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Houston Harbaugh Blog

Are You at Risk for Accidentally Overpaying Your Employees in 2015?

If you pay your salaried employees every two weeks, then 2015 is likely a payroll period leap year for you, and may result in an inadvertent overpayment to these employees. For salaried employees who are paid twice a month (in the middle and end of the month, for example) this is not likely an issue, unless perhaps you told employees their pay rate is based on a weekly or two-week amount. 

Depending on the day of the week of your payday or the end date of your payroll period, in most years there are 26 two-week pay periods. That only covers 364 days (i.e., 26 x 14 = 364), leaving an extra day that accumulates each year, so that in conjunction with leap years this adds up to an extra two-week pay period or 27 biweekly pay periods about every eleven or so years. The particular year in which this falls will depend on your payroll cycle, but for those having pay day on a Friday, 2015 is one of these occasional years with 27 biweekly pays.

If you intended and communicated to salaried employees that they are paid a certain amount as an annual rate, for example $100,000 per year, and calculated the biweekly amount each year as one-twenty-sixth of this-$3,846.15 in our example-then by paying this amount for 27 pay periods over the year, you will pay $103,846.16 rather than the intended and designated $100,000 annual pay amount-an extra 3.8% pay bonus.

On the other hand, if your employees were told that their salary is set as a weekly or two-week amount, rather than an annual or monthly rate, then there likely is not a proper basis for making an adjustment in these intermittent extra pay period years. But, if you told employees they are paid on an annual or monthly rate, then an adjustment in these payroll period leap years would be appropriate. Even though it is late in the year, there are still options for you to make this change if you have not already accounted for it-for example, moving the end of the year pay issuance date into the beginning of next year and adjusting the pay rate for all of 2016. Since different approaches may be best for different employers, please contact us to discuss your options.

This scenario also serves as a reminder that paying salary on a twice a month basis rather than every two weeks will avoid this problem in the future. It is also important to be aware that each state, including Pennsylvania, has its own regulations on how pay must be given and how employers can handle recoupment of mistaken overpayments of compensation. For example, Pennsylvania is somewhat restrictive in requiring employee written authorization for any pay deductions other than taxes and fringe benefits including erroneous overpayments, according to the Pennsylvania Department of Labor & Industry.

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