay period calendar, you’re likely going to spend slightly more in wages this year.
There are two options companies have for preparing for this every four years. First, you can leave pay periods as-is for those paid weekly or bi-weekly, despite the increase in wages paid out. Or you can adjust the number of pay periods that will occur, resulting in a slightly lower dollar amount in each weekly or bi-weekly pay period for salaried employees.
However, if you did not plan ahead for this and give employees time to prepare, it is not recommended that you try that second strategy at this time. Not only have employees not had time to prepare for that change, it also can have ramifications on employee deductions for benefits or contributions to retirement or health savings plans.
Tax Implications
The good news is that IRS tax withholding requirements do not change this year—at least because of the additional pay period.
But you should work with your employees as best you can at this time to make sure withholding calculations have been adjusted to make sure you have sufficient federal, state, and local taxes withheld for these impacted employees.
Check your payroll systems now to make sure they are taking leap day and the extra pay period into account correctly. Check for the following:
- That leap day is addressed in any system used
- Additional pay periods are accounted for
- Taxes are withheld correctly
- Pay dates are accurate so employees are paid on time
Hopefully, you are using a payroll system that accounts for all of this. If not, look at some benefits the PeopleStrategy platform will provide for you (even if this doesn’t happen for four more years).
Now also is the time to review your compliance obligations. If you pay any employees minimum wage, overtime pay, or must adhere to youth employment standards, an employee’s weekly salary might drop below the federal or state-exempt salary threshold this year. That means you could lose your Fair Labor Standards Act (FLSA) exempt status, leading to wage and hour violations if not addressed.
And while you have a few years before you will have to address leap day concerns again, addressing compensation-related documents and offer letters now while the issue is top of mind is a good idea.
Benefits Impacted by Leap Day
Just like pay periods, if you haven’t adjusted your benefit deductions already (or had the red flag raised with at least one pay period complete this year), now is the time to address this before any issues compound.
If your benefits provider, manager or payroll system did not automatically recalculate the health plan deductions, review these amounts to ensure your employees contribute the maximum amount by the end of 2024. Also, communicate your findings—including the fact that you checked amounts and all is correct—with your employees as quickly as possible to answer any questions or concerns.
Leap day also has impacted reporting deadlines for benefits. For Affordable Care Act reporting regulation, there is a permanent 30-day automatic extension from Jan. 31 for employers to furnish Form 1095-C to employees. In 2024, the deadline to furnish Forms 1095-C to employees is March 1, 2024, rather than March 2, as it is in other years.
If your health care policies include Medicare prescription drug coverage, you must notify those eligible policyholders if their prescription drug coverage is creditable and report this to the Centers for Medicare before Feb. 29, 2024, rather than March 1 as in other years.
Conclusion
While your business is running close to when leap day appears on the calendar, there still is time to address these financial concerns before the end of February. Even if you’re fairly certain this won’t impact your employees, take the time to review pay periods, overall compensation structures, and your payroll system overall to be certain you’re in compliance and no one loses out with the extra day in the year.