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Leap Year's Extra Payday

Because 2008 is a “leap year,” many employers have an extra payday in 2008.  The extra payday will not affect hourly, non-exempt employees because their pay is based on the hours worked during a pay period.  However, it could have an effect on the pay of salaried workers.

Essentially, the extra pay day means that some employers may be faced with the choice of paying employees more than their annualized salary during the calendar year, or reducing employees’ regular weekly or bi-weekly salary amount in order to maintain employees’ annualized salary.  For example, if an employee has an annual salary of $52,000 and is paid every fourteen (14) days, the employer simply needs to divide the annualized salary of $52,000 by twenty-six (26) pay periods to arrive at a base pay of $2,000 per pay period.  However, if the employee is due his or her first 2008 paycheck on January 2, 2008, and a last paycheck on December 31, 2008, then the employee would receive twenty-seven (27) paychecks in 2008.  Of course, the employer could pay $2,000 twenty-seven (27) times, thus paying the employee $54,000 in 2008.  Alternatively, the employer could reduce the bi-weekly amount so that the employee receives the $52,000 annualized salary.

Although the Fair Labor Standards Act and most state laws allow employers to reduce employees’ pay, such a decision could negatively affect employee morale.  Accordingly, we recommend that employers communicate with employees before reducing their paychecks, so that employees understand that their annualized salary is not being reduced.  Of course, employers may choose not to reduce employees’ paychecks at all.  Moreover, employers may want to make this communication before the beginning of 2008.

Since there are state-specific issues that may arise due to the Leap Year pay challenges, we encourage employers that are considering changing employees’ paychecks to consult with counsel before deciding how to address this unusual situation.