Employees in every organization look forward to payday. According to Nielsen, 58%–75% of employees earn just enough to pay the bills each month.
With so many employees living paycheck to paycheck, organizations must ensure that the wages and salaries are paid on time. However, sometimes, it becomes challenging to make the payments if payday falls on a holiday.
Before we dive into the nitty-gritties of processing payroll on holidays, you can refer to our article on federal holidays for the year. By knowing what the holidays are you can map out when a pay date falls on a holiday.
Why Can’t Employers Make Payments if Payday Falls On a Holiday?
You must be wondering why the salary payments cannot be made on holidays. The answer is quite simple. All the payments are made through the bank, and the banks are closed on the weekends and federal holidays. Due to this, there is no possibility of bank payments on bank holidays.
Most employers pay their employees through direct deposit. In this process, the money goes from the company’s payroll account directly to the employee’s account. This transfer is facilitated by the Automated Clearing House (ACH), an electronic network for making direct deposits.
However, it is impossible to make any direct deposit on holidays. The ACH functions from Monday to Friday, excluding holidays. When the payday falls on a weekend or bank holiday, wages to the employees get postponed by a day. If there is a payday after a bank holiday, the payroll process gets delayed for the week.
What to do if Payday Falls On a Holiday?
There are typically three solutions that can be adopted if payday falls on a holiday. With so many employees living paycheck to paycheck it becomes important to pay them with as little uncertainty as you possibly can. With employee satisfaction being the end goal, there are three options available to employers.
Run the Payroll at the Usual Pace
One solution is to run the payroll as usual, where the employees get paid after the holiday, even if payroll falls on a holiday.
Although there is nothing mentioned in the Federal and State Labor Laws that go against this solution, one must always consider the employee satisfaction and attrition rates when adopting these solutions.
Decisions need to be taken according to the compliance laws and policies of the organization. However, it should be made sure that employees are kept in the loop and informed about any changes in the pay date.
If the organization has partnered with a third party for payroll management, it should be ensured that there is clear communication regarding the payroll processing schedule.
Run the Payroll Earlier
In this case, the employees get paid before the holiday.
For example, if the payday falls on a weekend, say Saturday, ensure that the employees get paid on Friday. You can start collecting the timesheets by Monday of the same week, processing them by Wednesday so that you can pay the employees by Friday.
For instance, if Friday is a holiday, as is the case with New Year in 2021, you will have to start the process one business day earlier than your regular payroll process. Start on Thursday by collecting timesheets and submit the payroll documents on Friday. Your employees will then get their salary one day before payday.
In short, your employees will be getting paid early on holidays.
Another case is if there is a payday after a bank holiday, the employer will need to start the payroll process one or two business days before the usual cycle. For instance, the payday is on Thursday, and Wednesday is a bank holiday. Then make sure that the payroll documents are submitted by Wednesday of the previous week to prepare the direct deposit by Thursday.
If you forgot about the holiday, you can expedite the payroll process so that the employees receive their salaries on time. You might have to pay a small fee for each direct deposit transaction expedited.
For example, if your payroll process takes four days for completion, using this option, you can get it done in two days. You can submit payroll on Wednesday and Friday; the payment will be made to your employees.
Creating a direct deposit calendar and schedule will help you plan your work according to the bank holidays and weekends. It will come in handy if payday falls on a holiday.
Delay the Payroll Process
This process can be adopted if it is aligned with the company policy and compliance regulations. For instance, if payday falls on a holiday, say Sunday, the organization can decide to make the payments a day later, i.e., on Monday.
However, it could lead to the employees being disgruntled as quite a few live paycheck to paycheck. Any delay in this payment could create inconvenience for them and negative sentiment toward the organization. Employee welfare should be the primary concern while making payroll decisions and policies.
US Laws Regarding Payroll
If Payroll Falls on a Holiday
The Fair Labor Standard Act of 1938 necessitates the regular payment of minimum wage and overtime pay. However, it does not dictate any provisions for when remuneration timelines if payday falls on a holiday. The Act states that the companies are obligated to pay the wages and salaries on the regular payday to the corresponding pay period.
Regular paydays are scheduled on working days for the business. It is primarily from Monday to Friday. According to the best HR practices, the salary should be paid a day in advance if payday falls on a holiday. For instance, the US General Services Administration pays its employees a day in advance if the payday falls on a bank holiday.
Change in Payroll Frequency
There are strict laws that govern payroll frequency. However, pay frequency can be altered in case the following conditions are fulfilled:
- The reason for the change is legitimate
- The change is permanent
- Minimum wages and overtime are being accounted for and paid
- There is no delay in wages without a valid reason
Factors Affecting Payday Schedules if Payday Falls On a Holiday
Different payday schedules depend upon the type of business, cash flow, automated payroll processes, number of employees, and the geographical distribution of the employees. In some workplaces, weekly paydays are more convenient due to the frequent changes in the workforce and simpler bookkeeping.
Employers also issue payday calendars that help the employees get a better idea about when a pay date falls on a holiday. It enables the workers to understand the beginning and end of pay periods. It helps establish the details of delayed or early payments way in advance allowing employees to plan their finances ahead of the paydays.
Curious about pay periods and how pay cycles work? Click here to know more.
Tips to Manage Payroll if Payday Falls On a Holiday
Plan in Advance
At the beginning of the year, sit with HR to plan the payroll process for the entire year. Maintain a calendar and mark the dates on which the direct deposits need to be made earlier than usual. Circulate this calendar among the employees so that they are aware of the changes in pay dates. For the employees, getting paid early on holiday is preferable to a delayed payment.
Create a Schedule
Create a schedule for the paydays and mark the days you have to perform the various payroll management functions. A schedule will help you stay on track and keep a tab on all the approaching bank holidays. Using the schedule, you can also manage third-party payroll providers if payday falls on a holiday.
Maintain Transparency at all Costs
After the schedule is created, share it with the employees to maintain awareness and transparency about the paydays. The schedule will also help employees know when they have to hand in their timesheets and stay regular for proper payroll processing. The employees will be paid on time even if payday falls on a holiday.
Ensure that when you are making salary payments for paydays that fall on holidays, you choose to go for an early payroll process. Start the process one business day earlier than usual and inform the employees about the same. Try not to juggle between delayed and early payroll processes, stick with one to ensure that employees can manage their finances with some degree of certainty.
Create Reminders and Alerts for Payroll Processing
Ensure you send in regular reminders and alerts to the employees to fill in their timesheets whenever there is an approaching deadline. Remind them whenever there are payroll changes and their payday is different from the usual. Set reminders to inform them about when they will receive their payments if payday falls on a holiday.
Automate your Process with a Payroll Provider
Using a manual method for payroll processing usually eats into a lot of your time and does not ensure 100% accuracy. A payroll provider can automate your processes and workflows. They take care of your payroll schedules, pay dates, and the holidays. They provide a platform for easy timesheet upload and attendance tracking.
For instance, Gusto has an integration with AttendanceBot to upload timesheets directly into Gusto. If you’re a Gusto power user, give AttendanceBot a try to find out how our time tracking software can help payroll processing.
Some payroll providers even offer tax compliance services.
Keep These Aspects in Mind During the Payroll Process
While you may take the necessary steps to ensure the payment of the salary/wages to your employees in case payday falls on a holiday, there are a few things that you must always consider before the payroll process:
A major reason for building a framework around the payroll processes is to ensure that the employee can manage their expenses better. It must be designed and implemented in a way that helps employees.
An employer’s processes in an organization for personnel management stays with the employee even after they leave the organization. It is imperative that all the processes are systematic and workflows are simple to follow. Employees remember an organization through their experience with its various elements. Payroll is one of the processes where employees can get put out very easily.
As HR, it is integral that their experience is overwhelmingly positive. A positive experience here is surely a benefit to employer branding.
Attrition rate refers to the rate at which the employees leave an organization. The payroll process adopted by an organization can impress or frustrate the employees, depending on the way it is executed. It must be ensured that an unorganized payroll process does not become a significant reason for attrition. An efficient payroll system will help troubleshoot problems if payday falls on a holiday.
Cash Flow Management
The cash flow into the organization is dependent on the type of business. There must be a balance between employees’ best interests and the cash flow situation of the business. The payroll processes should then be finalized.
The goal of a payroll process should be to avoid confusion and frustration in the workplace. The systems and processes should lead to a healthy work relationship between the employer and the employee. This goal can be achieved if confusion related to workflows, transparency, and compliance are avoided.
Key Takeaways for Employers for Payroll Management if Payday Falls on a Holiday
We hope this article helped you gain insight into how you can manage payroll when payday falls on a bank holiday.
The key to payroll processing for your employees is to plan in advance and maintain transparency. Although there is no legal provision for payroll processing if payday falls on a holiday, ideally, early payroll processing is preferred. However, the employer can always make a call depending upon cash flow and other business factors.
Nevertheless, employee satisfaction and financial conditions should be factored in while making a call. A delay in the payments might cause discontent among employees that can be cushioned by prior scheduling and maintaining complete transparency.